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Summary law of insolvency: Effect of sequestration on legal position of insolvent
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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 4: Effect of sequestration on the legal position of the insolvent1. Introduction
- Sequestration of debtor’s estate imposes upon him a form of reduction in states
- This limits his
o Capacity to contract
o Earn a living
o Litigate and hold office
2. The ability of the solvent spouse to acquire property
S23(1) of Insolvency Act
- Property acquired by insolvent during sequestration goes into insolvent estate and will vest in
trustee
- Subject to provisions of s23 and s24, all property acquired by an insolvent will belong to his estate
3. The ability of a debtor to enter into contracts
S23(2) of Insolvency Act: Limitations
- Insolvency Act generally does not deprive debtor of his contractual capacity
- He thus retains a general capacity to make binding agreements
However, to protect creditors, the Act imposes certain restrictions on his capacity to contract
CATEGORY PROIBITED PROHIBITED, NOT PROHIBITED
AUTOMATICALLY UNLESS THE
TRUSTEE
CONSENTS
TYPE Contracts which Those that may Any other type of
dispose of estate affect the creditors contract
property in an adverse
manner.
AFFECT Voidable at the If trustee consents The insolvent
instance of the to contract it is cannot use
trustee, ex post valid and binding. If insolvency to
facto. Trustee can the insolvent enters escape liability. The
stand by contract or without permission Contract is valid
set it aside, of, or against the and binding.
following which, wishes of the
restitutio must occur trustee, it is
to restore the status voidable at the
quo ante. instance of the
trustee.
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