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MRL3701 INSOLVENCY LAW-PASS!! QUESTION AND ANSWERS
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Section 1 QuestionsWhat is the definition of a “debtor” in terms of the Insolvency Act 24 of 1936? (4)
A debtor means a person or a partnership or the estate of a person or a partnership which is a
debtor in the usual sense of the word, except a body corporate or a company or other association
of persons which may be placed in liquidation under the law relating to companies.
What is the purpose of a notice of surrender? (2)
The purpose of the notice of surrender is to alert creditors as to the intended application in case
they wish to oppose the application.
State the requirements which must be proved before the Court will grant a voluntary sequestration
order. (4)
1. The preliminary formalities have been observed.
2. The debtor’s estate is in fact insolvent.
3. The debtor owns realizable property of sufficient value to defray all costs of the
sequestration.
4. Sequestration will be to the advantage of creditors.
What is the meaning of the term “spouse” for the purposes of the term “solvent spouse” under
section 21 of the Insolvency Act? (3)
For the purpose of section 21, “spouse” has an extended meaning and includes a wife or a
husband married according to any law or custom, and also a person living with a member of the
opposite sex, although not married to her or him (s 21(13)). According to Chaplin NO v Gregory,
on the insolvency of a married man or woman who is living with a third person (i.e., not the legal
spouse), the property of only the legal spouse, and not that of both the spouse and the third
person, vests in the trustee.
State the two maximum limits (in time and in money) to the employee’s preferent claim for arrear
salary or wages in terms of section 98A of the Insolvency Act. (2)
Salary or wages due to an employee, for a period not exceeding three months and to a maximum
of R12 000.
State three grounds on which the Master may remove a trustee from office. (3)
Any three of the following:
1. he was not qualified for appointment or that his election or appointment was illegal or he
has become disqualified ;
2. he has failed to perform any of his duties satisfactorily or comply with a lawful demand of
the Master;
3. he is mentally or physically incapable of performing satisfactorily his duties as trustee;
4. the majority of creditors have requested in writing that he be removed;
5. he is no longer suitable in the opinion of the Master, to be the trustee of the estate
concerned.
Name three circumstances in which the Master may refuse to confirm the appointment of a person
nominated as a trustee. (3)
Any three of the following:
1
, 1. he was not properly elected;
2. he is disqualified from being a trustee;
3. he has failed to give the required security;
4. if in the opinion of the Master, he should not be appointed as trustee to the estate in
question.
When will a disposition made in compliance with a court order qualify as a disposition under
section 2 of the Insolvency Act? (3)
The disposition will qualify as a disposition under section 2 if the creditor obtained the court order
by fraud or collusion with the insolvent and with the intention of prejudicing other creditors
(Sackstein & Venter NNO v Greyling). The onus of proving fraud or collusion lies on the party
seeking to set aside the disposition (Dabelstein & Others v Lane & Fey NNO).
Section 85(2)(a) of the Insolvency Act provides that the claim of the landlord of a building against
the insolvent estate of the tenant is secured up to an amount of three months’ rent if the rent is
payable monthly or at shorter intervals. Section 85(2)(b)-(d) provides for three other such periods
of rent for which the landlord’s claim is secured. State these other periods. (3)
The claim is secured up to an amount of:
1. six months’ rent, if the rent is payable at intervals exceeding one month but not more than
three months;
2. nine months’ rent, if the rent is payable at intervals exceeding three months but not more
than six months;
3. 15 months’ rent, if the rent is payable at intervals exceeding six months.
Maredi and Botha are partners in a medical business. You are an attorney, and they instruct you
to apply to court for the voluntary surrender of the partnership estate. Only Botha has signed the
application. Explain whether the application will succeed. (3)
The application will not succeed. As a rule, an application to surrender a partnership estate must
be brought by all the partners, or their agents. The exceptions are partners residing outside South
Africa, partners en commandite (anonymous partners), and special partners. In Ex parte Bester,
the court refused an application for surrender of a partnership estate because only one partner
had signed the application. In applying the law to the facts, Maredi must also sign the application
in order to succeed.
A provisional order for the winding up of Bafana (Pty) Ltd has been granted by the High Court. A
provisional liquidator has to be appointed at the same time. Name two of the most important
obligations of a provisional liquidator. (2)
1. The provisional liquidator must give security to the satisfaction of the Master for the proper
performance of his duties.
2. He is required to hold office until the appointment of a liquidator.
Name two grounds on which a close corporation may be wound up by the court. (2)
Any two of the following:
1. resolution of the members;
2. failure to commence business or continue with business;
3. inability to pay debts;
4. just and equitable.
2
,Complete the following sentence: The award of a sequestration order creates a
..............................................................., and creditors who have proved a claim have the right to
share with other proved creditors in the proceeds of the estate assets. (1)
Concursus creditorum
What is the meaning of “property” as defined in section 2 of the Insolvency Act 24 of 1936? (5)
“Property” means movable or immovable property wherever situated in the Republic and includes
contingent interests in property but excludes the contingent interests of a fidei commissary heir or
legatee.
Under what circumstances may a court having jurisdiction over a debtor refuse (or postpone) the
surrender or sequestration of the debtor’s estate? (3)
If it appears equitable or convenient that the estate should be sequestrated in another court within
the Republic; or the debtor is domiciled in a state which has not been designated in terms of the
Cross- Border Insolvency Act 42 of 2000 and it appears to the court equitable or convenient that
the estate should be sequestrated by a court outside the Republic.
What is the meaning of “special mortgage” as defined in section 2 of the Insolvency Act 24 of
1936? (5)
“Special mortgage” means a mortgage bond hypothecating any immovable property or a notarial
mortgage bond hypothecating specially described movable property in terms of section 1 of the
Security by Means of Movable Property Act, 57 of 1993, or such a notarial mortgage bond
registered before 7 May 1993 in terms of section 1 of the Notarial Bonds (Natal) Act, but excludes
any other mortgage bond hypothecating movable property
Explain the difference between a void contract and a voidable contract. (2)
A void contract simply has no legal force, but a voidable contract has legal force until it is set
aside.
Discuss Epstein v Epstein 1987 (4) SA 606 (C) in respect of “friendly” sequestrations. (6)
This is an example of a “friendly” sequestration. The applicant was the respondent's mother. He
committed an act of insolvency by notifying her in a letter that he was unable to repay her a loan of
R6000. The court pointed out that the purpose of the Insolvency Act is to effect a just and orderly
distribution of a debtor’s estate to his creditors. Therefore it is important that the requirement of
advantage to creditors must be proved before a sequestration order may be granted. This
requirement is even more important in a “friendly” sequestration where a creditor applies for the
sequestration of a debtor’s estate with the sole aim of providing relief for the debtor. This aspect
was emphasised by the court’s view that friendly sequestrations should not be automatically
refused, but they should be carefully scrutinised. Therefore particular emphasis is placed on the
requirement of advantage to creditors.
Name three persons who are relatively disqualified from being a trustee in respect of a particular
estate. (3)
The following persons are disqualified in respect of a particular estate:
1. a person related to the insolvent in blood or by marriage within the third degree;
2. a person having an interest opposed to the general interest of the creditors;
3
, 3. a person who acted as the bookkeeper, accountant, or auditor, of the insolvent at any time
during a period of 12 months immediately preceding the date of sequestration; or
4. an agent authorized to vote on behalf of a creditor at a meeting and who acts or purports to
act in terms of that authority (s 55).
The trustee may terminate employment contracts between the insolvent employer and the
employees after consultation with certain parties. Name these parties. (5)
1. collective agreement
2. workplace forum
3. registered trade union
4. employees registered trade union
5. employee personally
6. employee’s nominated representative
State the requirements of section 72(7) of the Close Corporations Act 69 of 1984 that must be met
before a composition will be binding on persons who had notice and were entitled to vote at the
relevant meeting of creditors of the close corporation. (5)
1. the composition was accepted by two-thirds (in number and in value) of the creditors who
proved claims against the corporation;
2. payment under the composition is made or secured as specified in the offer;
3. the rights of secured or preferent creditors are not prejudiced (unless waived in writing)
What is the meaning of “immovable property” as defined in section 2 of the Insolvency Act 24 of
1936?
“Immovable property” means land and every right or interest in land or minerals which is
registrable in any office in the Republic intended for the registration of title to land or the right to
mine.
What is the definition of “disposition” in terms of section 2 of the Insolvency Act 24 of 1936? (4)
“Disposition” means any transfer or abandonment of rights to property and includes a sale, lease,
mortgage, pledge, delivery, payment, release, compromise, donation or any contract therefore, but
does not include a disposition in compliance with an order of the court.
Name any four of the various estates that fall within the meaning of the word “estate”. (4)
Any four of the following:
1. An estate that includes all assets and liabilities.
2. An estate that consists of liabilities only.
3. The joint estate of spouses married in community of property.
4. The separate estates of spouses married out of community of property.
5. The new estate of a debtor whose estate has been sequestrated.
State the requirements which must be proved before the Court will grant a voluntary sequestration
order. (4)
1. The preliminary formalities have been observed.
2. The debtor’s estate is in fact insolvent.
3. The debtor owns realizable property of sufficient value to defray all costs of the sequestration.
4. Sequestration will be to the advantage of creditors.
4
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