MRL3701 INSOLVENCY LAW SUMMARY NOTES LATEST 2022.

MRL3701 INSOLVENCY LAW SUMMARY NOTES LATEST 2022. STUDY UNIT 1 INTRODUCTION TO INSOLVENCY LAW Identify the problem faced by the court in Magnum Financial Holdings. The only problem before the court was whether a trust could, at law, be sequestrated. Summarise the authority which the court relied on to solve the problem which it faced. No South African case seemed to have dealt with whether a trust could be sequestrated in terms of section 9(1) read with the definition of “debtor” in section 2 of 16 the Insolvency Act. Therefore the court relied on Ex parte Milton NO 1959 (3) SA 347 (SR). In that case, the Southern Rhodesian court, interpreting a similarly worded section of the Rhodesian statute, approved the voluntary surrender of the estate of an administrative trust created by contract. 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. The trustee was not personally liable for debts which he incurred on the trust’s behalf. A concursus creditorum could not be established by sequestrating the estates of the donor of the trust property, the trust beneficiaries, or the trustee. By way of comparison, the Rhodesian court also relied on South African decisions 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. Explain the common-law meaning of the phrase “any body corporate”. The court 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). (1) Explain the main purpose of a sequestration order in respect of Tenza’s estate.(2) The main purpose of a sequestration order is to ensure the orderly and fair distribution of a debtor’s (Tenza’s) assets if his assets are not sufficient to pay all his creditors in full. (2) Give reasons why a sequestration order may not be granted if a debtor has only one creditor or if there are not enough assets to cover the costs of sequestration. (3) If a debtor has only one creditor, there are no conflicting interests between creditors Downloaded by Emma Cain () lOMoARcPSD| Study Notes24 5 by Carella Holdings (Pty) Ltd. which must be equitably resolved. If the debtor’s assets are not sufficient to cover the costs of sequestration, creditors will derive no advantage from the process of sequestration. Consequently, in such a case sequestration would merely amount to a waste of time and money. (3) Explain whether a debtor whose estate is under sequestration may obtain a new estate which does not form part of the sequestrated estate. (2) Because some assets which a debtor has or acquires do not form part of his insolvent estate, it is indeed possible to build up a new estate which does not form part of the estate under sequestration. (4) Suppose that Bonzo Ltd is a British company which owns property which is lying in a warehouse in Cape Town harbour. Bonzo Ltd does not, however, have a place of business in South Africa. (a) Briefly explain whether the Western Cape High Court, Cape Town has jurisdiction to liquidate Bonzo Ltd. (2) Because Bonzo Ltd does not have a place of business in South Africa, a South African court will not have jurisdiction to wind up the company. (b) Will the Western Cape High Court, Cape Town have jurisdiction to sequestrate Bonzo Ltd’s estate? (5) Because the company may not be wound up in terms of the Companies Act, it is a “debtor” for the purposes of the Insolvency Act. The estate of the company may therefore be sequestrated by a South African court. Because the company owns property which is situated within the area of jurisdiction of the Western Cape High Court, Cape Town, that court will have jurisdiction to sequestrate the company’s estate. (c) Will the Cape Town Magistrate’s Court have jurisdiction to sequestrate Bonzo Ltd’s estate? (1) A magistrate’s court has no jurisdiction to grant an order of sequestration. (5) When will a formal defect in an application for the sequestration of an estate be fatal? (2) A formal defect in an application will be fatal if the defect causes a substantial injustice to creditors and that prejudice cannot be put right by a court order. (6) Indicate whether the following statement is true or false. In common parlance, a person may be said to be insolvent when his liabilities, fairly estimated, exceed his assets, fairly valued. (2) Downloaded by Emma Cain () lOMoARcPSD| Study Notes24 6 by Carella Holdings (Pty) Ltd. This statement is false. In common parlance, a person may be said to be insolvent when he is unable to pay his debts. The legal test of insolvency, however, is whether the debtor’s liabilities, fairly estimated, exceed his assets, fairly valued The ___________________ of insolvency is whether the debtor's liabilities, fairly estimated, exceed his assets, fairly valued. (2) Legal test Exam 2002 What is the definition of a “debtor” in terms of the Insolvency Act 24 of 1936? (4) A debtor means a person or a partnership or the estate of a person or a partnership which is a debtor in the usual sense of the word, except a body corporate or a company or other association of persons which may be placed in liquidation under the law relating to companies. (a) Why was the court in Magnum Financial Holdings (Pty) Ltd (in liquidation) v Summerly and another 1984 (1) SA 160 (W) satisfied that the applicants had made out a case for the relief sought (the urgent grant of a provisional sequestration order)? (6) There had been sufficient service of the papers on the trustee of the trust. The one provisional liquidator of the applicant company had locus standi to apply for the provisional sequestration of the trust estate. The applicant company had a claim against the trust for about R1,6 million which was due and payable. An act of insolvency in terms of section 8(g) of the Insolvency Act had been committed, and the trust estate was also insolvent. It was to the advantage of the trust’s creditors that its estate should be urgently sequestrated. The necessary security bond had been lodged. A trust falls within the definition of a ‘debtor.’ (b) Max Limited is an Canadian company and the owner of property which is in storage in Cape Town Harbour. Max Limited does not, however, have a place of business in South Africa. Will the Cape Provincial Division of the High Court have jurisdiction to sequestrate the estate of Max Limited? Give reasons for your answer. Do not discuss whether the name of the Provincial Division of the High Court is the correct one. Further, you must not discuss whether any other court may have jurisdiction to sequestrate the estate of Max Limited. (5) Downloaded by Emma Cain () lOMoARcPSD| Study Notes24 7 by Carella Holdings (Pty) Ltd. As this company cannot be wound up under the Companies Act because it has no place of business in South Africa, it is therefore a “debtor”for the purposes of the Insolvency Act (s 2 "debtor") and its estate may therefore be sequestrated by a High Court in South Africa. Max Ltd owns property situated in the jurisdiction of the Cape Provincial Division of the High Court, and so the Cape court will have jurisdiction to sequestrate the company’s estate (s 149(1)(a)). 2009 A person may be insolvent in the sense that his.................................... exceed his ..............................., even though his estate has not yet been sequestrated. In fact, sequestration will usually be applied for only when the .................................. already exceed the..................................... Liabilities: Assets: Liabilities:Assets (b) The sequestration procedure is aimed mainly at achieving a .......................................... of the available assets among .....................................of the debtor. (2) Fair distribution: Competing creditors (c) An external company may be .................................................. in South Africa (in terms of the Companies Act 61 of 1973) if it has a place of business in South Africa. If it does not have a place of business in South Africa, its estate may be in South Africa under the Insolvency Act, if a South African court has jurisdiction in terms of section 149 of the Insolvency Act. (2) Liquidated: Sequestrated (e) A formal defect in an application for sequestration will be fatal if the defect causes a substantial injustice to ................................................... and that prejudice cannot be put right by a ......................................................... Creditors: Court order (a) An estate is usually conceived of as a collection of................................................................. and......................................................................................... (2) (a) Assets (1): Liabilities (1) Downloaded by Emma Cain () lOMoARcPSD| Study Notes24 8 by Carella Holdings (Pty) Ltd. Insolvency law provides a procedure for dealing fairly with the claims that the unpaid __________________ of the insolvent person have against the insolvent estate. Insolvency law also protects the debtor from being harassed by his or her creditors.(2) (a) creditors There are ________ acts of insolvency. (2) 8 Only a ______________________ has jurisdiction to wind up a company.