MRL3701 Assignment 1
(COMPLETE ANSWERS)
Semester 2 2025 - DUE 12
August 2025
For assistance contact
Email:
, Question 1: Advantage to Creditors in Voluntary Surrender vs. Compulsory Sequestration
The requirement of “advantage to creditors” is more strenuous in Voluntary Surrender
than in Compulsory Sequestration. Explain the reasons for this statement.
The statement is accurate. The "advantage to creditors" requirement is indeed more stringent in
an application for voluntary surrender (where the debtor applies for their own sequestration)
than in an application for compulsory sequestration (where a creditor applies to sequestrate the
debtor's estate). The reasons for this difference lie in the underlying purpose and potential for
abuse in each type of application.
1. Voluntary Surrender (Debtor-initiated):
o Purpose: The primary purpose of voluntary surrender is to benefit the debtor by
providing a fresh start through the discharge of their debts. However, the
Insolvency Act 24 of 1936 (the Act) aims to prevent debtors from abusing the
process merely to escape their debts without genuinely benefiting creditors.
o Risk of Abuse: There is a higher risk that a debtor might seek sequestration
primarily for their own benefit (e.g., debt relief) rather than for the collective
benefit of creditors. Without a stringent "advantage to creditors" test, debtors
could easily use sequestration to avoid payment, even if creditors would receive
little or nothing.
o Burden of Proof: The debtor, as the applicant, is in the best position to provide
comprehensive information about their financial affairs. Therefore, the onus is on
the debtor to prove clearly and convincingly that there will be a real and
appreciable advantage to creditors. This means demonstrating that there are
sufficient unencumbered assets to cover all costs of sequestration and still leave a
not-negligible dividend for concurrent creditors. The court must be satisfied that a
reasonable prospect exists that the sequestration will yield a greater benefit for
creditors than if the estate were not sequestrated (e.g., through piecemeal
execution). This is often interpreted as requiring a dividend of at least 10-20 cents
in the rand for concurrent creditors, although there is no fixed percentage.
2. Compulsory Sequestration (Creditor-initiated):
o Purpose: The primary purpose of compulsory sequestration is to protect creditors'
interests by ensuring an orderly and equitable distribution of the debtor's assets
among them, preventing one creditor from gaining an unfair advantage over
others.
o Creditor's Incentive: A creditor initiating sequestration already has a financial
interest at stake and is unlikely to incur the costs of sequestration unless they
genuinely believe it will lead to a better return than individual execution. This
inherent incentive acts as a preliminary filter.
(COMPLETE ANSWERS)
Semester 2 2025 - DUE 12
August 2025
For assistance contact
Email:
, Question 1: Advantage to Creditors in Voluntary Surrender vs. Compulsory Sequestration
The requirement of “advantage to creditors” is more strenuous in Voluntary Surrender
than in Compulsory Sequestration. Explain the reasons for this statement.
The statement is accurate. The "advantage to creditors" requirement is indeed more stringent in
an application for voluntary surrender (where the debtor applies for their own sequestration)
than in an application for compulsory sequestration (where a creditor applies to sequestrate the
debtor's estate). The reasons for this difference lie in the underlying purpose and potential for
abuse in each type of application.
1. Voluntary Surrender (Debtor-initiated):
o Purpose: The primary purpose of voluntary surrender is to benefit the debtor by
providing a fresh start through the discharge of their debts. However, the
Insolvency Act 24 of 1936 (the Act) aims to prevent debtors from abusing the
process merely to escape their debts without genuinely benefiting creditors.
o Risk of Abuse: There is a higher risk that a debtor might seek sequestration
primarily for their own benefit (e.g., debt relief) rather than for the collective
benefit of creditors. Without a stringent "advantage to creditors" test, debtors
could easily use sequestration to avoid payment, even if creditors would receive
little or nothing.
o Burden of Proof: The debtor, as the applicant, is in the best position to provide
comprehensive information about their financial affairs. Therefore, the onus is on
the debtor to prove clearly and convincingly that there will be a real and
appreciable advantage to creditors. This means demonstrating that there are
sufficient unencumbered assets to cover all costs of sequestration and still leave a
not-negligible dividend for concurrent creditors. The court must be satisfied that a
reasonable prospect exists that the sequestration will yield a greater benefit for
creditors than if the estate were not sequestrated (e.g., through piecemeal
execution). This is often interpreted as requiring a dividend of at least 10-20 cents
in the rand for concurrent creditors, although there is no fixed percentage.
2. Compulsory Sequestration (Creditor-initiated):
o Purpose: The primary purpose of compulsory sequestration is to protect creditors'
interests by ensuring an orderly and equitable distribution of the debtor's assets
among them, preventing one creditor from gaining an unfair advantage over
others.
o Creditor's Incentive: A creditor initiating sequestration already has a financial
interest at stake and is unlikely to incur the costs of sequestration unless they
genuinely believe it will lead to a better return than individual execution. This
inherent incentive acts as a preliminary filter.
