Syllabus theme 3

Question 1

Which procedural consequences occur once the insolvent has lost control of
his estate?

Answer 1

• After the sequestration order has been granted the estate vests in the Master of the High Court until a trustee has been appointed. The estate property or assets, bar certain protected assets, then vests in the trustee.

• The debtor receives notice of the final sequestration order, and he, as well as his spouse( if they are married out of community of property, )have to lodge a statement of affairs with the Master within 7 days of service, if this has not already been done.
• Affairs not taken into custody must also be handed over by the debtor to the sheriff.

• NB: the insolvent still has an interest

Question 2

What are some of the admin issues that happens after the date of sequestration?

Answer 2

♣ The Registrar of the court granting a sequestration order must without delay send a copy of the order to every sheriff of every district in which the insolvent seems to reside or carry on business, every Registrar of titles of Immovable Property in the Republic, every officer having charge of and official register of ships and every official who is holding any of the debtor’s property under attachment.

♣ A caveat (a notice, especially in a probate, that certain actions may not be taken without informing the person who gave the notice.) which was entered in terms of section 17 by the Registrar charged with the registration of titles of immovable property, before or after commencement of the Insolvency Act, expires 10 years after the date on which such a sequestration order was made, or 6 months after date of commencement of the Amendment Act, whichever is the later date.

♣ Where someone who is or was insolvent unlawfully disposes of immovable property or a right in such property which still forms part of his insolvent estate, section 25(4) entitles the trustee of a right of recourse irrespective of the provisions of section 25(3). This provides the trustee a right to recover the value of the property or rights which were alienated by the insolvent or former insolvent, from any person obtaining the property or right from the insolvent or former insolvent while knowing it forms part of the insolvent estate, or a person who does not provide sufficient value in return.
- Where the trustee fails to act, the creditor(s) can institute the action on behalf of the trustee, in which case the successful creditor obtains a preferential claim regarding the payment of his or her claim and costs of the suit.

♣ Upon receipt of the sequestration order the sheriff is required to attach and make an inventory of the movable property of the estate which is in his district and which is not in the possession of a person who claims to be entitled to retain it under a right of pledge or a right of retention.
- Any cash that he collects must be sent to the Master and arrangements must be made for the safekeeping of the movable property at a suitable place, or a suitable person must be appointed to hold the property. (such person receives a copy of the inventory with a notice that the property has been attached but virtue a sequestration order and that is a and offence to remove to conceal or otherwise defeat the attachment of the property. Immediately after making the attachment, the sheriff must report in writing to the Master that the attachment has been completed.

♣ The sheriff must also report any property which to his knowledge is in the lawful possession of a pledgee or a person who is entitled to retain it under a right of retention. The sheriff must also send a copy of the inventory to the Master.

• Officers who have already attached property to the estate (e.g. execution) must supply the Master and the trustee(after his/her appointment), with an inventory.
• Where a curator bonis is appointed after publication of notice of intention to surrender, the curator ad bonis is replaced by the Master or provisional trustee, and later by the trustee.
• can also be demanded to the safekeeping of the estate.
• sheriff is compensated coding to Tarriff A in the second schedule.

Question 3

What is the position in regard to the property of the insolvent during
sequestration?

Answer 3

In case of a natural person debtor, the estate assets (except the categories of excluded or exempt assets, vest in the Master and, after his or her appointment in the trustee.
*THERE IS NO PROTECTED PROPERTY OR ASSETS IN CASE OF A DEBTOR WHO IS NOT A NATURAL PERSON.
- The insolvent debtor still has an interest in the estate:
#After his/ her rehabilitation, where the insolvent where he or she was not factually insolvent or where the asset increased in value, is entitled to any residue of his or her estate after all debts have been paid ceased in value, is entitled to any residue of his or her estate after all debts have been paid.
- In terms of “Compromise” with creditors , it is possible for the insolvent to regain control over a part of even the whole property from the date determined in the compromise
- In all other circumstances the estate remains under the control of the trustee under the the control of the trustee until rehabilitation takes place OR a compromise is reached. (For purposes of realisation of assets ad the distribution of proceeds between the creditors)

• Assets which have not been realised immediately before rehabilitation will remain vested in the trustee after rehabilitation for the purpose of realisation, in order to pay any debts still outstanding.
• IF the only trustee of the estate vaceaes his or her office, is removed from office, or dies the estate will again vest in the Master until a new trustee is appointed. s25(2)

Question 4

Assets which are included in the insolvent’s estate:

Answer 4

1. Property
2. Debts payable to the insolvent
3. Rights of inheritance
4. Immovable property in foreign countries and movable property.

Question 5

Assets which are excluded from the insolvent’s estate:

Answer 5

1. Clothing and household furniture & bedding.
2. Contingency right of fideicommissary heir
3. Trust property
4. Agricultural credit
5. Insurance policies
6. Property of third parties

Question 6

Included in the insolvent’s estate: Property

Answer 6

• Includes all property (assets) owned by the insolvent at the time of sequestration as well as property acquired after sequestration but before rehabilitation.
• Includes movable and immovable property situated in the republic, excluding contingency right of fideicommissary heir or legatee.

Question 7

Included in the insolvent’s estate: Debts Payable to the insolvent

Answer 7

• Payable to the trustee

- If a debt is paid to the insolvent it is not discharged.

Question 8

Included in the insolvent’s estate: Rights of inheritance

Answer 8

If it complies with the definition of property it will form part of the Insolvent Estate.

Question 9

Included in the insolvent’s estate: Immovable property in foreign countries and movable property.

Answer 9

• A Cross-border insolvency deal with the situation where sequestration is granted in one jurisdiction, usually the country of the domicile of the debtor, also referred to as the local jurisdiction, while the debtor owns property and/ or has interests in property in at least one other jurisdiction
• The trustee will have to consider the possibility of following up such property or interests in the foreign jurisdiction with a view to attaching same for the benefit of his local creditors but subject to the laws of foreign jurisdiction.
• The definition of “property” does not include property in foreign jurisdiction, but in terms of common-law principles of international private law, movable property of a local insolvent situated in a foreign country will vest in the local insolvent estate if the estate is sequestrated by the court where the insolvent is domiciled.
• Immovable property which is included in the debtor’s estate which the trustee gains control, the trustee can only gain control if recognition of appointment is obtained from a court in the foreign jurisdiction. If he fails to obtain this recognition, the immovable property remains vested in the insolvent.

Question 10

Assets which are excluded from the insolvent’s estate: Clothing and Furniture & bedding

Answer 10

→ Essential items, left to the trustees discretion
→ The trustee with the consent of the Master, may allow the insolvent a moderate sum of money or goods out of the estate as may appear to be necessary for the support of the insolvent and his dependents.

Question 11

Assets which are excluded from the insolvent’s estate: Contingency right of fideicommissary heir

Answer 11

A fideicomissary’s contingent interest in property does not vest in the insolvent estate, unless the actual right accrues to the insolvent before his rehabilitation. (If A bequeaths his farm to B, subject to the condition that the farm must pass to C after B’s death, C’s interest in the farm will fall OUTSIDE C’s insolvent estate if his estate was sequestrated while B was still alive!!
- If fiduciary B however is sequestrated, the property (fiduciary interest) will, however, vest in his insolvent estate.

Question 12

Assets which are excluded from the insolvent’s estate: Trust property

Answer 12

• Trust property will not form part of a trustee;s personal estate, save as far as the trustee is also a trust beneficiary.
• Likewise money her d in the russ account of an attorney does not from part of the insolvent estate of this attorney unless and until all claims against the trust account have been satisfied and a balance remains in such account.
• creditors have a preferent claim in respect of such trust money.
• trust property held by financial institution , in its capacity as trustee, also doe sn to form part f the assets of that institution.

Question 13

Assets which are excluded from the insolvent’s estate: Agricultural credit

Answer 13

> Land bank Act
Immovable property mortgaged to the Land Bank and Agricultural Credit Act
If movable property is given by the debtor to the State as security, it does not form part of the insolvent estate.

Question 14

Assets which are excluded from the insolvent’s estate: Insurance Policies

Answer 14

→ A policy has been in force for at least 3 years shall be excluded from the insolvent estate of such a person will be excluded up to an amount of R50000
→ The proceeds of the policy are protected for 5 years

Question 15

Assets which are excluded from the insolvent’s estate: Property of third parties

Answer 15

• OWNERSHIP must be present
• –> If not owner, then it will not and can not form part of the insolvent estate.
• Instalment sales Transaction or Credit

Question 16

What is the position in regard to property obtained by the insolvent after
sequestration?

Answer 16

Apart from exceptions, generally property acquired after the sequestration order also forms part of the insolvent estate.

Question 17

Position after sequestration: Inheritance

Answer 17

o Inheritance (NB)
→ If the right of inheritance accrues to the insolvent BEFORE rehabilitation: right vests in trustee on acceptance of inheritance by the insolvent heir
• Wessels v De Jager:

Question 18

Position after sequestration: Insurance benefit

Answer 18

• If insolvent does not accept benefit it will form part of the insolvent estate
  → Trustee (where there is a will) in principle is bound by directions attached to bequest. Judicial debate regarding the separate assets of a woman married IN community of property.
  • 1980: Ex parte Geering; It is possible for the woman to have separate assets which do not form part of the joint estate
  → 1994: Bardenhorst v Bekker: Where assets which are left exclusively to a woman in a will indeed vest in the joint insolvent estate.
  ͏ Decided on three arguments:
  (1) The testator cannot stipulate in his will that an inheritance may not be attached or in the event of sequestration that it will not form part of the insolvent estate.
  (2) The Insolvency Act does not contain a provision as to what happens to spouses’ inheritance after the joint estate has been sequestrated. The interpretation of the court led them to the conclusion, that due to its non-inclusion in a provision within the Act that it meant that it must fall within the insolvent estate.
  (3) The court also considered the common law.
  → 2003: Du Plessis v Pienaar (SCA): Agreed with Bekker

Question 19

Position after sequestration: Excluded from insolvent estate

Answer 19

1. Pensions
2. Salaries & Wages
3. Property purchased with money which the insolvent was entitled to for his own benefit.
4. Indemnification of a third party

Question 20

Position after sequestration: Excluded from insolvent estate: Pensions

Answer 20

The insolvent is entitled to retain for his or her own account any pension received in tetum for service provided by him or her;

• Pension benefits in terms of Pensions Act…etc.
• as well as damages for any defa,action or personal injury suffered by hum or her in which his or her estate was not involved.
• Santam v Norman , award made by court order before sequestration
• –> Includes right to damages for medical expenses and loss of earnings as well as compensation for pain and suffering from personal injure suffered by him or her..
• –> He or she may also retain damages arising from adultery between the defendant and the spouse of insolvent,
• BUT not entailed to compensation for damages that he or she suffered in his or her business activities prior to sequestration.

Question 21

Position after sequestration: Excluded from insolvent estate: Salaries and Wages

Answer 21

→ ONLY to the extent it is necessary to support himself and/ or his dependents.
→ Income earned illegally is not included in this exclusion and will therefore vest in the trustee
→ Any asset purchased with this money will not form part of the insolvent estate.

Question 22

Position after sequestration: Excluded from insolvent estate: Indemnification of a third party

Answer 22

→ Section 156 creates a procedure for a third party to claim directly from the insurer instead of claiming against the insolvent estate of the insured person.
→ The following must first be established:
(a) The insured (insolvent) must have incurred a liability to the third party
(b) The quantum of such liability
(c) The insurer must be obliged in terms of the insurance policy (contact) to indemnify the insured (insolvent) in terms thereof
(d) The amount that the insurer would have been obliged to pay the insured (insolvent).