MRL3701 MAY/ JUNE 2023 ANSWERS/ SOLUTIONS (10 JUNE 2023) - INSOLVENCY LAW
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Course
MRL3701 - Insolvency Law (MRL3701)
Institution
University Of South Africa (Unisa)
ANSWERS/ SOLUTIONS WITH REFERENCES & PREVIEW:
Question 1
1.1 Explain the purpose of a sequestration order. (5)
1.2 “A sequestration order may not be granted if a debtor has only one creditor and there
are not enough assets to cover the costs of sequestration.” Indicate wh...
, QUESTION 1
1.1. According to Hockly’s Insolvency Law book, the purpose of a sequestration order is
to ensure the orderly and equitable distribution of a debtor’s assets among all the
creditors, according to a predetermined order of preference.
A sequestration order is a formal declaration that a debtor is insolvent. The order is granted
either at the instance of the debtor himself (voluntary surrender) or at the instance of one or
more of the debtor’s creditors (compulsory sequestration).
The sequestration order triggers a series of legal consequences, such as:
The debtor is divested of his or her estate and legal capacity and may not burden it
with any further debts.
A trustee is appointed to administer the insolvent estate and liquidate the assets.
The creditors have to prove their claims against the insolvent estate and rank
according to their preference.
The insolvent may apply for rehabilitation after a certain period of time, subject to
certain conditions.
The sequestration order aims to protect the interests of creditors as a group, as well as to
grant relief to the insolvent in certain respects.
1.2. This statement is false. A sequestration order may be granted even if a debtor has
only one creditor and there are not enough assets to cover the costs of
sequestration, provided that certain requirements are met.
According to Hockly’s Insolvency Law book, the requirements for a sequestration order are
different depending on whether it is voluntary or compulsory.
For a voluntary surrender, the debtor must prove that:
He or she is insolvent, meaning that his or her liabilities exceed his or her assets.
There is a reasonable probability that the sequestration will be to the advantage of
the creditors, meaning that the creditors will receive a dividend from the insolvent
estate.
He or she has made a full disclosure of his or her affairs in the application.
He or she owns realisable property of a sufficient value to defray all costs of the
sequestration which will be incurred by the Master and the trustee.
For a compulsory sequestration, the creditor must prove that:
The debtor has committed an act of insolvency, or is deemed to have committed an
act of insolvency, as defined in the Insolvency Act.
The debtor is actually insolvent, meaning that his or her liabilities exceed his or her
assets.
There is reason to believe that it will be to the advantage of creditors if the debtor’s
estate is sequestrated.
Therefore, it is possible for a debtor with only one creditor and insufficient assets to be
sequestrated, either voluntarily or compulsorily, as long as the other requirements are
satisfied.
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