MRL3701 STUDY UNIT 6 - The Legal Position of the Insolvent Questions with Correct Answers

PROHIBITED CONTRACTS Correct Answer May not make a contract that purports to dispose of any property of his insolvent estate. May not without the written consent of the Trustee enter into a contract which adversely affects his estate or any contribution which he is obliged to make towards his estate. MERVIS BROTHERS v HANEKOM Correct Answer M sued H the insolvent for the amount of a debt incurred prior to sequestration. Action was based on an undertaking given by H after sequestration that he would pay the full amount of the debt to M. Trustee had not consented to H's giving his undertaking. Magistrates court held that the undertaking was likely to affect adversely an contribution which H would be obliged to make if called upon to do so and in the absence of the trustee's consent was not binding. On appeal, court held that as the Master had not assessed a contribution H was not obliged, at the time of contracting, to make a contribution. Accordingly the trustees consent had not been required and H's undertaking was binding. EFFECT OF CONTRACT WHICH IS NOT PROHIBITED Correct Answer Where trustees consent is NOT necessary, or where it is and is given, the contract is VALID AND BINDING on the parties (s23(2)) Insolvent may enforce payment for work done after sequestration s23(9) expressly gives him the right to recover his remuneration for his own benefit (Ex parte van Rensburg). DE POLO & ANOTHER v DREYER & OTHER Correct Answer Although contract is binding, insolvent may not enforce performance in his favour unless the Insolvency Act (or other statute) specifically gives him the right to do so. EFFECT OF PROHIBITED CONTRACT Correct Answer If insolvent enters into a contract which purports to dispose of estate property, the contract is voidable at the option of the trustee; it is not void Position is the same if the insolvent contracts without obtaining his trustees consent where it is required. Should trustee choose not to set aside the contracts or simply stand by without avoiding it, the contract remains binding on the parties.