Study Unit 4 & 5 - Compulsory Sequestration Flashcards
(43 cards)
What is the requirements for Compulsory Sequestration?
Requirements for Compulsory Sequestration:
- Is applicant entitled to apply in terms of Section 9(1);
- Did the debtor commit an act of Insolvency or is Insolvent
- Is there reasons to believe that the sequestration will be to the advantage of the creditors ( S12(1) )
By whom can Section 9(1) proceedings be instituted?
Section 9(1) proceedings can be instituted by:
- 1 Creditor with a liquidated claim more than R100;
- 2 / More Creditors with a collective liquidated claim not less than R200
Can a creditor apply for compulsory sequestration if he has security for his claim?
A creditor may still apply for compulsory sequestration even if he has security for his claim, even if the security exceeds the amount of the claim.
What is a liquidated claim?
A Liquidated claim is a monetary claim with a fixed amount for example:
- price of goods sold and delivered;
- claim based on provisional sentence judgment;
- claim for return of price paid under a sale cancelled due to the seller’s repudiation;
- delictual claim for theft of fixed and determinable sum of money.
What is an unliquidated claim?
An unliquidated claim gives no locus standi for example:
- Claim for transfer or property;
- Claim for damages for failure to carry out obligations in terms of a consent paper;
- Claim for payment of untaxed attorney-and-client bill of cost
Can a claim be regarded as a liquidated even if it is not yet due?
Liquidated doesn’t mean that an amount is already due and payable.
In terms of Section 9(2) a liquidated claim that has accrued but is not yet due must be regarded as liquidated.
May a creditor be paid to extinguish / reduce a claim after an estate has been provisionally sequestrated?
After provisional sequestration a debtor may not pay a creditor himself to extinguish or reduce a claim below R100. But a third person (such as surety) may pay on the debtor’s behalf, whereafter the provisional order must be discharged.
Can a creditor refuse payment to reduce of extinguish his claim?
A creditor may not refuse a payment in full but may reject a payment in part.
May another creditor apply for a further provisional order where another creditor’s locus standi was eliminated?
Where a creditor’s locus standi is eliminated, another creditor may intervene and apply for a further provisional order to be granted.
Name the Acts of Insolvency.
An estate may be sequestrated in terms of Section 9(1) if the debtor committed an act of insolvency even if he is solvent:
- Section 8(a) - Absence from the Republic / Dwelling;
- Section 8(b) - Failure to satisfy judgment;
- Section 8(c) - Disposition prejudicing creditors or preferring one creditor;
- Section 8(d) - Removal of property with the intent to prejudice / prefer;
- Section 8(e) - Offer of arrangement;
- Section 8(f) - Failure to apply for surrender;
- Section 8(g) - Notice of inability to pay;
- Section 8(h) - Inability to pay debts after notice of transfer of business.
Can an estate be sequestrated when a debtor leaves the Republic or dwelling to evade of delay payments of his debts?
An estate may be sequestrated in terms of Section 9(1) if the debtor commits an act of insolvency.
In terms of Section 8(a) a debtor commits an act of insolvency when he leaves the republic or his dwelling to evade of delay payments of his debts.
The intention may be inferred for example if he makes an appointment to pay and then leave without keeping the appointment.
Can an estate be sequestrated when a debtor fails to satisfy judgment?
An estate may be sequestrated in terms of Section 9(1) if the debtor commits an act of insolvency.
In terms of Section 8(b) 2 acts of insolvency are created with judgment:
- if the debtor fails, upon demand (debtor is present), to satisfy or indicate disposable property sufficient to satisfy the debt;
- if it appears from the Sheriff’s return that there is not sufficient disposable property to satisfy judgment. (Only if the debtor was not present when the sheriff arrived).
What does “disposable property” mean?
Disposable property means property that may be attached and sold in execution, even if situated in some other locality. It may be immovable, or incorporeal. It does not include immovable property that has been mortgaged, unless the applicant for compulsory sequestration is the first mortgagee.
May the Sheriff refuse to attach property if there is not sufficient disposable property?
The Sheriff may refuse to attache property if there is not sufficient disposable property to satisfy the judgment.
He may then make a nulla bona return, where the creditors may then apply for sequestration.
Can an estate be sequestrated due to a disposition prejudicing creditors or preferring one creditor?
An estate may be sequestrated in terms of Section 9(1) if the debtor commits an act of insolvency.
In terms of Section 8(c) a debtor commits an act of insolvency when a disposition prejudicing creditors or preferring one creditor takes place.
Only the effect of the disposition need to be considered. It does not matter if the debtor acted on purpose or recklessly. The intention of the debtor is irrelevant.
How does a debtor commits a disposition prejudicing creditors or preferring one creditor/
Debtor commits this by:
- Refusing to pay one debt while paying another in full;
- Selling assets deliberately below market value while failing to meet debts;
- Passing mortgage over immovable property to secure debt to one creditor, while his business ventures are in financial difficulties an he is not paying his creditors.
Can an estate be sequestrated due to the removal of property with the intent to prejudice of prefer?
An estate may be sequestrated in terms of Section 9(1) if the debtor commits an act of insolvency.
In terms of Section 8(d) a debtor commits an act of insolvency when property are removed with the intent to prejudice or prefer a creditor.
The intent of the debtor is very important and not the effect of the removal. For example if the debtor sends money or goods to another country so that the money / goods are not available for settlement of the creditor’s claim.
How does the act of insolvency in terms of Section 8(c) en 8(d) differs?
The act of insolvency in terms of Section 8(d) differs from 8(e) since the disposition of property is not required, removal alone is sufficient.
Can an estate be sequestrated due to an offer of arrangement?
An estate may be sequestrated in terms of Section 9(1) if the debtor commits an act of insolvency.
In terms of Section 8(e) a debtor commits an act of insolvency when he indicates his inability to pay his debts.
Can an estate be sequestrated due to the debtor’s failure to apply for surrender?
An estate may be sequestrated in terms of Section 9(1) if the debtor commits an act of insolvency.
In terms of Section 8(f) a 3 acts of insolvency are created when a debtor published a notice of surrender which did not lapse or are not withdrawn when he does one of the following:
- Fails to comply with the Requirements of Section 4(3) by lodging the statement of affairs with the Master;
- Lodges a statement that is incorrect or incomplete in a material respect;
- Fails to apply for acceptance of surrender on the specified date.
Can an estate be sequestrated due to the debtor’s notice of inability to pay?
An estate may be sequestrated in terms of Section 9(1) if the debtor commits an act of insolvency.
In terms of Section 8(g) a debtor commits an act of insolvency when he gives notice of his inability to pay any single debt.
The content of the notice determines if it is an act of insolvency and not the debtor’s intention. It must be reasonable interpreted that the debtor can not pay any single debt and not mere the unwillingness to pay.
From remarks in Du Plessis en ‘n ander v Tzerefos it appears that the notice will still be an act of insolvency even if the creditor has obtained the document by means of fraud. But the court will take this fact into account when exercising its discretion to sequestrate the estate.
Can an estate be sequestrated due to the debtor’s inability to pay his debts after a notice of transfer of business?
An estate may be sequestrated in terms of Section 9(1) if the debtor commits an act of insolvency.
In terms of Section 8(h) a trader commits an act of insolvency when he is unable to pay his debts after notice of transfer of business, even if it is debts that bears no relation to his business.
In terms of Section 2 of the Act a farmer is excluded from the definition of a trader.
As soon as the notice is published, every liquidated liability of the trader in connection with his business which would become due at a future date, falls due if the creditor demands payment.
How can factual insolvency be established?
Factual insolvency can be established:
- Directly - by evidence of the debtor’s liabilities and market value of assets;
- Indirectly - by the evidence of facts and circumstances from which conclusion of insolvency is fairly and properly derivable.
How does the court decide if the sequestration will be to the advantage of the creditors?
The court need to ask the question if a substantial portion of the creditors will get advantage from the sequestration.
There is no advantage if there is no / minimal payment to the creditors.
The court compares the position of the creditor if no sequestration order is granted as well as the position of the creditor where a sequestration order is granted. There is only an advantage to the creditors if it results in a greater dividend if there is a sequestration order granted.
The onus of establishing the advantage remains on the creditor, even if the debtor committed an act of insolvency.