MRL3701 notes: hocklys insolvency:
LEARNING UNIT 1:
1.1. Meaning of insolvency:
In the legal sense, the test for insolvency is whether the debtors liabilities
exceed his assets, when estimated. The debtor not being able to pay his debt
is merely evidence of insolvency.
Even when the debtor cannot pay his liabilities, and the test of insolvency has
been proven, the debtor is not classified as insolvent until the court grants the
sequestration order, which is the formal declaration of the insolvency of a
debtor.
Sequestration order is granted in either 2 ways; 1. At the instance of the debtor
himself, or 2. At the instance of the 1 or more creditors of the debtor.
Sequestration/sequestration order = the estate
Insolvency= the debtor or the debtor and his estate.
1.2. What’s the purpose of the sequestration order?
• When a debtors assets are not enough to cover all of his creditors’ claims,
to ensure fair and orderly division of those assets. There are two types the
creditors' individual efforts to collect their money from the debtor and The
process of collective debt collecting that might occur during insolvency
proceedings
• A creditor may issue a summons and request a judgment from the court if
their letter of demand for payment of the debt is unsuccessful. The
judgment creditor gives effect to the judgment by issuing a warrant of
execution, which directs the sheriff to take possession of the debtor's
property and sell it (realize) it so the creditor may profit from the sale.
• With a garnishee order, the creditor demands that the party owing the
debtor money—such as the debtor's employer—pay the creditor instead,
frequently in instalments. When a debtor in insolvent circumstances has
their property executed upon, one or a small number of creditors will
unavoidably get payment, while the remaining creditors will receive little or
nothing.
• The communal debt-collection process of bankruptcy procedures is used to
avoid this selective conclusion that favours one or a small number of the
debtor's creditors. The legal process that kicks in during sequestration is
,intended to ensure that the debtor's assets are sold and dispersed among
all his creditors in a specified (equitable) order of preference.
• A concursus creditorum, or "coming together of creditors," is created
upon the issuance of an order (or preliminary order) of sequestration,
and the interests of creditors collectively take precedence over those of
individual creditors.
• Walker v Syfret NO 1911 AD 141 166, Innes J explained the underlying
principle Ensuring a fair distribution of assets among creditors in the
order of their preference is the goal of the [Insolvency Act]. The
sequestration order solidifies the insolvent's position; the estate is
subject to the law, and the rights of all creditors must be immediately
taken into account. After then, a single creditor cannot engage in any
estate-related transactions that might harm the group as a whole. Each
creditor's claim must be handled as it was at the time the order was
issued.
• Sequestration must benefit creditors since insolvency in South Africa is
creditor friendly.
Usually, won't sequestrate if there is just one creditor; all creditors must
get an applicable dividend.
It must always benefit creditors.
contradicts other legal systems, including as the United States, which
favour debtors and offer new beginnings.
Note: NINA debtors! Debtors who have no assets and no income may
face constitutional challenges.
Sequestration is not meant to solve the debtor's issues; it is still the
sole method for him to get his obligations forgiven via rehabilitation.
Additionally, insolvency shields everyone against avaricious and
dishonest creditors.
All parties are impacted by sequestration, which has an impact on the
debtor's ability and freedom to engage into contracts, choose a career,
and file lawsuits.
,1.3. What may be sequestrated:
The "estate" of a "debtor" may be sequestrated in accordance with the
Insolvency Act. Therefore, the estate of the individual is sequestrated rather
than the person themselves.
Meaning of estate:
Generally speaking, an estate is a group of assets and obligations. Even if a
debtor has no assets and just liabilities, they may still be considered to have an
estate for the purposes of sequestration.
The court dismissed the claim in Miller v. Janks that an individual who lost their
assets no longer had an estate. According to the court, an estate is nonetheless
an estate even if it includes:
• Only assets
• Only liabilities
• Both liabilities and assets
The joint estate of spouses:
• For the purposes of bankruptcy, the joint estate is the estate of spouses
who are married in a community of property marriage.
• One spouse does not have a sequestrable separate estate.
• According to the Act, both spouses become insolvent debtors upon the
sequestration of the joint estate.
• Each spouse receives a distinct estate upon a divorce, which needs to
be sequestrated individually.
• The individual estates of both spouses must be sequestrated if a creditor
had the authority to request sequestration of the combined estate prior
to the divorce.
When married outside of community of property:
• It is possible to sequestrate the distinct estate of a debtor who was
married outside of common property.
• However, until the spouse establishes ownership, the trustee temporarily
acquires the assets of the solvent spouse.
, A second estate in the event of bankruptcy:
During insolvency, a debtor who has previously had their estate sequestrated
may get a new estate under a title that is enforceable against the trustee.
• It is possible to willingly give up this new estate.
• Additionally, it might be forced into sequestration.
Meaning of a debtor:
Section 2 of the Insolvency Act defines a “debtor” as:
A person, a partnership, or the estate of a person or partnership which is a debtor in
the usual sense of the word, excluding a body corporate, company, or association
that may be placed in liquidation under company law.
In the conventional sense, an entity is a debtor if it is able to:
• own a property, and
• incur debt.
A debtor includes:
• The following are included in "debtor":
• A person who is naturally
• Even if each member is a legal person, a partnership
• A person who has passed away
• Someone who is unable to handle their own problems
• An outside business that doesn't fit the legal criteria of liquidation
• An organization that is not a legal person, like a trust
Debtor excludes:
• A company
• Corporate body
• Any entity who can be placed under liquidation under company legislation
Jurisdiction of courts:
1.4.1 Which court has jurisdiction
As a general rule, only a Provincial or Local Division of the High Court may
adjudicate insolvency matters (as defined in s 2 of the Insolvency Act).
A magistrates’ court may, however, deal with certain limited matters, such as:
LEARNING UNIT 1:
1.1. Meaning of insolvency:
In the legal sense, the test for insolvency is whether the debtors liabilities
exceed his assets, when estimated. The debtor not being able to pay his debt
is merely evidence of insolvency.
Even when the debtor cannot pay his liabilities, and the test of insolvency has
been proven, the debtor is not classified as insolvent until the court grants the
sequestration order, which is the formal declaration of the insolvency of a
debtor.
Sequestration order is granted in either 2 ways; 1. At the instance of the debtor
himself, or 2. At the instance of the 1 or more creditors of the debtor.
Sequestration/sequestration order = the estate
Insolvency= the debtor or the debtor and his estate.
1.2. What’s the purpose of the sequestration order?
• When a debtors assets are not enough to cover all of his creditors’ claims,
to ensure fair and orderly division of those assets. There are two types the
creditors' individual efforts to collect their money from the debtor and The
process of collective debt collecting that might occur during insolvency
proceedings
• A creditor may issue a summons and request a judgment from the court if
their letter of demand for payment of the debt is unsuccessful. The
judgment creditor gives effect to the judgment by issuing a warrant of
execution, which directs the sheriff to take possession of the debtor's
property and sell it (realize) it so the creditor may profit from the sale.
• With a garnishee order, the creditor demands that the party owing the
debtor money—such as the debtor's employer—pay the creditor instead,
frequently in instalments. When a debtor in insolvent circumstances has
their property executed upon, one or a small number of creditors will
unavoidably get payment, while the remaining creditors will receive little or
nothing.
• The communal debt-collection process of bankruptcy procedures is used to
avoid this selective conclusion that favours one or a small number of the
debtor's creditors. The legal process that kicks in during sequestration is
,intended to ensure that the debtor's assets are sold and dispersed among
all his creditors in a specified (equitable) order of preference.
• A concursus creditorum, or "coming together of creditors," is created
upon the issuance of an order (or preliminary order) of sequestration,
and the interests of creditors collectively take precedence over those of
individual creditors.
• Walker v Syfret NO 1911 AD 141 166, Innes J explained the underlying
principle Ensuring a fair distribution of assets among creditors in the
order of their preference is the goal of the [Insolvency Act]. The
sequestration order solidifies the insolvent's position; the estate is
subject to the law, and the rights of all creditors must be immediately
taken into account. After then, a single creditor cannot engage in any
estate-related transactions that might harm the group as a whole. Each
creditor's claim must be handled as it was at the time the order was
issued.
• Sequestration must benefit creditors since insolvency in South Africa is
creditor friendly.
Usually, won't sequestrate if there is just one creditor; all creditors must
get an applicable dividend.
It must always benefit creditors.
contradicts other legal systems, including as the United States, which
favour debtors and offer new beginnings.
Note: NINA debtors! Debtors who have no assets and no income may
face constitutional challenges.
Sequestration is not meant to solve the debtor's issues; it is still the
sole method for him to get his obligations forgiven via rehabilitation.
Additionally, insolvency shields everyone against avaricious and
dishonest creditors.
All parties are impacted by sequestration, which has an impact on the
debtor's ability and freedom to engage into contracts, choose a career,
and file lawsuits.
,1.3. What may be sequestrated:
The "estate" of a "debtor" may be sequestrated in accordance with the
Insolvency Act. Therefore, the estate of the individual is sequestrated rather
than the person themselves.
Meaning of estate:
Generally speaking, an estate is a group of assets and obligations. Even if a
debtor has no assets and just liabilities, they may still be considered to have an
estate for the purposes of sequestration.
The court dismissed the claim in Miller v. Janks that an individual who lost their
assets no longer had an estate. According to the court, an estate is nonetheless
an estate even if it includes:
• Only assets
• Only liabilities
• Both liabilities and assets
The joint estate of spouses:
• For the purposes of bankruptcy, the joint estate is the estate of spouses
who are married in a community of property marriage.
• One spouse does not have a sequestrable separate estate.
• According to the Act, both spouses become insolvent debtors upon the
sequestration of the joint estate.
• Each spouse receives a distinct estate upon a divorce, which needs to
be sequestrated individually.
• The individual estates of both spouses must be sequestrated if a creditor
had the authority to request sequestration of the combined estate prior
to the divorce.
When married outside of community of property:
• It is possible to sequestrate the distinct estate of a debtor who was
married outside of common property.
• However, until the spouse establishes ownership, the trustee temporarily
acquires the assets of the solvent spouse.
, A second estate in the event of bankruptcy:
During insolvency, a debtor who has previously had their estate sequestrated
may get a new estate under a title that is enforceable against the trustee.
• It is possible to willingly give up this new estate.
• Additionally, it might be forced into sequestration.
Meaning of a debtor:
Section 2 of the Insolvency Act defines a “debtor” as:
A person, a partnership, or the estate of a person or partnership which is a debtor in
the usual sense of the word, excluding a body corporate, company, or association
that may be placed in liquidation under company law.
In the conventional sense, an entity is a debtor if it is able to:
• own a property, and
• incur debt.
A debtor includes:
• The following are included in "debtor":
• A person who is naturally
• Even if each member is a legal person, a partnership
• A person who has passed away
• Someone who is unable to handle their own problems
• An outside business that doesn't fit the legal criteria of liquidation
• An organization that is not a legal person, like a trust
Debtor excludes:
• A company
• Corporate body
• Any entity who can be placed under liquidation under company legislation
Jurisdiction of courts:
1.4.1 Which court has jurisdiction
As a general rule, only a Provincial or Local Division of the High Court may
adjudicate insolvency matters (as defined in s 2 of the Insolvency Act).
A magistrates’ court may, however, deal with certain limited matters, such as:
