Study Unit 2 & 3 - Voluntary Surrender

Question 1

Who may apply for Voluntary Surrender of an estate of a natural person?

Answer 1

The debtor / his agent expressly authorized to do so may apply for Voluntary Surrender of an estate of a natural person.

Question 2

Who may apply for Voluntary Surrender of an estate of a deceased?

Answer 2

The executor of a deceased estate may apply for Voluntary Surrender.

Question 3

Who may apply for Voluntary Surrender of an estate of a debtor incapable of managing his owner affairs?

Answer 3

The party entrusted with administering the estate (curator bonis) of the debtor incapable of managing his owner affairs may apply for Voluntary Surrender.

Question 4

Who may apply for Voluntary Surrender of a partnership estate?

Answer 4

All the members of the partnership (except partners en commandite) residing in South Africa or their agent may apply for Voluntary Surrender of a partnership in terms of Section 3(2) of the Act.

Question 5

Who may apply for Voluntary Surrender of a joint estate of spouses married in community of property?

Answer 5

Both spouses may apply for the Voluntary Surrender of their joint estate when married in community of property.

Question 6

What is the 2 (two) exceptions with regards to the Voluntary Surrender of a partnership?

Answer 6

• Special partnerships are repealed and can thus be ignored;
• Partners en commandite (not liable to creditors for partnership debts or co-partners for any losses) only have to contribute to the partnership, thus need not be a party to an application.

Question 7

What are the requirements for the Voluntary Surrender of an estate?

Answer 7

Requirements of Voluntary Surrender in terms of Section 6(1) of the Act:

• All prescribed formalities must be adhered to;
• Debtor’s estate is insolvent;
• Debtor owns realizable property of sufficient value to pay all costs of sequestration which will be payable out of the free residue of his estate;
• Sequestration will be advantage for creditors

Question 8

When is a debtor insolvent?

Answer 8

A debtor is insolvent if his liabilities exceeds the value of his assets.

Question 9

What is the test for insolvency?

Answer 9

The test for insolvency is whether it is established that * the debtor is without funds to pay his debt in full; and
* it is improbable that the assets will be enough for this purpose.

Question 10

What does the cost of sequestration include?

Answer 10

The cost of sequestration includes:

• Cost of surrender;
• General cost of administration in terms of Section 97 of the Act.

Question 11

What is “free residue”?

Answer 11

“Free residue” in terms of Section 2 of the Act:
Portion of the estate that’s not subject to any right of preference by reason of:
* special mortgage;
* legal hypothec;
* pledge;
* right of retention.

Question 12

Can a debtor with no assets Voluntary Surrender his estate?

Answer 12

A debtor with no assets and only liabilities can not surrender his estate, even against a guarantee by the Master for costs of sequestration. Such an estate can be compulsory sequestrated.

Question 13

On who does the onus lie to prove that there is an advantage to the creditors with Voluntary surrender?

Answer 13

The debtor must prove that there will be an advantage to the creditor. The onus is more strenuous in voluntary surrender.

Question 14

How did the court resolve the issue in Ex parte Henning where the respondent opposed the application for voluntary surrender on the ground that the application did not comply with the requirements of Section 6(1) because the applicant’s assets did not cover the costs of the sequestration?

Answer 14

The court decided that even if the sequestration costs had to be available at the time of the application, the applicant’s assets would probably fetch R1030 and would therefore cover the sequestration costs which the parties had agreed would run to about R1000.

Question 15

Which test did the court lie down in Ex parte Henning to be the proper one to be applied with regards to the advantage to creditors?

Answer 15

The court held that the test was not to compare the respondent’s position at the time of immediate voluntary surrender of the applicant’s estate with the respondent’s position if the monthly debt payments were continued for nine years.

The question was merely whether the court papers showed whether voluntary surrender would be to the advantage of all the creditors.

Question 16

How did the court dispose of the argument that the applicant was approaching the court to avoid paying the respondent’s claim in the Ex parte Henning case?

Answer 16

The respondent argued that the applicant was probably bringing the application not to benefit the creditors, but only to avoid paying the claim in favor of the respondent. The court decided that, on the facts, this argument lacked substance.

If the applicant had wished to avoid paying the claim, it would have suited him and his spouse for her to stop working and sit back without paying anything, so that his creditors could sequestrate his estate.

Question 17

What is the basic difference between voluntary surrender and compulsory sequestration?

Answer 17

With Voluntary surrender, the debtor himself applies for the sequestration of his estate.

With Compulsory sequestration, a creditor applies for the sequestration of the debtor’s estate.

Question 18

Where a debtor’s wife is making payments towards his debt, should a court dismiss the application for voluntary surrender because it will be more to the advantage of the creditors if his wife continue helping to pay his debts?

Answer 18

This question relates to the decision of the court in Ex parte Henning.

In the Henning case the court decided that this factor is too vague / uncertain to take into account in evaluating whether sequestration will be to the advantage of the creditors.

The court will therefor not dismiss the application for voluntary surrender only because the creditors will be in a better position if the debtor’s wife continues to assist him in paying his debts.

Question 19

What are the preliminary formalities for voluntary surrender?

Answer 19

In terms of Section 4 of the Act the preliminary formalities for voluntary surrender are:

• Notice of intention to surrender
• Notice to creditors and other parties
• Preparation and lodging of statement of affairs

Question 20

Where must the Notice of intention for voluntary surrender be published?

Answer 20

The notice of intention for voluntary surrender must be published in the Government Gazette and; newspaper circulating the magisterial district where the debtor resides, or where the trader has a principle place of business.

Copies of the Government Gazette and newspaper / clippings must be filed at court or attached to affidavit and filed at court.

Question 21

Why does the debtor need to give notice of his voluntary surrender?

Answer 21

The notice of surrender serves as notice alerting the creditors of the intended application if they want to oppose it.

Question 22

In which format must the notice of voluntary surrender be?

Answer 22

The Notice of voluntary surrender must be in the format as per Form A, First Schedule of the Act

Question 23

What must the notice of voluntary surrender contain?

Answer 23

The notice of voluntary surrender must contain:

• Full names, address and occupation of the debtor (debtor’s personal details);
• Date when and particular division of High Court which application for acceptance of surrender will be made (Court details);
• When and where the debtor’s statement of affairs will lie for inspection (Details of the statement of affairs).

Question 24

State what time limits you should bear in mind when calculating the date when the application for voluntary surrender will be heard.

Answer 24

Publication of the notice must be at least 14 days before date of hearing but not more than 30 days before hearing.

Question 25

To whom must notice of Voluntary Surrender be given?

Answer 25

Debtor must furnish copies within 7 days after publication of notice of surrender to: * All creditors whose address are know or can be ascertained * Every registered trade union that represents his employees * SARS

Question 26

How must notice of Voluntary Surrender be given to employees?

Answer 26

Notice to employees must be given by affixing a copy of the notice of surrender to: * the notice board; * the front gate if employees don't have access; * the front door from which the debtor concluded business immediately prior to surrender.

Question 27

How should statement of affairs be prepared and lodged?

Answer 27

Preparation and lodging of statement of affairs should be in according with Form B of the First Schedule of the Act: * Form B - Balance sheet * Annexure I - List of immovable assets, value, mortgates * Annexure II - List of movable property (not including Annexure III / V) and value * Annexure III - List of debtors with their residential and postal address, details each debt and extent (good / bad / doubtful) * Annexure IV - List creditors, addresses, particulars of claim and security held * Annexure V - List of movable assets pledged, hypothecated, subject to lien, under attachment in execution of judgment * Annexure VI - List and description of every accounting book used by debtor at time of surrender or ceasing to carry on business * Annexure VII - Detailed statement of causes of debtor's insolvency * Annexure VIII - Personal information about debtor and prior insolvency and rehabilitation * Affidavit - Made by debtor verifying statement of affairs is true, complete and estimated amounts are fairly and correct estimated.

Question 28

How must statement of affairs be prepared when partnership estate and private estate of partner are surrendered simultaneously?

Answer 28

Separate statements of affairs must be prepared and costs are part of sequestration costs when partnership estate and private estate of partner are surrendered simultaneously.

Question 29

How and why must the statement of affairs be lodged?

Answer 29

The statement of affairs with supporting documents must be lodged in duplicate at the master's office and lie for inspection by creditors at all times during office hours for 14 days.

Question 30

What happens after the 14 days that the statement of affairs lied for inspection?

Answer 30

On expiry of the period of 14 days a certificate is issued that the statement of affairs has duly lain for inspection and whether any objections were lodged, which is filed with the registrar before the application is heard.

Question 31

What are the effect of the Notice of Surrender?

Answer 31

After notice of surrender: * Sales in execution are stayed; * A curator bonis may be appointed; * Potential of compulsory sequestration; * No withdrawal of notice without consent; * Notice of Surrender can lapse

Question 32

May a creditor proceed to sell the debtor's property after publication of the notice of surrender?

Answer 32

It is unlawful to sell the debtor's property after publication of notice unless the creditor did not know of the publication. If the sale proceeded the trustee of the estate can't claim it if ownership was transferred unless he proves that the buyer acted in bad faith and with the knowledge that the sale was unlawful.

Question 33

Can the trustee of the estate claim back ownership of the debtor's property if it was sold after the publication of the notice of surrender?

Answer 33

If the sale proceeded the trustee of the estate can't claim it if ownership was transferred unless he proves that the buyer acted in bad faith and with the knowledge that the sale was unlawful. Thus if the court did not order the sale to proceed, the sale is illegal because the Sheriff contravened Section 5(1) by selling the car. The debtor may not claim delivery of the car but his remedy would be to claim for damages against the sheriff.

Question 34

When may the debtor's property be sold after publication of the notice of surrender?

Answer 34

The Court / Master may order that the assets be sold if he believe the value is less than R5000. He may direct how the proceeds of the sale must be applied. The creditor must prove that it is more to the advantage of the group of creditors to proceed with the sale.

Question 35

Does the publication of the notice of surrender of sale have any effect on other civil and criminal proceedings?

Answer 35

The publication has no effect on other civil and criminal proceedings. Attachments in execution of judgments may be made even though the sale is stayed.

Question 36

What is the function of the curator bonis appointed after the publication of the notice of surrender?

Answer 36

The Master appoints a curator bonis who takes the estate into custody and assumes control of any business or undertaking of the debtor. This is to safeguard against the debtor squandering his assets after publication. The debtor may still deal with his property as he chooses. The estate thus remains vested with the debtor and the curator is only the caretaker.

Question 37

When may a creditor apply fo compulsory sequestration?

Answer 37

If after publishing the notice of surrender the debtor: * fails to lodge a statement of his affairs; * lodges an incorrect or incomplete in material respect statement; * fails to make application to court on the appointed day and the notice is not properly withdrawn the debtor commits an act of insolvency which entitles the creditor to apply for the compulsory sequestration of his estate.

Question 38

Can a creditor apply for compulsory sequestration if a notice of intention to surrender lapse?

Answer 38

Compulsory sequestration can't be applied for if the notice of intention to surrender lapsed.

Question 39

Can a notice of surrender be withdrawn without the Master's consent?

Answer 39

A notice of surrender can't be withdrawn without the written consent of the Master.

Question 40

When does the Notice of Surrender lapse?

Answer 40

Notice of surrender lapses if: * Court doesn't accept the surrender; * If the notice is properly withdrawn; * If the debtor fails to make application for surrender within 14 days after the date advertised as date of hearing of the application.

Question 41

How are the application for surrender brought?

Answer 41

It is brought by notice of motion and supported by a founding affidavit

Question 42

Why are an application for surrender brought?

Answer 42

To persuade the court that the 4 requirements of voluntary surrender was satisfied.

Question 43

What must the application for surrender contain?

Answer 43

The application to surrender must contain: * Full name, status, occupation and address of the applicant to show jurisdiction and locus standi. * Allegation of insolvency and the fact to establish it; * Explanation how insolvency came about; * Averment that the applicant owns realizable property or sufficient value to defray all costs of the sequestration which will be payable out of the free residue of the estate; * Allegation that it will be to the advantage of the creditors if the estate is sequestrated amplified by the facts supporting the allegation; * Details of any salary or income received; * Any other information that may influence the court in granting or refusing the surrender; * Description of procedural steps followed by the application prior to bringing the application supported by documents proving that each step was taken.

Question 44

Why must the application to surrender contain the applicant's full name, status, occupation and address?

Answer 44

Full name, status, occupation and address of the applicant must be contained in the application to surrender to show jurisdiction and locus standi.

Question 45

How is the application confirmed?

Answer 45

It must be sworn in and signed before a commissioner of oath independent of the office in which it was drawn.

Question 46

Where must the application to surrender be filed?

Answer 46

Application must be filed with the Registrar of the High Court prior to the date advertised in the notice of surrender.

Question 47

When must the application to surrender be filed.

Answer 47

Application must be filed with the Registrar of the High Court prior to the date advertised in the notice of surrender.

Question 48

Who is the "consulting party" in terms of S189 of the Labour Laws Act?

Answer 48

S189 requires the employer to consult 1 of the following: * person whom he must consult in terms of the collective agreement; * if no collective agreement, the workplace forum and registered trade union of the employees likely affected by the proposed dismissals; * if no workplace forum, the registered trade union whose members are likely to be affected by the proposed dismissals; If no trade union, the employees likely to be affected by the proposed dismissals or their representatives.

Question 49

To whom must an employer provide a copy of the application to surrender?

Answer 49

The employer must provide a "consulting party" as per S189 of the Labour Laws Act with a copy of the application.

Question 50

Does a debtor need to obtain a Master's report?

Answer 50

In the Cape, a master's report must be obtained and filed prior to the set-down of the application.

Question 51

May the application to surrender be opposed?

Answer 51

A creditor may oppose the application if his claim is less than the amount required to entitle him to apply for compulsory sequestration even if his claim is disputed by the debtor.

Question 52

May a creditor oppose an application to surrender if his claim is disputed by the debtor.

Answer 52

A creditor may oppose the application if his claim is less than the amount required to entitle him to apply for compulsory sequestration even if his claim is disputed by the debtor.

Question 53

Which documents must be fore the court on adjudication of an application to surrender?

Answer 53

Documents before court on adjudication: * Notice of Motion and Supporting Affidavit; * Debtor's statement of affairs, incorporating the verifying affidavit; * Any sworn valuation necessary in the circumstances; * Proof of publication of Notice of Surrender; * Proof by affidavit that the applicant has delivered or posted copies of the Notice as required; * A certificate from the Master that the statement of affairs has lain for inspection; * Any opposing affidavits by creditors; * The debtor's replying affidavit.

Question 54

May a court reject the application for surrender?

Answer 54

The court has the discretion to reject the surrender even if all the requirements have been met.

Question 55

What is the influencing factors that a court can take into consideration when deciding on an application to surrender?

Answer 55

Influencing factors: * Debtor were extravagant and ran up debts on a pretentious scale; * Debtor's creditors are not pressing for payment and will give time and / or will accept payment in monthly installments; * Debtor has an alterior motive (ex avoid paying or defeat the rights of the creditors); * Debtor failed to give a full and frank account on his financial position; * Debtor's papers were deficient in various respects.

Question 56

How will the cost of the surrender be paid?

Answer 56

The cost incurred in surrendering are included in the costs of the sequestration and are payable out of the estate. Cost caused by an unsuccessful opposition to the application must be paid by the creditor but the court may order that these costs be paid out of the estate.

Question 57

Who must pay the costs of an unsuccessful opposition to the application?

Answer 57

Cost caused by an unsuccessful opposition to the application must be paid by the creditor but the court may order that these costs be paid out of the estate.

Question 58

What is the procedure when a sequestration order is set aside?

Answer 58

There is no appeal to the refusing of the court to accept voluntary surrender. However the aggrieved party may appeal against the acceptance of the voluntary surrender. Noting of an appeal does not suspend the operation of execution of an order. If the sequestration order is set aside before rehabilitation, the debtor remains fully liable for all debts which existed before granting of sequestration order.

Question 59

Can someone appeal to the court's refusal to accept voluntary surrender?

Answer 59

No, you can not appeal to the court's refusal to accept voluntary surrender.

Question 60

Can someone appeal to the court's acceptance of voluntary surrender?

Answer 60

Yes, the aggrieved party may appeal against the court's acceptance of voluntary surrender.

Question 61

Does the noting of an appeal suspend operation or execution of an order.

Answer 61

No, the noting of an appeal does not suspend the operation or execution of the order.

Question 62

Does the debtor remain liable for debts before granting of a sequestration order if it is set aside?

Answer 62

If the sequestration order is set aside before rehabilitation, the debtor remains fully liable for all debts which existed before the granting of the sequestration order.

Question 63

State 2 methods of proving that you have published the notice correctly.

Answer 63

Either you file copies of the relevant Government Gazette and the newspaper with the court of else you attach cuttings from the relevant Government Gazette and the newspaper to an affidavit, and file them with the court.

Question 64

Describe which other steps you should take, why, and how you will prove that you have taken them.

Answer 64

Notice of intention to surrender must be given to each creditor. Within 7 days of publishing the notice of surrender in the Government Gazette copies must be delivered or posted to the creditors, if their addresses can be established. This is to protect the creditors. The posting of the notices is proved by an affidavit by the debtor or his attorney stating that the notices have been sent.

Question 65

When did The Insolvency Second Amendment Act come into effect?

Answer 65

The Insolvency Second Amendment Act was published in the Government Gazette of 22 January 2003 but already came into effect on 1 January 2003 (s10 of that amending act).

Question 66

Was the creditors in Ex parte Henning prejudiced by the fact that the statement of affairs did not contain the personal information of the debtor?

Answer 66

In Ex parte Henning, the statement of affairs that lay for inspection did not contain the personal information of the debtor. But it was clear that no creditor had been prejudiced by this defect in deciding whether to oppose the application. In the circumstances the court was prepared to condone the defect.

Question 67

Which descriptive heading is used in the Statement of Affairs to classify the Ledger?

Answer 67

List of accounting books used by the debtor (Annexure VI)

Question 68

Which descriptive heading is used in the Statement of Affairs to classify a car held by a garage as security for payment for repairs?

Answer 68

List of movable assets subject to a lien (Annexure V)

Question 69

Which descriptive heading is used in the Statement of Affairs to classify the inability to pay a huge debt for hspitalisation?

Answer 69

Cause of debtor's insolvency (Annexure VII)

Question 70

Which descriptive heading is used in the Statement of Affairs to classify the Mortgage?

Answer 70

List of immovable property (Annexure I)

Question 71

Which descriptive heading is used in the Statement of Affairs to classify the dates of previous insolvency and rehabilitation?

Answer 71

Personal information about the debtor (Annexure VIII)

Question 72

Why may the Master order that an asset that has been attached in terms of a judgment be sold, despite the publication of a notice of intention to surrender?

Answer 72

At this stage the application has not yet been considered by the court, and the debtor's estate has not yet been sequestrated. Thus it is usually ordered that the proceeds of the sale be held by the sheriff or the Master, pending the result of the application. If the application is granted, the proceeds of the sale form part of the insolvent estate, and they are distributed among the creditors in accordance with the provisions of the Insolvency Act. If the application is dismissed, the proceeds are distributed among the creditors as in the case of an ordinary sale in execution of a judgment.

Question 73

Why must the founding affidavit contain specific information?

Answer 73

The founding affidavit is used to persuade the court that the 4 requirements for voluntary surrender have been satisfied.

Question 74

Explain with reference to case law if the court will grant an application for surrender where the debtor publishes his notice of intention to surrender 33 days before advertised date on which application will be made.

Answer 74

Authority is divided. According to most of the authority in case law it is a fatal defect if the advertisement is published more than 30 days before the advertised date of the application. (ex Ex parte Oosthuysen). But in Ex parte Harmse it was held that such failure is a formal defect or irregularity as envisaged by S157(1) of the Insolvency Act. It does not invalidated the application unless it has caused an injustice that can't be remedied by a court order. On this authority the court will not dismiss the application. Thus if the application takes place in the jurisdiction of the North Gauteng High Court, Pretoria (follows authority of Full Bench in Ex parte Oosthuysen) the court will not grant the application. But if the application takes place in the jurisdiction of the Kwa-Zulu Natal High Court (follows authority of Full Bench in Ex parte Harmse) the court will grant the application.

Question 75

Is the applicant for voluntary surrender, obliged to obtain an independent valuation of his assets for the purposes of his statement of affairs, or may he value it himself.

Answer 75

Unless the Master orders otherwise, the applicant is not obliged to have his assets valued by an independent valuer. If he does so, the costs of the valuation will not form part of the sequestration costs.

Question 76

If the court authorizes the sale of attached assets after a notice of intention to surrender has been published, what order will the court usually make with respect to the proceeds of sale?

Answer 76

The court will order that the proceeds of the sale be kept by the Master or the Sheriff, pending the outcome of the application for voluntary surrender. If the application succeeds, the proceeds will be paid to the trustee for distribution under the provisions of the Insolvency Act. If the application is dismissed, the proceeds will be applied in paying the judgment creditors.

Question 77

What is the consequences if the debtor publishes a notice of intention to surrender, but fails to apply for surrender of the estate on the given date?

Answer 77

On the basis of this failure, a creditor may apply for compulsory sequestration. But he will have to make his application within 14 days after the day advertised for the application for voluntary surrender, because the notice of intention to surrender lapses after that.

Question 78

When will the court order that the costs of an unsuccessful opposition to an application for voluntary surrender form part of the cost of sequestration?

Answer 78

If an opposing creditor has put new facts before the court which have been of material importance in the court's exercise of its discretion to grant or to dismiss the application, the court will usually order that the costs of the opposition form part of the costs of sequestration.

Question 79

Name 1 difference between the consequences of rehabilitation and of the setting aside of a sequestration order.

Answer 79

If an insolvent is rehabilitated he is discharged from all debts (except debts arising from fraud) the cause of which arose before sequestration. This consequence does not follow when a sequestration order is set aside. The position is then simply as though the debtor's estate was never sequestrated.

Question 80

May the debtor's affidavit verifying that the statement of affairs is true and complete be attested by the applicant's attorney.

Answer 80

In Ex parte Du Toit it was found that in an application for voluntary surrender the applicant debtor's affidavit, verifying that the statement of affairs is true and complete and that every estimated amount contained in it is fairly and correctly estimated, may NOT be attested by the applicant's attorney.