Summary Insolvency - Topic 4

Topic 4: The Effects of Sequestration..................................................2
4.1 Legal Position of the Insolvent..................................................................................................... 2
Contracting.................................................................................................................................... 2
Freedom of Economic Activity....................................................................................................... 4
Effect on Locus Standi.................................................................................................................. 4
Holding Office................................................................................................................................ 5

4.2 Effect of Sequestration on the Estate of the Insolvent.................................................................5
Vesting of the Estate in the Trustee.............................................................................................. 5
Property that falls into the Estate................................................................................................... 6
Property that does not fall into the Estate......................................................................................7
Acquisition of a new estate during insolvency...............................................................................8

4.3 Effect of Sequestration on the Estate of a Solvent Spouse.........................................................8
General......................................................................................................................................... 8
Definition of “Spouse”.................................................................................................................... 9
Postponement of Vesting.............................................................................................................. 9
Property that must be released................................................................................................... 10
Onus of proof............................................................................................................................... 11


Prescribed Cases.................................................................................12
WL Caroll & Co v Ray Hall Motors.................................................................................................. 12

Ex Parte van Dyk............................................................................................................................. 13

Fourie N.O. v Edkins....................................................................................................................... 14

Durandt NO v Pienaar..................................................................................................................... 15

Du Plesis v Pienaar......................................................................................................................... 16

De Villiers v Delta Cables................................................................................................................ 17

Beddy NO v Van der Westhuizen.................................................................................................... 17

Harksen v Lane............................................................................................................................... 19

Rens v Gutman............................................................................................................................... 20

Evans R.G. 2004 (1) Stellenbosch Law Review (SLR) 193-200: Release of a...............................20

solvent spouse’s property under sec 21 (2) (c) of the Insolvency Act 24 of 1936............................20


Learning Outomces:............................................................................22
The legal position of the Insolvent................................................................................................... 22

What forms a part of the insolvent estate?......................................................................................22

What does not form a part of the insolvent estate?.........................................................................22

, The vesting of the assets of the insolvent.......................................................................................22

The vesting of the assets of the solvent spouse..............................................................................22

The position in regard to uncomplete contracts and legal proceedings not yet finalised.................22




Topic 4: The Effects of Sequestration.
4.1 Legal Position of the Insolvent.
 S23(1): subject to the provisions of this section and of s24, all property
acquired by an insolvent shall belong to his estate.
 Sequestration of a debtors estate imposes on him a form of reduction in
status
o This limits his capacity to contract, earn a living, litigate and hold office.

Contracting
 The insolvency act does not deprive the debtor of his contractual capacity
entirely. However, to protect creditors, the Act imposes certain restrictions on
the debtors capacity to contract.
 Section 23(2) provides for these restrictions
 Note: WL Caroll v Ray Hall Motors confirms the position of s23(2).
 Prohibited Contracts
o May not make contracts in which he purports to dispose of property in
his insolvent estate.
o May not, without the written consent of the trustee, enter into a contract
which adversely affects his estate or any contribution he is obliged to
make towards the estate.
 A contribution = that which is claimable by the trustee in terms of
s23(5) from moneys earned in the course of his occupation.
 This contribution can only be claimed once the master
has determined that it is not necessary for the support of
the insolvent and his dependants.
 Ex Parte van Dyk (concerned the implications of the making of a
contribution to an insolvent estate in terms of s23(5))
 Effects of contracts that are not prohibited (valid contracts)
o If the trustees consent is not required or where it is required and has
been given, the contract is valid and binding.

, o However, the contract cannot be enforced by the insolvent unless the
Act gives him that right.
 Effect of a prohibited contract
o If the insolvent enters into a contract to dispose of estate property?
 The contract is voidable at the option of the trustee – not void.
o If the insolvent enters into a contract without the required consent of
the trustee?
 The contract is voidable at the option of the trustee – not void.
o Effect of trustee’s options?
 If the trustee chooses not to set aside the contract?
 The contract is binding on the parties
 If the trustee chooses to set aside the contract?
 He may recover performance rendered by the insolvent.
 And must restore any benefits received by the insolvent
to the third party.
o WL Caroll v Ray Hall Motors
 This case confirmed that a prohibited contract, where consent
was necessary but not obtained, is voidable and not immediately
void.