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Insolvency Law Notes
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Insolvency notes term 2 2020I - Collection of estates
Sequestration order has been granted, proven person is insolvent and
gone to court. Done either voluntary or compulsory sequestration. Now
aim is to preserve the estate until a trustee is appointed and the trustee
will be the one that handles the insolvents estate and takes the necessary
decisions to in order to eventually distribute the assets to creditors.
1. Preservation of estate pending the appointment of the trustee (Ch 8)
Until a trustee has been appointed, after sequestration order granted,
assets need to be preserved.
First, a notice of sequestration order delivered to certain parties. This
notice informs parties that estate has been sequestrated (in order to
prevent any improper dealings with the insolvents property).
Ito S17(1)(a) registrar must send one original order of the Master, who
gives notice to GG.
Registrar also needs to send sequestration order to Sheriff, in every
district that insolvent resides or owns property. This is because the
Sheriff has an important duty in helping to collect property/assets.
Registrar also needs to send the notice to Deeds office, who is charged
with the registration of title to any immovable property. Will put caveat
on any property, to prevent any transfer of ownership by the insolvent
and try stop any cession of any mortgage or cancelation of such
mortgage. This caveat will only end after 10 years.
Ito S16(1), registrar must cause a copy of the sequestration order to be
served on insolvent and insolvents spouse. On being served that order,
insolvent is obliged to the sheriff, all records relating to his affairs and
to lodge with the Master, a SoA.
Registrar Master Sheriff Deeds office on insolvent.
Sheriff, who is required to attach and make inventory of movable
property of estate. Once this attachment has been made, the Sheriff
has to report this to the Master and attach copy of inventory of
property as well.
Appointing an interim trustee
,Insolvency notes term 2 2020
- Ito S18(1), as soon as estate has been sequestrated, the Master may
appoint a provisional trustee to the estate.
- To make sure someone is taking control of the estate and in order to
preserve the estate for creditors.
- Creditors or other interested parties can approach the Master and
apply for interim trustee, stating reasons why its expedient why an
interim trustee should be appointed.
- Interim trustee holds office until permanent trustee.
- Powers: all except defend proceedings (need authority of court) and
may not sell property.
o Must satisfy court that some urgency exists.
o Cause of action is prima facie enforceable so that all
requirements for action are met.
o Interests of creditors will not be prejudiced.
2. The election of the trustee (Ch 10)
S54 of the Insolvency Act.
After sequestration order, it is Master and Sheriff’s duty to get all the
creditors together who have a claim against the insolvent estate.
Creditors have their first meeting (ones that have proved their claims)
and elect trustee.
Main purpose of trust is to do work for creditors benefit and ensure
their interests are protected in dealing with insolvent estate.
How is the trustee elected:
- Trustee that receives majority of votes in both number of creditors
and value of creditors.
- Could be that two trustees are voted in. if you have a greater value
in your claim (3 = R1m and others = less than R1m) then 3 creditors
can vote for another trustee being appointed and they are voted in
because of value of the creditors.
- Only creditors with the claim of at least R1000 can vote.
- Election of trustee must be confirmed by Master (ito S56(1) of Act).
,Insolvency notes term 2 2020
Master then delivers certificate of appointment to trustee (once
confirmed). This is done on precondition that trustee provides security for
proper performance of its duties.
Trustee must give notice of appointment in GG and provide address.
Master has power, to appoint another person as co-trustee. S56(4) –
trustees must act jointly and if they have disagreements ito S56(5), they
have to be referred to the Master.
When can a trustee be disqualified and prohibited to act as a trustee:
- S55 Insolvency Act.
- Absolute = where a person is insolvent, minor, not resident of RSA,
corporate body (has to be natural person), disqualified ito S72 of Act.
Person ito S59 being incapable, or any person being removed by
court for an office of trust. If you have been convicted of theft, fraud,
forgery or perjury and sentenced to term of imprisonment without
option of fine or it has been a fine greater than R2000. Person at any
time party to an agreement with the debtor (acted in capacity
dealing with debtors and creditors before and you tried to obtain a
benefit for one of those parties), someone who misrepresented by
trying to bribe or have someone appointed as trustee.
- Relative = not allowed to be trustee for particular insolvent estate.
This could be a relative by blood or marriage, an interest opposed to
the general interest of creditors, person who has acted as an
accountant, bookkeeper or auditor of the insolvent estate (12
months preceding) or someone who has been an agent to vote on
behalf of creditor at meeting.
Master can disqualify someone after valid appointment. This can be done
ito S57. Can decline to appoint trustee even if they have been elected by
the creditors. If he does this, he needs to notify the trustee in writing and
state the reasons for declining. When the Master has declined, they must
convene meeting of creditors to elect another.
Court has held that Master’s opinion is vital and is trusted.
A person that is aggrieved by the appointment of the trustee (maybe
creditor that has voted against) within 7 days, may request the Master in
, Insolvency notes term 2 2020
writing their reasons. Master has to write reasons and then give to
Minister, who then gives appropriate direction in this regard (can overrule
or follow Master).
Can apply to court ito S59 for an order disqualifying person to not be
appointed as trustee.
S57(1) Master may refuse appointment if one of four circumstances are
present:
- Not properly elected (irregularity in creditors meeting)
- Disqualified from being a trustee
- Doesn’t give required security
- Or in opinion of Master, he should not be appointed.
S60 may remove trustee from office
- Trustee not qualified
- Election or appointment illegal
- Became disqualified
- Authorised to vote for or behalf of creditor for insolvent state (power
of creditor to act on their behind) (all of the above is one reason)
- Not performing any one of duties satisfactory (second)
- Mentally or physically incapable (creditor can write to Master)
- Not suitable in opinion of Master.
Trustee must vacate his office ito S58 if his estate has been sequestrated
or being declared mentally ill, convicted of offense or convicted of theft,
fraud.
May a court disqualify a trustee – Fey & Whiteford v Serfontein 1993
- The court always had the power to disqualify a trustee in accordance
with common law.
- S59 – court has power to disqualify trustee if the person has
accepted a benefit from someone who performs work OBO the
estate (creditor or another interested party), or the person ordered
to obtain the vote of any creditor or appointment as trustee, has
wrongfully omitted or included the name of a creditor …
(irregularity)
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