Summary
ISR310, lecture notes, summary, case law - up to constitutional issues and insolvency law.
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- University Of Pretoria (UP)
ISR310, lecture notes, summary, case law - up to constitutional issues and insolvency law.
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ISR(IL – Insolvency Law)
Case law
Legislation
Examples
Definitions
Foundational concepts
Overview of total field of insolvency law
IL developed as special debt enforcement procedure to provide fair
distribution of debtor’s assets among creditor’s.
IL = totality of rules regulating the situation where debtor cannot pay
his debts where his total liabilities exceed his total assets.
SA has pro-creditor system:
o Protects creditors who are owed money.
o BUT still systems in place to protected debtor from being
unethically treated.
Secure creditors get paid BEFORE unsecure creditors.
Factual v commercial insolvency
Rules of IL does not apply to ALL who go insolvent.
Factual/actual insolvency:
o ‘balance sheet insolvency’ – for natural person.
o More liabilities than assets.
o Includes voluntary and compulsory sequestration:
Voluntary = debtor goes to court asking to be put in formal
insolvency system.
Compulsory = creditor asks court to put debtor in sequestration
process.
, Commercial insolvency:
o ‘cash flow insolvency’
o More assets than liabilities BUT cash flow is not enough to pay
debt (not enough liquid assets).
o Relates to companies.
Collection process – CREDITOR FOCUSED
When creditor/debtor applies for sequestration of debtor’s estate – it
activates the collective debt enforcement procedure:
o Pays dividend/potion of debts owed to ALL creditors instead of
only paying 1/2 creditors in full.
Sequestration order (SO) from the court initiates legal process of IL –
o SO prevents grab law (where creditors jump to taking everything
away from creditor – like clothes/bedding).
o SO allows court case against debtor to be suspended (everything
is frozen & you get a concursus Creditorium).
2 Options for debt collection:
o Individual collection (one-on-one payment) – If judgement debt not paid,
C sells D’s assets in auction
Creditor sues debtor (1 creditor). to satisfy judgment debt, if
C sends D letter If letter of demand C will get auction does not satisfy all
of demand doesn’t work, issues judgement debt debt, D still liable for that
summons shortfall.
Why is there individual debt collection? Sometimes debtor
disputes debt and wants to defend against summons.
Usually, debtor has enough money to pay debt but doesn’t
want to.
o Collective collection –
o Where debtor is insolvent (unable to pay debt) to multiple
creditors.
Distribution of available funds among
creditors (Some C’s might not get paid
due to lack of funds).
, o Creditors grouped into 1 process:
Court application Trustee liquidates Unpaid debt Debtor starts fresh
Process
successful, D
summary:
assets and pays discharged with no debt
becomes insolvent creditors
o Step 1: pre-sequestration –
Debtor declared insolvent.
o Step 2: process to get sequestrated (this is where the legal
process starts) –
Court application made (voluntary/compulsory).
o Step 3: administration –
Estate vests in Master of HC and then trustee.
Trustee liquidates debtors assets to repay creditors.
Selling property in auction = execution.
o Step 4: rehabilitation –
Discharge of pre-sequestration debt (unpaid debt written off)
and debtor starts fresh.
Options available to natural person debtor in SA – DEBTOR FOCUSED
Debt-relief procedures available to natural persons who is unable to
pay his debts:
o (1) D can apply for administration order ito s74 of Magistrates
Courts Act (debt cannot exceed 50k):
D must make regular payments to administrator &
administrator must make payments to list of creditors.
o (2) D can apply for debt review for debts (National Credit Act):
Relief provided to debts found to be reckless credit/invalid
credit agreements OR debt review may result in formalized
payment plan.
o (3) D enters voluntary agreement with c regarding payment plan:
, Act of insolvency = D proposes a release/gives written notice
to C of his inability to pay debts.
After act of insolvency – C may apply for sequestration of D.
ONLY ONE WHICH OFFERS DISCHARGE
o (4) D can voluntary surrender estate if requirements met:
Assets sold and their proceeds go to distribution among the C
ito Insolvency Act.
Sequestration may eventually benefit D by granting fresh start.
Concursus Creditorium
IL based on 2 principles:
o (1) C have right to satisfy their claim(s) through process of
execution against assets of D (C has right to be paid).
o (2) concurrency of creditors who do not have secured claim – but
procedure will be out into motion only if advantage/benefit to
creditors can be proved:
Concurrent creditors paid proportionately and treated equally.
Some C take security for debt (these C get paid first).
Unsecured C protect themselves by having high interest rates.
Unsecured C get paid from asserts who have no burden
(assets which are not linked to C for security).
If more than one C attached to same asset – first in time, first
in right rule.
o Concursus Creditorium – general interest of creditors AS A
GROUP is more important than interests of individual creditors –
Creditor cannot get (through execution) receive full payment of
his debt at the cost of other creditors.
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