In depth summary of Mercantile Law 198 notes relating to Insolvency Law, which is taught and tested on in second semester. The notes are typed up with extra information attained through attending all lectures.
I received over 80% for my final Merc Law exam in first year.
INSOLVENCY
LAW
Chapter 1:
Ordinarily someone is deemed to be insolvent if he is unable to pay his debts. Therefore insolvency
covers both factual and commercial insolvency.
Factual insolvency - the court must ask itself whether the liabilites of the debtor exceed his assets.
Commercial insolvency - Occurs when someone’s assets stll exceed his liabilites but due to a lack of
cash fow or other problems he is NABLE to pay his debts
Someone is not deemed insolvent untl a FORMAL ORDER of a competent court is obtained. This is
necessary for legal consequences to fow from an insolvency positon. This formal order is known as
a SEQ ISTRATION ORDER = the formal declaraton that a debtor is insolvent.
The purpose of a sequestraton order:
1. Is to bring about a roper distributon of the assets of the debtor amongst his creditors.
The assets of the debtor are liquidated (sold or converted into cash) and the proceeds
are distributed among the creditors in a FIXED FORM LA and in a partcular order.
2. To bring about a meetng of creditors
The individual creditors are viewed as a group so that the individual interests of
creditors are viewed as secondary to the interests of the group as a whole.
3. To prevent a single creditor from being favoured
Prevents one creditors debt being setled while another’s is stll fully outstanding. Allows
are fair and equal distributon to the creditors in proporton to their claims.
What is being sequestrated?
The estate of the debtor - which consists of all the assets and all the liabilites of the debtor.
If person only has liabilites it DOES NOT consttute as an estate that can be sequestrated.
Married in community of property - If one spouse is insolvent the COMMON estate of the partes is
sequestrated, even if one of them has a separate business.
Partnerships - If a partnership is sequestrated, the partnership as an entty as well as the separate
estates of the partners are sequestrated.
Companies - Are a separate legal entty and are therefore not sequestrated, but are liquidated in
accordance with the Companies Act.
,Whose estate can be sequestrated and where is it sequestrated?
The estate of any natural person, partnerships, deceased persons and insttutons that can hold
property in its own name, such as trusts.
The High Court is the only court to have jurisdicton to decide on insolvency maters.
A special division of the court will have jurisdicton to hear an applicaton if:
The debtor has his place of permanent residency within the court’s jurisdicton
If the debtor owns property within the court’s jurisdicton
If the debtor had usually resided or conducted business within the jurisdicton of the court
within a period of 12 months prior to the applicaton for sequestraton.
Chapter 2:
2 forms of insolvency:
1. Voluntary Sequestratonn
Occurs when the debtor or his authorised agent applies for the sequestraton of his
state.
4 Requirements:
The estate of the insolvent is indeed insolvent:
Must draf a statement of afairs in which he lists the value of all his assets and
liabilites.
The debtor has sufcient assets to cover the sequestraton costs:
Must come from the free residue = the porton of the estate that is not subject to a right
of preference due to a special bond, tacit hypothec, lien or pledge.
If not enough free residue the court M ST refuse the sequestraton.
The sequestraton must be to the advantage of the creditors as a group
Certain formalites must be compiled with:
Notce of surrender - must be published by the debtor in the oovernment
oazete and a newspaper. Must be published 1 - 30 days before the applicaton
date for sequestraton.
Statement of afairs - must contain all informaton related to assets and
liabilites of the estate. Must lodge a duplicate lodged with masters ofce.
Master has 1 days to inspect the SOA. Thereafer the Master will issue a
certficate of insolvency that must be filed with the registrar if the court.
, Consequences of publicaton of notce:
Sales in executon of the debtors assets are stayed- if a sale is made it will be
declared void.
A curator bonis may be appointed to take care of the estate.
The notce itself can be seen as an act of insolvency - notce may only be withdrawn
with the consent of the Master.
The notce lapses if the court does not grant the sequestraton order, if the notce is
properly withdrawn or if the debtor does not bring his applicaton within 1 days of
the date of the sequestraton applicaton.
2. Compulsory Sequestraton
The creditors of the debtor may also apply to have the estate of the debtor
sequestrated.
3 Requirements:
Creditor must have locus standi:
He must have a claim of at least R100 to bring against the applicaton.
Must be proof that the debtor is insolvent:
Onus is on the creditor to prove that the debtor has commited an act of insolvency.
There are 8 acts of insolvency:
If the debtor departs from South Africa with the intenton to avoid or delay
payment of his debts.
If a court has given judgement against the debtor and he fails to satsfy the
judgement. The act of insolvency is proved by means of a nulla bona return that
is drafed by the sherif. The sherif’s report must state that there is insufcient
disposable property.
If debtor disposes of property THAT prejudices or advantages one creditor. 2
Situatons arise, namely 1. When there is an actual dispositon of property and 2.
When there is an atempt made to dispose of property.
If debtor removes property with the INTENTION of prejudicing one creditor.
When the debtor atempts to make agreements to be released in part or in full
of his debt. If a person asks for an extension or denies an amount owed it DOES
NOT consttutes an act of insolvency.
If the debtor fails to lodge a statement of afairs with the Master afer
publicaton of a Notce of surrender, if the SOA is wrong or if the debtor fails to
apply for voluntary surrender on the date mentoned in the NOS.
If the debtor notfies any of his creditors in writng that he is unable to pay his
debt.
If a dealer wants to dispose of his business and that disposal is not in the
ordinary course of that business, the dealer has to publish a notce of the
intended disposal in the oovernment oazete. The efect is that all debts
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