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MRL3701 - PAST EXAM SOLUTION NOTES
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- University Of South Africa (Unisa)
MRL3701 - PAST EXAM SOLUTION NOTES
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MRL3701EXAM SOLUTIONS
SEMESTER 01 – 2023
1
1.1 The purpose of a sequestration order is to declare an individual or entity bankrupt
and to administer the distribution of their assets among their creditors. It is a legal
process used to resolve outstanding debts when a debtor is unable to repay their
creditors.
1.2 The statement "A sequestration order may not be granted if a debtor has only one
creditor and there are not enough assets to cover the costs of sequestration" is true.
In order for a sequestration order to be granted, there must be more than one creditor.
This is because the purpose of sequestration is to distribute the debtor's assets fairly
among all their creditors. If there is only one creditor and the debtor's assets are
insufficient to cover the costs of the sequestration process, it would not be
economically viable or equitable to grant a sequestration order.
1.3 In the scenario described, David wants to know if he can apply for the compulsory
sequestration of Samuel's estate due to Samuel's outstanding debt to him. In South
Africa, the Insolvency Act 24 of 1936 governs matters related to sequestration and
bankruptcy. According to the Act, a creditor can apply for the sequestration of a
debtor's estate if the debtor is unable to pay their debts as they become due. David
would need to meet certain requirements and follow the legal process outlined in the
Act to apply for Samuel's compulsory sequestration.
First, David needs to prove that Samuel is unable to pay his debts. This can be done
by demonstrating that Samuel has committed an act of insolvency, such as not paying
his debts or making arrangements to pay them. David can use the letter from Samuel
to Lenny as evidence of Samuel's inability to pay.
David should consult with a lawyer specializing in insolvency law to guide him through
the application process. The lawyer will assist David in preparing the necessary
documents, such as a founding affidavit, and filing the application with the court. The
court will then evaluate the evidence and determine whether to grant the compulsory
sequestration order, appointing a trustee to administer Samuel's estate.
1.4 Harksen v Lane 1998 (1) SA 300 (CC) was a landmark case in South African
constitutional law. The case involved a challenge to the constitutionality of certain
provisions of the Sequestration Act, which allowed for the automatic sequestration of
a person's estate without the person being given an opportunity to be heard before the
sequestration order was granted.
In this case, the Constitutional Court held that the automatic sequestration provisions
of the Sequestration Act violated the right to just administrative action as enshrined in
the South African Constitution. The court found that the right to be heard before a
decision that substantially affects a person's rights is a fundamental aspect of the rule
of law and due process.
, The court's decision in Harksen v Lane emphasized the importance of procedural
fairness and the right to be heard in sequestration proceedings. It established the
principle that individuals should have an opportunity to present their case and defend
their rights before a sequestration order is granted against them.
1.5 Section 27 of the Insolvency Act 24 of 1936 provides for the automatic
sequestration of a debtor's estate when certain criteria are met. However, this section
has the potential to violate section 9(3) of the Constitution, which prohibits unfair
discrimination.
Section 9(3) of the Constitution states that no person may be discriminated against on
various grounds, including race, gender, religion, and social origin. If the criteria for
automatic sequestration under section 27 disproportionately affect certain individuals
or groups based on these protected grounds, it could be considered unfair
discrimination.
For example, if the criteria for automatic sequestration disproportionately affect
individuals from a specific racial or religious group, it would be inconsistent with the
constitutional principle of equality. The application of section 27 should be scrutinized
to ensure that it does not unfairly discriminate against any individuals or groups
protected by the Constitution.
1.6 Sarrahwitz v Maritz NO and Another 2015 (4) SA 491 (CC) is a notable case in
South African constitutional law that dealt with the rights of creditors in the context of
insolvency proceedings.
In this case, the Constitutional Court examined the constitutionality of certain
provisions of the Insolvency Act that allowed a liquidator to institute an inquiry into the
financial affairs of a debtor and summon the debtor to give evidence. The court
considered whether these provisions violated the debtor's right to remain silent and
not to incriminate themselves, as protected by section 35(1)(c) of the Constitution.
The court held that the provisions allowing for the inquiry did not infringe on the
debtor's right against self-incrimination. The court emphasized that the purpose of the
inquiry was to gather information about the debtor's financial affairs, not to use that
information against the debtor in criminal proceedings. The court recognized the
importance of striking a balance between the interests of the creditors and the rights
of the debtor.
Sarrahwitz v Maritz NO and Another affirmed the constitutionality of the provisions that
enable the inquiry into a debtor's financial affairs. The case highlighted the importance
of balancing the rights of creditors to recover debts and the rights of debtors to certain
constitutional protections, such as the right against self-incrimination.
2
2.1 A secured claim and a preferent claim are two different types of claims that
creditors can have in insolvency proceedings:
Secured Claim: A secured claim is a claim that is backed by a security or collateral.
The creditor has a right to specific assets or property of the debtor that can be used to
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