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Summary Exam Notes for Topic 4: Effects of Sequestration.
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This is a summary of the work covered in Topic 4. Accompanied by case summaries and possible examination questions.
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MRL3701 MAY JUNE 2023 (COMPLETE PORTFOLIO ANSWERS)
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Exam (elaborations) MRL3701 - Insolvency Law (MRL3701) Hockly's Insolvency Law
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Topic 4: The Effects of Sequestration..................................................24.1 Legal Position of the Insolvent..................................................................................................... 2
Contracting.................................................................................................................................... 2
Freedom of Economic Activity....................................................................................................... 4
Effect on Locus Standi.................................................................................................................. 4
Holding Office................................................................................................................................ 5
4.2 Effect of Sequestration on the Estate of the Insolvent.................................................................5
Vesting of the Estate in the Trustee.............................................................................................. 5
Property that falls into the Estate................................................................................................... 6
Property that does not fall into the Estate......................................................................................7
Acquisition of a new estate during insolvency...............................................................................8
4.3 Effect of Sequestration on the Estate of a Solvent Spouse.........................................................8
General......................................................................................................................................... 8
Definition of “Spouse”.................................................................................................................... 9
Postponement of Vesting.............................................................................................................. 9
Property that must be released................................................................................................... 10
Onus of proof............................................................................................................................... 11
Prescribed Cases.................................................................................12
WL Caroll & Co v Ray Hall Motors.................................................................................................. 12
Ex Parte van Dyk............................................................................................................................. 13
Fourie N.O. v Edkins....................................................................................................................... 14
Durandt NO v Pienaar..................................................................................................................... 15
Du Plesis v Pienaar......................................................................................................................... 16
De Villiers v Delta Cables................................................................................................................ 17
Beddy NO v Van der Westhuizen.................................................................................................... 17
Harksen v Lane............................................................................................................................... 19
Rens v Gutman............................................................................................................................... 20
Evans R.G. 2004 (1) Stellenbosch Law Review (SLR) 193-200: Release of a...............................20
solvent spouse’s property under sec 21 (2) (c) of the Insolvency Act 24 of 1936............................20
Learning Outomces:............................................................................22
The legal position of the Insolvent................................................................................................... 22
What forms a part of the insolvent estate?......................................................................................22
What does not form a part of the insolvent estate?.........................................................................22
, The vesting of the assets of the insolvent.......................................................................................22
The vesting of the assets of the solvent spouse..............................................................................22
The position in regard to uncomplete contracts and legal proceedings not yet finalised.................22
Topic 4: The Effects of Sequestration.
4.1 Legal Position of the Insolvent.
S23(1): subject to the provisions of this section and of s24, all property
acquired by an insolvent shall belong to his estate.
Sequestration of a debtors estate imposes on him a form of reduction in
status
o This limits his capacity to contract, earn a living, litigate and hold office.
Contracting
The insolvency act does not deprive the debtor of his contractual capacity
entirely. However, to protect creditors, the Act imposes certain restrictions on
the debtors capacity to contract.
Section 23(2) provides for these restrictions
Note: WL Caroll v Ray Hall Motors confirms the position of s23(2).
Prohibited Contracts
o May not make contracts in which he purports to dispose of property in
his insolvent estate.
o May not, without the written consent of the trustee, enter into a contract
which adversely affects his estate or any contribution he is obliged to
make towards the estate.
A contribution = that which is claimable by the trustee in terms of
s23(5) from moneys earned in the course of his occupation.
This contribution can only be claimed once the master
has determined that it is not necessary for the support of
the insolvent and his dependants.
Ex Parte van Dyk (concerned the implications of the making of a
contribution to an insolvent estate in terms of s23(5))
Effects of contracts that are not prohibited (valid contracts)
o If the trustees consent is not required or where it is required and has
been given, the contract is valid and binding.
, o However, the contract cannot be enforced by the insolvent unless the
Act gives him that right.
Effect of a prohibited contract
o If the insolvent enters into a contract to dispose of estate property?
The contract is voidable at the option of the trustee – not void.
o If the insolvent enters into a contract without the required consent of
the trustee?
The contract is voidable at the option of the trustee – not void.
o Effect of trustee’s options?
If the trustee chooses not to set aside the contract?
The contract is binding on the parties
If the trustee chooses to set aside the contract?
He may recover performance rendered by the insolvent.
And must restore any benefits received by the insolvent
to the third party.
o WL Caroll v Ray Hall Motors
This case confirmed that a prohibited contract, where consent
was necessary but not obtained, is voidable and not immediately
void.
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