Topic 4: The legal position of the insolvent person
Introduction
- Sequestration of X’s estate imposes on him a form of reduction in status
- This limits his capacity to contract, earn a living and hold office
X refers to the Insolvent person
1. The ability of the debtor to enter into contracts
- Insolvency Act does not deprive X of his contractual capacity
- X retains competency to make binding agreements
- However to protect the creditors, the Act imposes certain restrictions on X’s capacity to contract
1.1 Prohibited contracts
S23: X may not make a contract which
- Purports to dispose any property of the insolvent estate
- However, X cannot, without written consent of the trustee, enter into a contract which adversely
affects, or is likely to adversely affect, his estate or any contribution which he is obliged to make
towards his estate
Contribution referred to here is
- That which is claimable by the trustee ito s23(5) from moneys earned by the insolvent in the
course of his profession, occupation or employment
1.2 What is the effect of a contract which is not prohibited
- S23(2): Where the trustee’s consent is not necessary, or where it is and it is given, the contract
will be valid and binding on the contracting parties
- However X may not enforce performance in his favour unless
o The Insolvency Act (other statute) gives him the right to do so
o In absence of an empowering statutory provision, the trustee must enforce the claim
- X may, on the other hand
o Enforce payment for work done after sequestration
o This is because s23(9) expressly gives him the right to do so.
S23(9)
o Insolvent person may recover for his own benefit, the remuneration or reward for work
done or for professional services rendered by or on his behalf after the sequestration of
his estate
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Introduction
- Sequestration of X’s estate imposes on him a form of reduction in status
- This limits his capacity to contract, earn a living and hold office
X refers to the Insolvent person
1. The ability of the debtor to enter into contracts
- Insolvency Act does not deprive X of his contractual capacity
- X retains competency to make binding agreements
- However to protect the creditors, the Act imposes certain restrictions on X’s capacity to contract
1.1 Prohibited contracts
S23: X may not make a contract which
- Purports to dispose any property of the insolvent estate
- However, X cannot, without written consent of the trustee, enter into a contract which adversely
affects, or is likely to adversely affect, his estate or any contribution which he is obliged to make
towards his estate
Contribution referred to here is
- That which is claimable by the trustee ito s23(5) from moneys earned by the insolvent in the
course of his profession, occupation or employment
1.2 What is the effect of a contract which is not prohibited
- S23(2): Where the trustee’s consent is not necessary, or where it is and it is given, the contract
will be valid and binding on the contracting parties
- However X may not enforce performance in his favour unless
o The Insolvency Act (other statute) gives him the right to do so
o In absence of an empowering statutory provision, the trustee must enforce the claim
- X may, on the other hand
o Enforce payment for work done after sequestration
o This is because s23(9) expressly gives him the right to do so.
S23(9)
o Insolvent person may recover for his own benefit, the remuneration or reward for work
done or for professional services rendered by or on his behalf after the sequestration of
his estate
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