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MRL3701 Assignment 2 Semester 1 2024
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MRL3701 Assignment 2 Due April 2024
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MRL3701 Assessments 2024Assessment 02:
Question 1: (10 marks)
Wandile owes a total of R3 million to various creditors. His creditors include Zozo to
whom he owes R400 000. He also owes R1,3 million to DRG Bank.
Last year Wandile invested in a get-rich-quick scheme as a result of which he lost a lot
of money. This left him in a dire financial situation. By 31 October 2023 his liabilities
exceeded his assets by R800 000. Over the past few months Wandile has failed to pay
some of his debts. In particular he failed to pay the R400 000 he owes to Zozo. This
debt was due and payable on 1 February 2024.
Disappointed at not having been paid back the R400 000 owed to her, Zozo undertook
an investigation into Wandile’s financial situation. The investigation turned up
unassailable proof that Wandile had owed R100 000 to his father-in-law, and that
Wandile repaid R80 000 to his father-in-law on 3 February 2024. Mindful that he was
technically insolvent and that one of his creditors could apply for the sequestration of
his estate at any time, Wandile had wanted to ensure that whatever happened, his
father-in-law would at least get something from his estate. Hence, he repaid the loan
that he had obtained from his father-in-law even though the amount was only due and
payable on 30 November 2024.
Zozo has established that Wandile owns a house in Mamelodi valued at R700 000,
household furniture valued at R300 000 and a motor vehicle valued at R800 000. Zozo
is planning to apply for the sequestration of Wandile’s estate.
Answer the following questions based on the facts given above:
a. Discuss the requirements that an applicant must prove in order to obtain a court
order for the sequestration of a debtor’s estate.
Under Section 8 of the Insolvency Act of 1936, any creditor owed more than R100 has
the right to petition the court for the compulsory sequestration of the debtor's estate.
Section 9(1) outlines the requirements for initiating such proceedings.
In compliance with Section 8, creditors with claims exceeding R100 are entitled to
commence court proceedings seeking the compulsory sequestration of the debtor's
estate. Section 9(1) specifies the conditions for such actions, necessitating the
petitioner to establish the following to the court's satisfaction:
, Valid Claim Establishment: The petitioner must demonstrate a valid claim that
authorizes them, as outlined in Section 9(1), to request the sequestration of the debtor's
estate.
Act of Insolvency or Insolvency: It must be shown that the debtor has either committed
an act of insolvency or is insolvent.
Advantage to Creditors: The court must be convinced that the sequestration of the
debtor's estate, as specified in Section 12(1), would benefit the creditors.
It's important to emphasize that the burden of proving these three elements lies entirely
with the creditor seeking sequestration throughout the legal proceedings.
3 Insolvency Act 24 of 1936. Sec 8.
4 Insolvency Act 24 of 1936. Sec 9(1).
5 Insolvency Act 24 of 1936
b. Discuss whether Zozo may successfully apply for a court order for the
sequestration of Wandile’s estate.
Zozo qualifies to pursue a court -ordered sequestration of Wandile's estate under the
guidelines set forth in the Insolvency Act 24 of 1936. Firstly, Zozo, as a creditor, holds
a substantial claim of R400,000 against Wandile, surpassing the R100 threshold
required for initiating sequestration proceedings, as mandated by section 9(1) of the
Act.
Secondly, Wandile's financial circumstances suggest either an act of insolvency or
insolvency itself. With liabilities exceeding assets by R800,000 and a failure to meet
certain debts, including the R400,000 owed to Zozo, it indicates an inability to fulfill
financial obligations promptly.
Lastly, there is a reasonable expectation that creditors, including Zozo, would benefit
from the sequestration of Wandile's estate. Sequestering his estate enables the trustee
to utilize assets for debt settlement, thereby maximizing potential recovery for
creditors.
Zozo possesses a valid claim under section 9(1) and substantial grounds to believe
that sequestration would benefit creditors. Consequently, her application for a court
order to sequestrate Wandile's estate is likely to succeed.
12 Insolvency Act 24 of 1936.
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