Summary

ISR310 Summary - Week 1-10

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Course
Insolvency Law ISR310 (ISR310)

Institution
University Of Pretoria (UP)

Foundational Concepts, Technical Aspects, Voluntary Surrender, Compulsory Surrender, Distribution and Contribution, Consequences of Sequestration for the Debtor and his Spouse, Assets in the Insolvent Estate, Unexecuted Contracts, Impeachable Transactions.

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Uploaded on May 29, 2023
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isr310
insolvency law
case law
isr
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FOUNDATIONAL CONCEPTS
Overview of total field of Insolvency Law
IL def = totality of rules regulating situation where debtor cannot pay his debts (his
liabilities are more than his assets).

SA = pro creditor system
- Creditor has right to claim satisfaction.
- Just because he might not be paid in full doesn’t mean this right falls away.
- Sequestration meant to benefit creditors.

Factual v commercial insolvency
Factual Insolvency (balance sheet insolvency)
- Liabilities are more than debts.
- Important for voluntary surrender.

Commercial insolvency (cash flow insolvency)
- Assets are more than liabilities but there isn’t enough liquid cash to pay debts.
- Important for insolvent companies.

Collection process
Options for creditors –
1. Individual debt collection procedure.
SEQUESTRATION PROCESS SUMMARY
1. Pre sequestration - Debtor is declared insolvent (factually or commercially).
2. Process to get sequestrated - Court application is made.
3. Administration - Estate vests in the Master until they appoint trustee.
- Debtor loses control of his estate as soon as the sequestration order is
given.
- Trustee sells debtors assets to repay creditors (selling property in auction
= execution.
4. Rehabilitation. - Discharge of all debtor’s pre-sequestration debt.

2. Sequestration procedure.

Formal sequestration is where someone is declared insolvent and the court grants
the sequestration order

, - This prevents ‘grab law’ (creditors can take anything away from debtor on first
come first serve basis).

Aim of sequestration –
1. Orderly distribution of assets.
2. Fair payment in acc. with rules of insolvency.

Investec v Mutemeri (Naidoo v ABSA)
- Sequestration is not ordinary debt collection process.
- It is aimed at achieving different outcomes than individual enforcement.
- Sequestration order is not for the enforcement of a claim but rather to bring
convergence of claims to the insolvents estate (to ensure creditors are treated
equally in an orderly fashion).

When can a creditor claim performance from a debtor?
1. When he fails to perform a contractual obligation.
2. When he fails to satisfy his debt.

A creditor can individually or collectively apply for sequestration of the debtor
- Compulsory sequestration = the action which activates debt enforcement
procedures available to creditors.
- Purpose of debt enforcement procedures is to pay a portion of all debts to
creditors (instead of paying a few creditors in full).

Individual debt collection - Creditor sues debtor.
- Purpose = the debtor can dispute the debt to defend themselves
against the summons.
- C sends letter of demand > if the D doesn’t pay debts the court issue
a summons > D gets judgement debt > C sells assets of debtor > that
money is used to satisfy debt.
Collective debt collection - Debtor doesn’t have enough money to pay multiple creditors.
- Creditors are grouped into 1 process where the funds are distributed.
- Person goes insolvent > court application > debt pushed into
insolvency > trustee liquidates assets and pays creditors > discharge
of debts.

Insolvency law has a special nature – the rules cater for situations when the debtor
doesn’t have enough money to pay all creditors.

,- Insolvency law aims to limit the costs of process so that debtor can pay as much
to creditors as possible.

Concursus Creditorum
Concursus Creditorum = general interest of creditors as a group has priority over the
interest of individual creditors = Walker v Syfret
- No agreement can be entered into by a creditor that would prejudice the general
body of creditors.
- The claim of each creditor must be dealt with as it existed when the issue was
ordered.
Concursus Creditorum manifests in 2 ways –
1. Creditor may only receive payment within the rules of Insolvency Law.
2. Creditors get paid in order of rankings.
Ranking –
1. Secured creditors have a secured asset in case the debtor goes insolvent.
2. Unsecured creditors –
2.1 statutory preferent creditors (legislation provides that they will be paid
first).
2.2 Concurrent creditors have no secured asset and are not mentioned in
statute.

Sources of Insolvency Law and the application to natural and juristic persons
1. Insolvency Act = Regulates sequestration of natural persons and partnerships.
2. Companies Act (2008) = Deals with solvent companies.
3. Companies Act (1973) = Regulates liquidation of insolvent companies.
- If the matter is not provided for in this Act, s339 of this Act allows the Insolvency
Act and common law to apply.
4. Close Corporations Act = regulates liquidation of insolvent banks.
5. Constitution = principles of Insolvency Law must comply with Constitution.
6. Case Law
7. Common Law

Consumer/personal insolvency
- Regulated by the Insolvency Act and Common Law.

, - Deals with sequestration.
- Applies to the estate of a person.
- Rehabilitation after sequestration process.

Corporate Insolvency
- Regulated by the Companies Act and Close Corporation Act.
- Allowed to use Insolvency Act if above Acts don’t provide answers.
- Deals with liquidation.
- Applies to the estate of an entity.
- Brings the juristic person to an end.
- Business rescue after the liquidation process.

Debt relief procedures – DEBTOR FOCUSED
Voluntary negotiations procedure (no applicable legislation)
- Negotiating a repayment plan with creditors.
- Limit = Any amount of debt.
- Benefit = repay as you can and agree not to collect debt individually.
- Access issue = debtor may commit an act of insolvency which would allow the
creditor to sequestrate estate.

Voluntary surrender (Insolvency Act)
- Debtor approaches court and asks for their estate to be sequestrated.
- Limit = any amount of debt.
- Benefit = discharge of pre-sequestration debt.
- Access issue = debtor must prove that sequestration would be the advantage of
creditors and it is a costly process.

Debt review (Nation Credit Act)
- Debtor approaches a debt counsellor, and a repayment plan is drawn up.
- Limit = no limit on amount of debt but it only applies to credit agreements
(excludes agreements where credit providers have commenced individual
enforcement procedures).
- Benefit = repayment plan and debtor is protected from creditors.
- Access issue = debtor must have disposable income.

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