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Summary Law of insolvency: Uncompleted contracts and legal proceedings not yet finalised
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Comprehensive notes summarised from Hockly's Insolvency Law 9th edition textbook.
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Law of Insolvency: Compulsory Sequestration
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Topic 6: Uncompleted contracts and legal proceedings not yet finalisedQ:
- If an insolvent (Clark) has entered into a contract with a third-party (Dwayne) before he attained his
insolvency status and has not performed in terms of that contract or has not performed in full,
thereafter became insolvent, what happens to such a contract?
o This chapter considers the legal issues surrounding this question- general and specific contracts
6.1. Introduction
General rule
- In absence of a statutory provision stating otherwise, a contract is generally not terminated
automatically by the sequestration of one of the contractants
Exceptions where it is terminated
- When general contract uncompleted
o Performance has not been made
o Situation governed by general principles of common law
What is a general contract
- Any and every contract except those 4 specific contracts
o These are governed by common law or specific legislation
2. General contracts
Due to the fact that the insolvent estate vests in the trustee
- Trustee must decide whether to perform in terms of uncompleted contracts or not
Bryant & Flanagan v Muller court held
- Trustee, who is also the liquidator of a company, is invested with a discretion to abide by, or terminate,
an executory agreement not specifically provided for in the Insolvency Act which was concluded by the
Company in liquidation prior to its liquidation
This means that
- Trustee has a choice whether or not to render performance
- Trustee will make decision depending on whether this will benefit the general body of creditors
If trustee allows specific performance
o Means this uncompleted contract becomes completed
o Ex: Trustee will have to pay the contractor if contract has been completed
o Specific performance refers to a remedy where the court where the court tells X what to do
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