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Summary Law of Insolvency: Compulsory Sequestration
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Comprehensive notes summarised from Hockly's Insolvency Law 9th edition textbook.
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Topic 3: Compulsory Sequestration (Bulk of Insolvency)1. Introduction
- Compulsory sequestration refers to where an application for compulsory sequestration is
made by one or more creditors
2. Acts of insolvency
A creditor
- May suspect that X’s estate is insolvent
- He can only suspect and thus cannot be certain about this
- This is because a creditor does not know about X’s financial matters
- Legislature has created acts of insolvency to prove this
- There are 8 acts of insolvency
What is an act of insolvency?
- Regarded as an indication that X may be insolvent
- This does not actually mean that X is insolvent
If X commits an act of insolvency
- Then any creditor can apply to court to have X’s estate sequestrated
- X only needs to commit one act of insolvency
- Need not commit all 8 acts of insolvency
The commission of an act of insolvency
- Creditor does not have to prove act of insolvency
- It is then actual insolvency
Actual insolvency refers to where
o X’s liabilities actually, really, exceed his assets
o Creditors know for sure that X is insolvent
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De Villiers NO v Maursen Properties court held that
- Even though a creditor has good reason for believing that X is insolvent, he is not in a
position to prove that X’s liabilities exceed his assets
- For this reason, legislature created acts or omissions by a debtor as ‘acts of insolvency’
- If the creditor can establish that X has committed one or more of these acts, the creditor
may seek an order sequestrating X’s estate without having to prove that X is actually
insolvent
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