CASES SUMMARY
Insolvency Law
MRL301-M
Magnum Financial Holdings (Pty) Ltd (in liquidation) v Summerly NO 1984 (1) SA 160(W)
Facts A company in liquidation had a claim for R 1,6 million, which was due and payable,
against the Summerly Trust who:
i) committed an act of insolvency in terms of Section 8(g) of the Insolvency Act; and
ii) was insolvent in any event.
This company proceeded with an application for a provisional sequestration order on
an urgent basis as it was to the advantage of the creditors. There had been sufficient
service of the papers on the trustee of the trust and the one provisional liquidator of
the applicant company had locus standi to apply for the provisional sequestration of
the trust estate. Furthermore, the necessary security bond had been duly lodged and
also annexed to the court papers.
Legal question Could a trust be regarded as a debtor in the usual sense of the word for purposes of
Section 2 of the Insolvency Act and, therefore, be sequestrated?
Finding The provisional sequestration order was granted.
Ratio decidendi As no South African case seemed to have dealt with this issue, the court relied on the
Southern Rhodesian case of Ex parte Milton where the voluntary surrender of the
estate of an administrative trust created by contract was approved. The trust fell within
the definition of a “debtor” and could be described as a debtor in the usual sense of
the word. Through its trustee, the trust could borrow money and, as a property owner,
be liable for rates and taxes. Creditors would be paid only from the trust's property
and the trustees incurred no personal liability. A concursus creditorum could not be
established by sequestrating the estates of the donor of the trust property, the trust
beneficiaries, or the trustee. The Rhodesian court also relied on a South African
decision concerning a club which owned property apart from its members, who were
not liable for its debts beyond the amount of their subscriptions. Such a club was a
debtor within the meaning of the Insolvency Act, and its estate could therefore be
sequestrated.
The court further gave the common-law meaning of "any body corporate" as an
association of individuals capable of holding property and of suing and being sued in
its corporate name, or a universitas having the capacity to acquire certain rights apart
from the rights of the individuals which form it, and having perpetual succession (ie,
continuous existence) and held that a trust could not be regarded as a body corporate.
The court held that a trust is not a juristic person and so it may not be liquidated in
terms of the Companies Act.
A trust, however, qualified as a debtor in the ordinary sense of the word as it can
clearly possess assets and incur liabilities, which are evident from the founding
affidavit, and therefore a trust estate may indeed be sequestrated.
Ex parte Henning 1981 (3) SA 843 (O)
Facts In an application for the surrender of the applicant’s estate, it appeared that his wife, to
whom he was married out of community of property, made a monthly contribution from
her salary to pay his creditors. A creditor opposed based on the following grounds:
i) that the application didn’t comply with the requirements of Section 6(1) because the
applicant's assets didn’t cover costs of sequestration payable from the free residue;
ii) that the respondent would be much better off if the application for voluntary
Insolvency Law
MRL301-M
Magnum Financial Holdings (Pty) Ltd (in liquidation) v Summerly NO 1984 (1) SA 160(W)
Facts A company in liquidation had a claim for R 1,6 million, which was due and payable,
against the Summerly Trust who:
i) committed an act of insolvency in terms of Section 8(g) of the Insolvency Act; and
ii) was insolvent in any event.
This company proceeded with an application for a provisional sequestration order on
an urgent basis as it was to the advantage of the creditors. There had been sufficient
service of the papers on the trustee of the trust and the one provisional liquidator of
the applicant company had locus standi to apply for the provisional sequestration of
the trust estate. Furthermore, the necessary security bond had been duly lodged and
also annexed to the court papers.
Legal question Could a trust be regarded as a debtor in the usual sense of the word for purposes of
Section 2 of the Insolvency Act and, therefore, be sequestrated?
Finding The provisional sequestration order was granted.
Ratio decidendi As no South African case seemed to have dealt with this issue, the court relied on the
Southern Rhodesian case of Ex parte Milton where the voluntary surrender of the
estate of an administrative trust created by contract was approved. The trust fell within
the definition of a “debtor” and could be described as a debtor in the usual sense of
the word. Through its trustee, the trust could borrow money and, as a property owner,
be liable for rates and taxes. Creditors would be paid only from the trust's property
and the trustees incurred no personal liability. A concursus creditorum could not be
established by sequestrating the estates of the donor of the trust property, the trust
beneficiaries, or the trustee. The Rhodesian court also relied on a South African
decision concerning a club which owned property apart from its members, who were
not liable for its debts beyond the amount of their subscriptions. Such a club was a
debtor within the meaning of the Insolvency Act, and its estate could therefore be
sequestrated.
The court further gave the common-law meaning of "any body corporate" as an
association of individuals capable of holding property and of suing and being sued in
its corporate name, or a universitas having the capacity to acquire certain rights apart
from the rights of the individuals which form it, and having perpetual succession (ie,
continuous existence) and held that a trust could not be regarded as a body corporate.
The court held that a trust is not a juristic person and so it may not be liquidated in
terms of the Companies Act.
A trust, however, qualified as a debtor in the ordinary sense of the word as it can
clearly possess assets and incur liabilities, which are evident from the founding
affidavit, and therefore a trust estate may indeed be sequestrated.
Ex parte Henning 1981 (3) SA 843 (O)
Facts In an application for the surrender of the applicant’s estate, it appeared that his wife, to
whom he was married out of community of property, made a monthly contribution from
her salary to pay his creditors. A creditor opposed based on the following grounds:
i) that the application didn’t comply with the requirements of Section 6(1) because the
applicant's assets didn’t cover costs of sequestration payable from the free residue;
ii) that the respondent would be much better off if the application for voluntary
