Question 1
1.1 Explain when a formal defect in an application for the sequestration of an insolvent estate
will be considered as fatal. (5)
1.2 Explain why the court in Ex Parte Arntzen (Nedbank Ltd as Intervening Creditor) 2013
(1) SA 49 (KZP) held that creditors are more vulnerable in volu...
MRL3701
Examination MEMO
26 OCTOBER 2023
QUESTION 1
1.1 Explain when a formal defect in an application for the sequestration of an
insolvent estate will be considered as fatal. (5)
A formal defect in a application for the sequestration of an insolvent estate will be
considered as fatal when it undermines the fundamental legal requirements and
principles of the sequestration process , particularly to the extent that it causes
substantial injustice to creditors and cannot be remedied by a court order . The following
paragraphs expounds when a formal defect can be considered fatal
* Failure to comply with time limits : One common situation where a formal defect may
be considered fatal is the failure to comply with statutory time limits. For example , if the
debtor does not publish the notice of intention to surrender within the prescribed 30 -
day period before the hearing , this can be viewed as a fundamental defect . Creditors
may not have sufficient time to prepare and respond to the sequestration , potentially
causing substantial injustice.
*Ommision of Essential information : If the notices of intention to surrender omits
essential information required by law , such as the debtor's personal details
1.2 Explain why the court in Ex Parte Arntzen (Nedbank Ltd as Intervening
Creditor) 2013 SA 49 (KZP) held that creditors are more vulnerable in voluntary
surrender Applications than in compulsory sequestration which then gives rise to
the requirement
Of a higher level of disclosure.
1.2 The judgement of Ex Parte Arntzen (Nedbank Ltd as Intervening Creditor) 2013 (1)
SA 49 (KZP) relates to an application for a sequestration order by way of voluntary
surrender in terms of ss 3 to 6 of the Insolvency Act on an ex parte basis.
The requirements for voluntary surrender as per s 6(1) are as follows
* Estate of the debtor is infact insolvent
*Debtor owns sufficient property to pay sequestration costs
, *Sequestration WILL be to the advantage of creditors.
The requirement of the estate being insolvent was not disputed. The court had to
exercise its discretion regarding the two other requirements. The onus rested with
the applicant to satisfy the court on a balance of probabilities.
In this judgment Gorven J regularly contrasted the requirements relating to voluntary
and compulsory sequestration.
Under voluntary surrender courts require applicants to make a full and frank
disclosure of their affairs. Without doing so, the court cannot be “satisfied” as to the
above two criteria. The court pointed out that the required high level of disclosure
found in voluntary surrender is also affected by the fact that the application is
ordinarily brought on an ex parte basis. Applications brought on this basis require
the utmost good faith.
As pointed out in par 7 and 8 of the case, once notice is given to creditors, they have
very limited time and resources to inspect the statement of the applicant's affairs so
as to decide whether or not to intervene in the application. Feasibility and the
recoverability of the legal costs must also be considered. In small estates the
prospects are remote. A further reason for requiring a higher level of is that an
outright order can be given on the first appearance in court whereas, in most
sequestration applications, a provisional order precedes a final order in a two stage
process
1.4 In this case, the debtor had a claim against the applicant’s son which was larger
than
the claim of the applicant against the debtor. The sequestration of the debtor’s estate
would have meant that he himself (the debtor) would no longer have been able to
enforce his claim against the son. In the circumstances, sequestration would not have
been to the advantage of the creditors (of the debtor) as a group.
The applicant’s correct remedy was to take out a warrant for the execution of his
judgment against the debtor, and then have the debtor’s claim against the applicant’s
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