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Summary 2021 MRL3702 insolvency law summaries - exam help R100,00
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Summary 2021 MRL3702 insolvency law summaries - exam help

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insolvency law summaries content, clear and concise explanations answers to exams

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  • June 5, 2021
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  • 2020/2021
  • Summary
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Insolvency law

Contents

PART 1
Introduction

1. Introduction

PART 2
Obtaining a sequestration order

2. Voluntary surrender

3. Compulsory sequestration

PART 3
Effects of sequestration

4. The legal position of the insolvent

5. Vesting of the assests of the insolvent

6. Vesting of the assets of the solvent spouse

7. Uncompleted contracts and legal proceedings
not yet finalized

PART 4
Collection of the estate assets
trustee’s
8. Meetings of creditors and proof claims

9. The election of the trustee
trustee
10. Impeachable dispositions

PART 5
Realization and distribution of the assets

11. Creditors’ claims and their ranking

,PART 6
Composition and rehabilitation

12. Composition

13. Rehabilitation

PART 7
Miscellaneous

14. Partnership and sequestration

PART 8
Winding-up of companies and close corporations

15. Winding-up of companies

16. Judicial management and compromise

17. Winding-up of close corporations

, PART 1:
INTRODUCTION
1. Introduction
Meaning of: “Insolvency”

A person is insolvent when his liabilities exceed his assets. Inability to pay debt
is, at most, merely evidence of insolvency.

A person who has insufficient assets to discharge his liabilities, although
satisfying the test of insolvency, is not treated as insolvent for legal purposes
unless his estate has been sequestrated by an order of the court.

A sequestration order is a formal declaration that a debtor is insolvent, the order
is granted either when the debtor voluntarily surrenders or where one or more of
the debtor’s creditors apply for compulsory sequestration.

The purpose of a sequestration order

Is to secure the orderly and equitable distribution of a debtor’s assets where they
are insufficient to meet the claims of all his creditors.

Executing against the property of a debtor who is in insolvent circumstances
inevitably results in one or a few creditors being paid, and the rest receiving little
or nothing at all.

Thus the legal machinery that comes into operation during sequestration is
designed to ensure that whatever assets the debtor has are liquidated and
distribution among all his creditors in accordance with a predetermined fair order
of preference.

Once an order of sequestration is granted, a concursus creditorum (coming
together of creditors) is established, and the interests of the creditors as a group
enjoy preference over the interests of individual creditors.

A creditor’s right recover his claim in full by judicial proceedings is replaced with
the right, on proving a claim against the insolvent estate, to share with all other
proved creditors in the proceeds of the estate assets.

Apart from what is permitted by the Act, nothing may be done which would
diminish the assets of the estate or prejudice the rights of creditors.

, The law of insolvency exist primarily for the benefit of the creditors, thus a court
will not sequestrate a debtor’s estate unless it’s known that the sequestration will
be to the benefit of the creditors. Thus a sequestration order would not be
granted if there is only one creditor or if the debtor’s assets are not sufficient to
cover the costs of sequestration, and so the creditors of the debtor would then
have to seek individual relief against the debtor by taking judgment against him
for nonpayment of debts.

What may be sequestrated?

The Act provides for the sequestration of the estate of the debtor.

Meaning of “estate”

Estates that fall with the meaning of the word “estate” with regard to insolvency:

 An estate that includes assets and liabilities
 An estate that consists of liabilities only
 The joint estate of spouses married in community of property
 The separate estates of spouses married out of community of property
 The new estate of a debtor whose estate has been sequestrated.

Meaning of “debtor”

The term “debtor” embraces the following:

 A natural person
 A partnership
 A deceased person
 A person incapable of managing his own affairs
 An external company that does not fall with the definition of ‘external
company’ in the Companies Act. Such as a foreign company which has not
established a place of business in the Republic
 An entity or association of persons that is not a juristic person, such as a trust

Jurisdiction of the court

Which court has jurisdiction?

Only a Provincial or Local Division of the High Court may adjudicate upon an
insolvency matter.

But a magistrates’ court may preside over prosecution for criminal offences,
proceedings to set aside voidable dispositions, and a few other matters, provided
that the ordinary jurisdictional limits as to offence, person and amount imposed
by the Magistrates’ Court Act are not exceeded.

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