Who can apply for voluntary surrender?
• The debtor, his or her representative with special authority, the curator bonis of a person who is incapable of handling his own affairs, or the executor of a deceased estate may apply for voluntary surrender.
Which formal steps need to be taken before application for voluntary surrender can be made?
Preliminary formalities:
- Notice of surrender in the Government gazette and Local newspaper
- Debtor must send a copy of the notice of surrender to all know addresses of possible creditors within 7 days of the publication of such a notice.
- The debtor must prepare a statement of affairs in accordance with Form B of the First Schedule of the Act.
What is the position if the formal steps to apply for voluntary surrender are not followed?
-The court may condone(accept) the mistake where the the mistake constitutes a formal defect.
BUT
-Where the mistake prejudices the creditors, & cannot be corrected by an order of court
-IT may not be condoned!
What does the content of an application for Voluntary sequestration entail?
¬ The application is brought by way of a notice of motion supported by one or more sworn affidavits; the court’s decision is based on the merits according to the strength of the documentary evidence.
¬ Both the applicant and the opposing creditors must state all the relevant facts in the affidavits brought before the court.
¬ The applicant must lodge these documents at least 2 days before the date of application.
¬ Creditors may also object to an incorrect statement of affairs. Where this happens, the Master or magistrate must certify that an objection was lodged and notify the court of these objections. The applicant may address the court in this regard.
¬ See page 494 for what the affidavit must contain
What does the applicant of voluntary sequestration need to prove in order to succeed in his application?
The applicant of voluntary sequestration need to prove that:
1. Formalities were complied with: (♣ Documentary proof must be given to show that the preliminary formalities were complied with.)
- Applicant actually insolvent (♣ Where the statement of affairs shows a credit balance, the applicant will have to prove he is actually that he is nevertheless insolvent.)
3.Sufficient residue to cover sequestration costs (♣ The free residue must be sufficient to cover the costs of sequestration.
→ These costs include:
ϖ Master’s fees, costs of the application, trustee’s compensation and any other liquidation costs.)
- Sequestration is to advantage to the creditors. (♣ The applicant must prove that the sequestration is to the advantage of the creditors as a group. In practical terms the creditor must at least receive a non-negligible dividend.
♣ The size of the dividend depends on the facts and circumstances of the case and also the attitude of the creditors.
♣ No fixed dividend in the Act.
♣ Where there is a only a negligible dividend is available after the costs of sequestration have been met, there can be no advantage.
♣ Where the creditors are placed in a better position than they were before the date of sequestration it will be to their advantage. )
5.Discretion of the Court
♣ Where all four aspects are proved, the court still has discretion to sequestrate the estate or not. The court has the authority to postpone or refuse the application, where, for example, it was brought with an improper motive and/ or amounts to abuse of the process.
Application for Voluntary Sequestration: Married in COP
In the case where spouses are married in Community of property, both parties need to apply for voluntary sequestration.
Application for Voluntary Sequestration: Ordinary Partners Living in the republic (PARTNERSHIPS)
Have to apply jointly for the voluntary sequestration of the partnership estate.
- Concurrently each partner must also apply for the voluntary surrender of their individual estates.
What is the purpose of the formalities?
♣ to notify the creditors that an application is to be brought, and to enable them to object to such an application.
Kritzinger v Moreletta Motorhawe Projek
◌ The notice of surrender was published 32 days before the date of the application.
- The court held that the time period in section 4(1) was not intended by the legislature to be peremptory. In this regard the court relied heavily on the fact that the legislature has allowed considerable latitude to applicants to publish notice (14 to 30 days).
- The court also mentioned the that in Ex parte Meyer the court said that the debtor should not be allowed to give long notice, months beforehand, and in that way keep creditors from levying execution and in the meantime. The court in Kritzinger said this could not be the intention in this case as it was only 2 days premature.
- It is said that in taking this approach the court reverted to relying on the de minimis non curat lex principle.
- The court was also greatly influenced by the fact that section 4(2) has now been universally held to be directory.
- *- Ex parte Harmse
- Non-complience with the time period was condoned
Ex Parte Oosthuizen
- The notice of surrender was published 39 days before the date stipulated for the hearing of the application.
- The court a quo held this was fatal and declined to accept the surrender.
- The court of appeal referred to the approach where it must be determined whether the language is peremptory or directory.
- The court said that the use of the word “shall” in section 4(1) is generally indicative of nullity in the event of non-compliance.
- The court said that to determine the true aim of section 4(1), it should be read together with section 5. The effect of section 5 is that creditors are deprived of their right to execute against the debtor’s property from the moment of publication of the notice of surrender. To ensure that this interference with the creditors’ rights does not endure for too long, the legislature prescribed a maximum interval for the publication of the notice.
- There are a precise number of days prescribed by the legislature, however, is that once the notice has been published there should be certainty as to its effect.
- In allowing this condonation, it would have the effect of the debtor would have the ability to effectively chose the period of the suspension of execution.
- **- Premature or late publication hardly ever condoned
- Notice published 39 days before
- Section 4(1) MUST be complied with
Ex Parte Arntzen (Disclosure of Information)
- Disclosure of information: an even higher standard in the case of friendly sequestration due to the greater risk that creditors interests may be prejudiced.
Ex parte Ford
- Main purpose of Insolvency Act
→ Ensure advantage to creditors. (see Ex parte Arntzen) - Applicant will have to prove whether debt review is not a better procedure
Ex parte Bouwer
- Valuation of property- sufficient information to be given
- Immovable property- complete basis for valuation and how amount was acquired.
Roestoff and Coetzee
- Despite worldwide notion to protect debtors needs
- In SA system stayed creditor orientated, this is still applicable.
- The Ex parte Artzen case is a typical result of our courts creditor friendly approach. The only decisive requirement being whether the sequestration is to the advantage of creditors.
Labour Relations Act
Section 197B: Disclosure of information concerning insolvency
(1) An employer that is facing financial difficulties that may reasonably result in the winding up or sequestration of the employer must advise a consulting party contemplated in section 189(1).
(2) (a) An employer that applies to be wound up or sequestrated, whether in terms of the Insolvency Act, 1936 or any other law, must at the time of making application, provide a consulting party contemplated in section 189(1) with a copy of the application.
(b) An employer that receives an application for its winding up or sequestration must supply a copy of the application to any consulting party contemplated in section 189(1), within two days of receipt, or if the proceedings are urgent, within 12 hours.
Compulsory sequestration:
The creditor(s) of an estate can apply for the compulsory sequestration of the debtor's estate. - By way of notice of motion supported by affidavit.
Compulsory sequestration: Security
The applicant must give security to the Master to defray all sequestration costs until a trustee is appointed.
What does the content of Compulsory sequestration entail?
a) Full names, dress occupation and status of the applicant creditor, the full names of birth and id number of the respondent debtor as well as information indicating the court’s jurisdiction.
- Marital status of the debtor
- Married?-Full names, date of birth and ID number of his or her spouse;
b) The nature, amount and cause of action of the applicant’s claim and if applicacnle, the nature and value of his or her security.
c) An allegation of the debtor’s actual insolvency or that an act of insolvency has been committed (supported by facts)
d) That there is reason to believe that sequestration will be to the advantage of creditors
e) That security for payment of the costs of sequestration has been loaded with the Master (supported with the Master’s certificate
f) Compliance with the notification procedures in that the prescribed interested parties including the debtor, trade unions, employees and the South African Revenue service were furnished with a copy of the application where applicable.
* Omitted? –> reason must be given
What happens when application for compulsory sequestration is made?
- Estate is placed under provisional sequestration
- interested parties are entitled to object to the application by addressing the court at a later date as to the reasons why the sequestration application should not be granted.
- Creditors/ Debtor bus t prove objection by sworn statements containing all the facts and circumstances of the specific case.
What the applicant must prove before the court will finally sequestrate an
estate & what should be proved prima facie on burden of proof?
- Applicant’s burden of proof
- Liquidated claim
- Actual Insolvency and acts of insolvency
- Advantage for creditors
- Granting of provisional sequestration order
- Final Sequestration order: Where applicant can prove a liquidated claim on the return date, or that the debtor is insolvent, or advantage to creditors-Court may grant. The debtor may however appeal.
Liquidated claims:
- Claim for an amount of money which is certain and determined by an order of court, agreement or otherwise.
- Claim for delivery of goods or to do or to refrain from doing something or a claim for an amount of money which is in dispute, cannot be a liquidated claim.
- The claim has to be legal and valid and must not have become unenforceable through prescription.
Actual Insolvency and Acts of Insolvency:
♣ Practical problem exists in that the creditors must show that the debtor is actually insolvent.
- Creditors therefore often rely on indirect evidence, like dishonouring a cheque or the debtor’s request for an extension of time to pay; not necessarily conclusive.
♣ Alternatively the creditor CAN base his claim on a section 8, act of insolvency:
(a) Leaving the Republic or absence from his home.
(b) Where an order has been given against the debtor; and
(i) He fails, upon demand by the officer whose duty it is to execute the judgement, to satisfy it or to indicate to the officer disposable property sufficient to satisfy the debt.
(ii) It appears from the return by the officer that he has not found sufficient property to satisfy the judgement debt.
(c) A barren household (no assets on the premises).
(d) A disposition of property, giving away assets (eg: selling at a lower price).
(e) If the debtor removes, or attempts to remove and of his property with intent to prejudice his creditors or to prefer one over another.
(f) The debtor would have committed an act of insolvency if he fails to apply for the acceptance of the voluntary surrender of his estate on the date advertised or if he fails to lodge a statement of affairs or lodges one which is incorrect or incomplete.
(g) The debtor gives notice in writing to any of his creditors that he is unable to pay any of his debts. The notice must clearly state that the debtor is unable, and not merely unwilling to pay his debts. The test to be applied is whether the reasonable reader will construe as a notice of the debtors inability to pay.
(h) If, being a trader, he gives notice in the Government Gazette in terms of section 34 of his intention to transfer his business and is thereafter unable to pay his debts.
Advantage for creditors:
♣ Reasonable prospect that it will be to the advantage of creditors.
♣ There is NO advantage if there is no free residue to pay dividends but rather a risk of contribution.
Burden of proof: Compulsory sequestration
Applicants’ Burden of Proof:
• In terms of Section 10, must prima facie prove that:
(1) He qualifies as a creditor who may bring the application and that he or she has a liquidated claim of at least R100 or where creditors with separate claims apply jointly, where the total of their claims in aggregate is not less than R200.
(2) The debtor is actually insolvent or has committed an act of insolvency.
There is reason to believe that the sequestration is to the advantage of the creditors
