Summary
Summary ISR 310 Theme 1 - 7 notes
- Institution
- University Of Pretoria (UP)
Very detailed notes of theme 1 - 7 for ISR 310. Incudes class notes and summaries of the textbook.
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Study unit 1:Explain what the collection process entails
• Insolvency law developed as a collective debt collecting procedure in order to provide a fairer
distribution of the proceeds of a debtors property amongst his creditors when the debtor does
not have enough assets to settle all his debts in full (i.e. he is insolvent)
• If a debtor fails to fulfil any contractual obligation or satisfy his liabilities, each creditor can
individually claim performance from the debtor (whether it be through demand or legal action)
• However, if the debtor’s assets are insufficient to satisfy all claims, the creditors may apply,
jointly or separately, for the sequestration of the debtor’s estate by means of compulsory
sequestration
• This activates the collective debt collection procedure in terms of the law of insolvency. Now,
the creditors will collectively collect their debts from the insolvent estate of the debtor
• Thus, the purpose of this procedure is to pay at least a dividend of the debts to all the
concurrent creditors instead of merely satisfying the claims of a few credits in full. This prevents
the situation where one creditor claims his entire debt from the debtor and leaves nothing for
the other creditors. This is called concursus creditorum
Explain what the different alternatives to insolvency are
What the debtor can do:
• A debtor is only insolvent when a court declares this fact. So, even if his liabilities do exceed
his assets, he will not necessarily be insolvent in the legal sense and thus have his estate
sequestrated
• Thus, to avoid having a court order him insolvent, he may try and utilise certain alternative
measures to discharge his debts
• He may apply for an administration order in terms of S74 of the Magistrates’ Court Act
provided that the debts in question do not exceed R50 000. In terms of this order, the
debtor must make regular payments to the administrator. The administrator must then draw
up a list of the creditors and pay them the amounts received from the debtor
• Debtor can also voluntarily surrender his estate if the necessary requirements are met
Individual debt collecting
• He may also enter into a release or novation with any or all of his creditors to try and release
himself from his debts
• However, should he do this or give written notice to his creditors that he cannot pay his debts;
this is an act of insolvency, which entitles his creditors to apply for his sequestration. Therefore,
entering into a release or novation will only serve as an alternative to insolvency if the creditors
accept this alternative, otherwise it will actually lead to insolvency
• Should a credit wish to reclaim his debt through judicial process, he must first issue a letter of
demand and then proceed with summons and a civil judgment. The court may order:
1) emolument, which is an order against his employer to deduct the debt from the debtor’s
salary (should that be the case)
2) garnishee order – which is order making a third party pay the debt on behalf of the
debtor
ISR 310 Study Guide Notes Page |1
,• Alternatives are also found in the National Credit Act. If the debtor is unable to pay a debt under a
recognised credit agreement, the provisions of the Act dealing with over indebtedness and reckless
credit (as the case may be) will apply and these measures will be taken first
Explain what the concept concursus creditorum entails
• The general interest of the creditors as a group outweighs their individual interests
• Thus, one creditor cannot, through the process of execution, receive full payment of his claim at
the cost of the claims of the other creditors (Walker v Syfret)
• Creditors cannot attach any other assets obtained by the insolvent AFTER his sequestration
• The debtor cannot alienate or burden any property, as his contractual capacity remains limited
until his rehabilitation
Walker v Syfret
Extension of time for filing the Record granted on the ground that the appellant, who resided in Scotland, had
found it difficult in time to obtain the requisite funds for prosecuting the appeal, but he was ordered to pay the
costs of the application for such extension.
The appellant was ordered to give security for costs on the ground that he resided out of the jurisdiction.
The Court dispensed with the printing of certain portions of a very voluminous Record
Roestoff and Coetzee 2012 SA Merc LJ 53
South African natural person insolvency law has remained largely creditor-orientated despite the international
trend to assist over-indebted debtors. Furthermore, although the South African system provides for a number of
debt relief procedures, the entry requirements are of such a nature that most debtors are effectively excluded
from any form of relief and therefore bound to their desperate situations. The majority of these excluded debtors
fall within the no income and no assets (the so-called No Income No Asset (NINA) debtors) category-the main
feature of this article. In the South African insolvency system, a person can therefore be ‘too poor to go
bankrupt’. With reference to international principles and a thorough comparative study of the New Zealand
system, the South African system is analysed, and some recommendations are made in order to provide a more
accessible, effective and non-discriminate system with specific focus on the plight of the NINA debtor. This is done
by keeping the complex South African debt and poverty situation in mind as it is acknowledged that any reform
should take cognisance of the unique socio-economic and cultural background. It is recognised that providing
relief to the NINA category debtors will have an impact on the economy. However, it is submitted that the
exclusion of this group will be even more expensive as it creates an obstacle for these debtors to enter the
formal sector and economy, thereby discouraging broader economic growth.
Study unit 2:
Overview; estates capable of being sequestrated; jurisdiction
General overview of insolvency
• The law of insolvency can thus be described as the totality of legal rules regulating the situation
where a debtor cannot pay his debts, or where his total liabilities exceed his total assets
• Insolvency law is based on two principles:
» Right of creditors to satisfy their claims through the process of execution against assets
» Concurrency of creditors who do not have a preferent or secured claim
1) The debtor loses control over his estate as soon as the sequestration order is given by the
court
2) The property then vests in the Master of the High Court who then appoints a trustee in
whom the property will vest upon his appointment
ISR 310 Study Guide Notes Page |2
, 3) The trustee realises the estate property (assets) and distributes the proceeds between the
creditors in a way determined by the Insolvency Act
4) This causes concursus creditorum, as the general interest of the creditors as a group
outweighs their individual interests
5) Thus, one creditor cannot, through the process of execution, receive full payment of his
claim at the cost of the claims of the other creditors (Walker v Syfret)
6) The creditors cannot attach any other assets obtained by the insolvent AFTER his
sequestration
7) The debtor cannot alienate or burden any property, as his contractual capacity remains
limited until his rehabilitation
State what the sources of insolvency law are
• Insolvency Act is the main source
• The Companies Act, the Close Corporations Act and the Banks Act are also sources
• High Court and Constitutional Court rulings hold precedent
• Common law can also apply, for example, the general rule regarding unexecuted contracts and
the actio Pauliana
Differentiate between factual and commercial insolvency
• The balance sheet test is used to determine if a debtor’s liabilities exceed his assets (Venter v
Volkskas )
• This test is used to determine factual insolvency (when the debtor’s liabilities do actually exceed
his assets)
• Commercial insolvency, on the other hand, is a situation where a debtor’s liabilities DO NOT
exceed his assets, but due to cash flow or other problems, he is still unable to pay his debts.
Such insolvency may also occur if the debtor commits an act of insolvency that leads to the
compulsory sequestration of his estate
Give a brief overview of the concepts defined in section 2 of the Act:
• Court: in relation to any matter means the provincial or local division of the Supreme Court
(High Court) which has jurisdiction in that matter in terms of section 149 or 151, or any judge of
that division; and in relation to any offence under this Act - 'Court' or 'the Court' includes a
magistrate's court which has jurisdiction in regard to the offence or matter in question
• Debtor: in connection with the sequestration of the debtor's estate, means a person or a
partnership or the estate of a person or partnership which is a debtor in the usual sense of the
word, except a body corporate or a company or other association of persons which may be
placed in liquidation under the law relating to Companies (Companies Act)
• Insolvent: when used as a noun, means a debtor whose estate is under sequestration and
includes such a debtor before the sequestration of his estate, according to the context
• Insolvent estate: means an estate under sequestration
• Magistrate: includes an additional magistrate and an assistant magistrate
• Master: in relation to any matter, means the Master of the Supreme Court within whose area of
jurisdiction that matter is to be dealt with and includes an Assistant Master
• Trustee: means the trustee of an estate under sequestration, and includes a provisional trustee
Which persons can be sequestrated in terms of the Insolvency Act?
• Obviously, the estate of any debtor as defined in the Insolvency Act is capable of sequestration;
'Debtor’, in connection with the sequestration of the debtor's estate, means a person or a
partnership or the estate of a person or partnership which is a debtor in the usual sense of the
ISR 310 Study Guide Notes Page |3
, word, except a body corporate or a company or other association of persons which may be
placed in liquidation under the law relating to Companies (Companies Act)
• A deceased’s insolvent estate can also be sequestrated. HOWEVER, it will usually be
administered in terms of S34 of the Administration of Estates Act. Only if a creditor can convince
the court, after the appointment of an executor, that sequestration will be more advantageous
than a S34 procedure, will such application be allowed
• Where spouses are married in community of property and the joint estate is sequestrated, both
spouses will have to be joined as either respondents or applicants to the sequestration
proceedings (S17(4) of the Matrimonial Property Act). HOWEVER, non-joinder will not
necessarily void the sequestration order (ABSA v Goosen)
• Even if spouses are married out of community of property, the solvent spouse’s estate is also
sequestrated as a matter of first order. After this, the solvent spouse will have to prove that
their sequestrated assets should not be subject to distribution (i.e. that they are owned by the
solvent spouse)
• It is possible for an insolvent to acquire a separate, solvent estate that will be protected against
his trustee – this is because certain assets and income do not form part of the insolvent estate
and these assets can then form a separate estate. However, it is possible that this second estate
can be sequestrated too, should its liabilities also exceed its assets
• In the above case, this means that a person can be sequestrated twice. However, upon his
rehabilitation, only one rehabilitation order will be needed to rehabilitate the insolvent with
regards to both estates. This is because the Insolvency Act provides for the rehabilitation of the
insolvent’s person, not his estate/s (Ex parte McFarlane)
• A trust may be sequestrated in terms of the Insolvency Act
Magnum Financial Holdings v Summerly
• The court held that a trust can, through its members, acquire assets, create debts etc
• Therefore, the court held that a trust was a debtor in the usual sense of the word
• Then came the debate as to whether a trust had legal personality or not
• The court held that it was unnecessary to decide this, because even if it did, this does not mean
that the trust members can be seen as a body corporate
• Therefore a trust is not an association of persons that can be liquidated in terms of the
Companies Act (see the definition of debtor again) and it can be sequestrated in terms of the
Insolvency Act
Special note on partnerships
• A partnership or its estate can be sequestrated; in which case, all partners involved must be
sequestrated as well as they all share in the same estate. However, there is an exception to this
rule:
» In terms of S13(1) of the Act, a partner commenditire (or an anonymous or limited
partner) is not involved in the sequestration process and will not be sequestrated,
provided if a normal partner wishes to avoid sequestration, that partner may pay of the
debts of the partnership himself (he must also provide security for such payments) and
thus avoid the sequestration of his estate
SARS v Hawker Air Services
• Dealt with S13(1) and partners commenditaire
• Hawker Air Services was in a partnership with two other companies, however these other
companies were only limited partners
ISR 310 Study Guide Notes Page |4
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