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INSOLVENCY:
CHAPTER 2
VOLUNTARY SURRENDER
There are 2 ways an estate can be sequestrated:
- By the debtor – applies to the court for the acceptance of the surrender of his estate = voluntary sequestration.
- The creditor/creditors apply to the court for the sequestration of the debtors estate = compulsory sequestration.
Who can apply for voluntary sequestration?
a)The debtor or his agent (natural person)
b)The estate of a deceased debtor = the executor
c)For the estate of a debtor who is incapable of managing his own affairs = the curator bonis
d)The partnership estate – all the partners or their agents
e)The joint estate of spouse married in community – both spouses.
Requirements:
The court can only accept the surrender of the debtor’s estate if it’s satisfied that:
1)The debtor is in fact insolvent
2)Debtor owns sufficient realizable assets to defray the costs of sequestration
3)The sequestration will be to the advantage of the creditors
4)The court is satisfied that the preliminary formal requirements have been complied with.
1. The debtor’s estate is insolvent:
His liabilities must exceed his assets.
2. Free residue enough to pay the costs of sequestration:
= Enough realizable assets to pay the costs of sequestration.
Free residue: that portion of the estate which isn’t subject to any right of preference because of a mortgage, hypothec, pledge or right of retention.
The debtor must have enough assets to pay the costs of sequestration. A debtor who has no assets can’t apply.
An estate that only has liabilities must be compulsorily sequestrated.
3. Sequestration will be to the advantage of the creditors:
The debtor has to prove that the sequestration will be to the advantage of the creditors, but in compulsory sequestration the creditor merely has to show that there is reason to believe that it will be to the advantage of the creditors.
The onus is more strenuous in voluntary sequestration because the debtor can provide a detailed account of his financial position (Hillhouse).
Ex Parte Henning:
The debtor’s wife (married out of community) made a monthly contribution from her salary to pay his creditors.
The question was whether this should be taken into account when deciding if the sequestration would be to the advantage of the creditors.
The court held that it couldn’t be taken into account because it was uncertain whether the wife would keep working and paying.
The respondent said that the application for voluntary sequestration wasn’t for the benefit of the creditors but to avoid paying the debt.
Ex Parte Henning
Facts: the debtor’s wife (who was married out of community) made a monthly contribution from her salary to pay his creditors.
The question was if this fact should be taken into account to determine if sequestration would be to the advantage of the creditors.
The court held it couldn’t be taken into account because it was uncertain whether the debtor’s wife would keep working and continue making the monthly payments.
She couldn’t be compelled to do so because her husband’s creditors weren’t her creditors.
The respondent opposed the application for voluntary surrender on the ground that the applicant didn’t comply with the requirements of S6 (1), because his assets didn’t cover the costs of sequestration.
The respondent argued that the applicant was bringing the application, not to benefit the creditors but to avoid paying the claim.
The court decided on the facts that this argument lacked substance – if the applicant wanted to avoid paying the claim, it would have suited him for his wife to stop working and to sit back without paying anything, so that his creditors could sequestrate his estate.
PRELIMINARY FORMALITIES
- Step 1: notice of intention to surrender:
a)Debtor must publish the notice in the Government Gazette and a paper in the district where he resides.
b)The notice must state: name/address/occupation/ date on which the court will hear the matter and when the statement of affairs will lie open for inspection.
c)The publication must be between 14-30 days before the hearing
d)The purpose of the notice is to inform creditors in case they want to oppose it.
e)There is a 14-day limit to give creditors an opportunity to look at the statement of affairs and decide if they want to oppose it or not.
f)Failure to comply with the 30 day time limit = fatal
g)Publication must be proved – filing copies.
- Step 2: Notice to each creditor:
Within 7 days of the date of publication in the Government Gazette the debtor must deliver a copy of the notice to every one of his creditors whose address he knows or can ascertain.
Notice to trade union and employees:
Debtor must post a copy of the notice to every registered trade union that represents his employees and must give the employees themselves notice by either:
Putting copy on notice board inside premises where employees have access.
Putting notice on front gate of premises or
On the front door of the premises.
Notice to SARS:
Debtor must send a copy of the notice to SARS by post.
- Step 3: Lodging the statement of affairs:
The statement of affairs must contain the following:
a)Balance sheet
b)List of immovable assets – value/mortgage
c)List of movable assets
d)List the debtors address and details
e)List of creditors, their addresses, particulars of their claim and any security held by them
f)List of movables which have been pledged, have a lien, hypothec or writ of execution over them
g)Statement of the cause of insolvency
h)Personal information – prior to insolvency
i)Affidavit that the information so given is true.
Ex Parte Henning:
The statement of affairs lay for inspection but it didn’t contain the personal information of the debtor – it was clear that no creditor had been prejudiced by this defect in deciding whether to oppose this application.
The court was prepared to condone this defect.
Ex Parte Anthony: the applicant who relies on the fact that he has immovable property which can be sold for the benefit of the creditors must include evidence of a valuator proving the likely proceeds of the sale of the property.
Read lodging of the statement page 22 NB
Effect of the notice of intention to surrender
Stay of sale in execution:
On publication in the Government Gazette – it’s unlawful to sell property under a writ of execution unless the sheriff didn’t know about the publication (S5 (1))
If the sale is held, it illegal and the debtor can resist proceedings by the buyer to enforce it.
BUT if the ownership is transferred to the buyer after an illegal sale, the trustee can’t claim the property unless he can prove that the buyer acted in bad faith and with the knowledge that the sale was unlawful.
Where the court authorizes the sale to proceed, it may direct that the proceeds be handed to the master pending the outcome of the application of surrender.
Curator Bonis may be appointed:
After the notice the debtor still has possession of his property and can do with his property, as he likes.
So the master must appoint a curator bonis to take control of the estate.
The estate remains vested with the debtor and the curator is only the caretaker.
Possible compulsory sequestration:
If after publishing the notice the debtor fails to give a statement of affairs etc and the notice isn’t properly withdrawn the debtor commits an act of insolvency, which entitles a creditor to apply for compulsory sequestration (s8(f)).
The notice of intention to surrender lapses if the court doesn’t accept the surrender or if the debtor fails to make the application within 14 days.
Lapse of the notice to surrender:
Notice lapses if the court doesn’t accept the surrender when the application is made, if the notice isn’t properly withdrawn or of the debtor fails to make the application within 14 days after the date advertised as the date for the hearing.
The creditor can apply for compulsory sequestration if the debtor published a notice of intention to surrender and then fails to make the application on the given date.
S6 (2): the notice of intention to surrender lapses 14 days after the day advertised for the hearing.
The creditor must apply before the 14 days lapses, if he waits longer than the 14 days the notice will have lapsed and the debtor’s failure may no longer serve as a ground for compulsory sequestration.
If a curator has been appointed to look after the debtors assets, the control of the estate must vest in the debtor as soon as the master is satisfied that provision is made for the payment of the costs incurred by the curator.
Application for surrender
Application must contain the following information:
1. Name, occupation, address and locus standi of the debtor
2. The allegation that the debtor is insolvent
3. Explain why he is insolvent
4. Statement that the debtor has assets to pay the costs of sequestration
5. Allegations that it’s to the advantage of the creditors
6. Details of debtors salary / income
7. Information, which may influence the court
Copy of the application to a consulting party:
If the debtor is an employer, he must provide a consulting party with a copy of the application which deals with the dismissal of employees based on the employers operational requirements – it requires the employer to consult the following:
a)Person who he is required to consult in terms of a collective agreement
b)If there’s no collective agreement – workplace forum or registered trade union.
c)If no workplace forum then a registered trade union
d)If no trade union = the employees likely to be affected or their representatives.
In the Cape the master’s report must be obtained and filed before the application.
Opposition to the application:
A creditor can oppose the application even if his claim is less than the amount required entitling him to apply for compulsory sequestration and even if his claim is disputed by the debtor.
Courts discretion:
Court can refuse an application based on:
a)The debtors extravagance and increase of debts after the judgment is granted against him
b)Creditors aren’t pressing him for payment and are prepared to accept installments
c)Debtor has an ulterior motive (avoid paying)
d)Debtor failed to give a full account of his financial position.
Setting aside the sequestration order:
No appeal lies against an order refusing to accept the surrender of someone’s estate but anyone aggrieved by an order accepting the surrender may appeal.
S149 empowers the court to vary an order made by it – if it was clearly defective.
S129 (1) (b): consequence of a rehabilitative order is that the debtor is discharged from all debts, which arose before the sequestration.
Rehab order helps the debtor builds a new estate without being harassed by old creditors who haven’t been paid in full.
If the debtor isn’t rehabilitated but the order was set aside the debtor remains liable for all the debts, which existed before the sequestration order.