MRL3701 MAY/JUNE 2024

QUESTION 1

1.1.a)The Master is appointed in terms of the Administration of Estates Act 66 of 1965.

b. The Master plays a crucial role in insolvency matters, with key functions including the
custody of documents related to insolvent estates, appointment of liquidators, supervision
of the liquidation process, protection of creditors’ rights, and ensuring compliance with
South African laws and regulations.

c. The Master is considered a “creature of statute” because they derive their powers and
authority directly from legislation. This means the Master can only act within the scope of
their statutory powers and cannot exceed those boundaries unless explicitly authorized by
law. In other words, the Master’s actions are limited to what is permitted by the legislation
that governs their role. (page 11)

1.2.The five initiatives identified to assist in reforming the South African Insolvency Law are:

1. Modernizing Communication Methods: Utilizing modern communication platforms

such as email, WhatsApp, and social media to facilitate smoother insolvency
processes, instead of relying solely on traditional methods like newspaper
publications and registered mail, as seen in the use of email and WhatsApp in a
recent case on compulsory sequestration.
2. Language Inclusivity: Expanding language requirements beyond Afrikaans and
English to include other official languages and South African Sign Language, ensuring
broader accessibility and constitutional compliance, as recommended in Sustaining
the Wild Coast NPC & others v Minister of Mineral Resources and Energy & others.
3. Digital Notification Systems: Developing a powerful app for the Master of the High
Court to carry all appropriate notices and notifications, addressing concerns with the
Government Gazette’s reliability, as highlighted in South African Restructuring and
Insolvency Practitioners Association NPC v Chief Executive Officer.
 4. Updating Financial Provisions: Reviewing and adjusting outdated financial
provisions, such as funeral and death-bed expenses (Section 96), last adjusted in
1983, and employee preferent claims, which have remained unchanged for 22 years.
5. Comprehensive Legislative Reform: Enacting a new Insolvency Act that reflects
contemporary thinking, as advocated by the South African Law Reform Commission’s
ongoing project to revise insolvency law, considering a shift towards a more debtor-
friendly approach. (page 15-17)

1.3.The implications of Jonah’s failure to satisfy the judgment and indicate sufficient
disposable property, coupled with the officer’s return stating insufficient property, are far-
reaching.

Firstly, Jonah’s actions constitute an act of insolvency under Section 8(b) of the Insolvency
Act. This section provides that a debtor’s failure to satisfy a judgment or indicate sufficient
disposable property to satisfy the judgment, upon demand by the officer executing the
judgment, amounts to an act of insolvency as stated in Nedbank Ltd v Norton 1987 (3) SA
619 (N). In this case, Jonah’s failure to satisfy the judgment of R80,000 and indicate sufficient
disposable property meets this criterion.

Furthermore, the officer’s return stating that no sufficient disposable property was found
reinforces this act of insolvency. The return serves as prima facie proof of Jonah’s insolvency,
shifting the burden to Jonah to dispute its correctness based on the Van Vuuren v Jansen
1977 (3) SA 1062 (T)) case. This means that Jonah would need to provide clear and
satisfactory evidence to rebut the presumption of insolvency.

The cases of Dicks v Marais 1952 (”) SA 165 (N) and Rodrew (Pty) Ltd v Rossouw 1975 (3) SA
137 (O) support the requirement for personal service and demand. In these cases, it was
held that the demand to satisfy the judgment debt must be made of the debtor or his duly
authorized agent, and that service on another party does not suffice.

Additionally, the case of Beira v Raphaely-Weiner & others 1997 (4) SA 332 (SCA) 338
illustrates that a creditor may sequestrate a debtor on the basis of a nulla bona return on a
writ issued at the instance of another creditor. This means that Zanele may proceed with
sequestration proceedings despite not being the original creditor who obtained the
judgment.

If Zanele decides to proceed with sequestration, a trustee will be appointed to manage

Jonah’s estate and distribute assets among creditors. However, as seen in the case of
Premier Finance Corporation (Pty) Ltd v B Grillanda, trading as Auto Sales Centre 1972 (1) SA
347 (D), the onus will be on Zanele to establish that the property pointed out by Jonah was
insufficient to satisfy the judgment. (page 45-47)

1.4.a.

Case name Ratio dicendi of the case Area of Insolvency Law

applicable

1.Magnum Financial The question to be decided Meaning of the

Holdings (Pty) Ltd v was whether the trust word “debtor
Summerly & before the court was
Another NNO 1984 susceptible of sequestration
(1) SA 160 W

2.Harksen v Lane NO Section 21 of the Insolvency Vesting of the

& Others 1998 (1) Act 24 of 1936 assets of the solvent spouse
SA 300 (CC) authorises the Master that the
trustee may attach
the property of the Solvent
Spouse.

3.Hendriks NO v An exception to section 29 of Disposition in

Swanepoel 1962 (4) the Insolvency Act the ordinary
SA 338 (A) 24 of 1936 is that a disposition course of
is allowed if it is business.
 done in the ordinary course of
business.

4.Vorster NO v Steyn When someone applies for Property which

1981 (2) A 831 (O rehabilitation, a provision in falls in the
the will of a deceased that the insolvent estate
property bequeathed to the
insolvent should go into trust
if at the time the person is
being rehabilitated, is nudum
praeceptum.

5.Rand Air (Pty) Ltd v With the disappearance of the When is it just
Ray Bester companies substratum, if an equitable for
Investments (Pty) there is fraud committed, a a company to
Ltd 1985 (2) SA 345 deadlock in management, the be wound up by
(W) dissolution of a partnership court.
and oppression.

1.5. Section 27 of the Insolvency Act 24 of 1936 has potential constitutional issues due to its
restrictive benefits to only married females and children born in wedlock. This raises
concerns about discrimination based on marital status, sexual orientation, and birth,
violating the equality clause in the Bill of Rights.

The section protects benefits from an antenuptial contract given by a man to his wife or child
born of their marriage, excluding men, same-sex partners, children born outside of wedlock,
and children born to same-sex partners. For instance, in Enyati Resources Ltd v Glaum NO
& another (1989), the court emphasized the importance of registering antenuptial contracts
at least two years before sequestration. This limitation may be seen as unfair discrimination,
contradicting the right to equality in the Constitution, specifically Section 9, which
guarantees equal protection and benefit of the law. Furthermore, the Civil Union Act 17 of
2006 emphasizes the discriminatory nature of Section 27, as it provides equal treatment for
same-sex partners in civil unions.

Transformative Constitutionalism aims to address historical injustices and promote social

justice, human dignity, and equality. In the context of Section 27, this principle requires re-
examining the law to ensure equal benefits and protection for all individuals, regardless of
marital status, sexual orientation, or birth. To align with the Constitution and transformative
constitutionalism, Section 27 must be revised to provide equal protection and benefits to all
individuals, regardless of their marital status, sexual orientation, or birth. This could involve
broadening the definition of “spouse” and “child” to include diverse family structures and
relationships.

Ultimately, the goal is to create a more inclusive and equitable Insolvency Act that respects
and protects the rights of all individuals, in line with the principles of transformative
constitutionalism and the South African Constitution.(page 171)

QUESTION 2

2.1.When an insolvent enters into a prohibited contract, the legal effect is that the contract
is voidable at the option of the trustee, rather than being entirely void. This means that the
trustee has the discretion to either set aside the contract or allow it to remain binding on the
parties as stipulated in W L Carroll & Co v Ray Hall Motors (Pty) Ltd 1972 (4) SA 728 (T)). If the
trustee chooses not to set aside the contract, the contract remains enforceable, but if they
elect to set it aside, they may recover any performance rendered by the insolvent and must
restore any benefits received by the insolvent under the transaction as stated in Estate Louw
v Credit Corporation of SA Ltd 1956 (3) SA 303 ©. Furthermore, the insolvent cannot sue for
performance unless there is a statutory provision granting them the right to enforce
performance under that specific type of contract. However, Section 24(1) of the Insolvency
Act provides protection to third parties who contract with the debtor in good faith, unaware
of the insolvency, by validating certain transactions involving new assets acquired by the
insolvent after sequestration, provided the third party can prove they had no reason to stated
in Section 55(a) of the Insolvency Act. This restriction is put in place to prevent individuals
who have demonstrated financial irresponsibility from managing the financial affairs of
others. In fact, if an individual is already serving as a trustee and their estate is sequestrated,
they are required to vacate their office immediately, as outlined in Section 58(a). This
ensures that only trustworthy and financially responsible individuals are entrusted with
overseeing the financial affairs of insolvent Estates. Ultimately, the trustee’s decision
determines the contract’s validity, emphasizing the importance of their role in managing the
insolvent estate. (page 79)

2.2.An unrehabilitated insolvent is prohibited from serving as a trustee in an insolvent estate,

as stipulated in Section 55(a) of the Insolvency Act. This restriction ensures that individuals
managing insolvent estates are financially stable and trustworthy. If an unrehabilitated
insolvent is already a trustee, they must vacate their position immediately upon
sequestration, as outlined in Section 58(a) of the Act. This safeguard protects creditor
interests and maintains the integrity of the insolvency process. In fact, the courts have
historically allowed unrehabilitated insolvents to serve as company directors only if they
pose no risk to members or the public, as seen in cases like Ex parte Harrod (1954) and Ex
parte Dworsky (1970). Similarly, in J.S.B v B.B N.O and Others (2048/2022), the High Court of
South Africa addressed the appointment of trustees, highlighting the importance of careful
consideration in such matters. The extensive list of disqualifications, including roles such as
liquidator, business rescue practitioner, and member of various statutory councils,
underscores the significance of financial stability in these positions. (page 83-84)

2.3.The Master may refuse to confirm the election of a trustee or appoint a person as trustee
in the following instances:

1. Improper election: If the person was not properly elected as trustee.

2. Disqualification: If the person is disqualified from being a trustee.
3. Failure to provide security: If the person has failed to give the required security.
 4. Unsuitability: If, in the Master’s opinion, the person should not be appointed as
trustee to the specific estate in question (Section 57(1) of the Insolvency Act).(page
151)

2.4.Under Section 31 of the Insolvency Act 24 of 1936, a court may set aside transactions
entered into by a debtor prior to sequestration if they involve collusive dispositions that
prejudice creditors or unfairly favour one creditor over another. This provision aims to
prevent debtors from fraudulently disposing of their assets to evade creditor obligations.
Collusion, in this context, refers to an agreement with a fraudulent intent, not merely an
outcome that prefers one creditor. To succeed in such an action, the trustee must
demonstrate three key elements. Firstly, the insolvent must have made a disposition of their
property, as seen in the case of Louw NO v DMA Fishing Enterprises (Pty) Ltd & another
(2002), where the court clarified the requirement for a disposition. Secondly, the disposition
must have been made in collusion with another person, meaning both parties were aware of
the insolvent’s financial situation and intended to harm creditors or favour one over others.

The requirement of collusion Is further emphasized in cases such as Gert de Jager (Edms)
Bpk v Jones NO en McHardy NO (1964) and Meyer NO v Transvaalse Lewendehawe
Koöperasie Bpk en andere (1982), which established that both parties must have knowledge
of the insolvent’s financial situation and intend to prejudice creditors or prefer one creditor.
Thirdly, the disposition must have had the effect of prejudicing creditors or unfairly preferring
one creditor, as highlighted in Lane NO & another v Harksen & others (1998). A notable
example of such collusion is the case of M & another v Murray NO & others (2020), where a
debtor’s sham divorce and subsequent settlement agreement were deemed collusive,
intending to shield pension money from creditors. This demonstrates the court’s willingness
to scrutinize transactions that potentially harm creditors.

If these conditions are met, the trustee may not only set aside the collusive disposition but
also recover losses and impose penalties on parties involved, as outlined in Section 31(2).
Furthermore, if the other party to the disposition is a creditor, they forfeit any claims against
the estate, as stated in Section 31(2) and reaffirmed in Gert de Jager (Edms) Bpk v Jones NO
en McHardy NO (1964). The consequences of collusive dispositions can be severe, serving
as a deterrent against fraudulent activities. By setting aside such transactions and imposing
penalties, the Insolvency Act protects the interests of creditors and maintains fairness in the
insolvency process. This provision ensures that debtors cannot circumvent their obligations
through clandestine agreements, promoting transparency and accountability in financial
dealings. (page 177)

QUESTION 3

3.1.Section 34(1) of the Insolvency Act 24 of 1936 is a pivotal provision designed to protect
creditors of a business from traders who attempt to evade their debts by transferring their
business or assets to a third party. This section stipulates that if a trader transfers their
business or its goodwill, or any goods or property forming part of it, without giving the
prescribed notice, the transfer is void against their creditors for six months and against their
trustee if their estate is sequestrated within that period.

The prescribed notice requires publication In the Government Gazette and two issues of an
Afrikaans and English newspaper circulating in the district where the business operates, 30-
60 days before the transfer. This notice must provide accurate information regarding the
transfer; otherwise, it is considered invalid. Notably, publication is necessary even if
creditors are aware of the intended transfer, as emphasized in Gainsford & others NNO v
Tiffski Property Investments (Pty) Ltd & others (2012). In this case, the court held that a
company’s disposal of all its property could not be considered part of its ordinary business,
highlighting the importance of transparency in business transactions.

The scope of Section 34(1) applies to traders, defined as Individuals carrying on a trade,
business, industry, or undertaking specified in the section. However, certain activities are
exempt from this definition, such as letting and hiring of immovable property, as seen in
Kevin and Lasia Property Investment CC & another v Roos NO & others (2004). Additionally,
transport haulage is not considered a trading activity, as ruled in McCarthy Ltd v Gore NO
(2007). The definition of a trader is crucial in determining the applicability of Section 34(1),
and the court will consider whether the person concerned carries on the relevant activity as
part of their core business.

Section 34(1) also specifies exceptions to its application. Transfers in the ordinary course of
business or to secure debt payment are exempt from the notice requirement. In Joosab v
Ensor NO (1966), the court held that the transfer of goods or property would be considered
part of the ordinary course of business if it was consistent with the trader’s usual business
practices. Conversely, in Gore & another NNO v Saficon Industrial (Pty) Ltd (1994), the court
ruled that a sale of 90% of a company’s assets was not in the ordinary course of business,
as it was an extraordinary transaction. The transfer scope includes the transfer of
possession, actual or constructive, as stated in Section 34(4). This means that the trader
does not actually have to transfer ownership to the other party for the transaction to be
considered a transfer. In Silverstream Investments (Kranskop) CC v Ronbo Automotive CC
(1997), the court emphasized that the trustee bears the onus of proving that the goods
formed part of the insolvent’s business at the time of transfer.

The consequences of non-compliance with Section 34(1) are severe. A transfer without
notice is void against the trustee, who may choose to disregard the transfer and demand
return of the assets. In Harrismith Board of Executors v Odendaal (1923), the court held that
a trader’s attempt to evade debts by transferring business to a third party was deemed void
against creditors. Furthermore, the transferee has a concurrent claim against the estate for
the amount paid or performance rendered.

In conclusion, Section 34(1) of the Insolvency Act plays a vital role in safeguarding creditors’
interests by regulating business transfers without prescribed notice. Its provisions and
exceptions provide clarity on the requirements and implications of such transfers, ensuring
that traders cannot evade their debts by transferring their business or assets without proper
notification. The cases of Gainsford, Roos, Kevin and Lasia, McCarthy, Joosab, Gore,
Silverstream, and Harrismith demonstrate the importance of compliance with Section 34(1)
and the consequences of non-compliance. (page 184-186)
3.2.The removal of a liquidator from office before completing their duties is a critical aspect
of the winding-up process. According to Section 379(1) of the relevant legislation, the Master
may remove the liquidator in the following instances:

1. Lack of qualifications or disqualification: If the liquidator was not qualified for

nomination or appointment or has become disqualified.
2. Unsatisfactory performance: If the liquidator fails to perform their duties
satisfactorily.
3. Insolvency or incapacity: If the liquidator’s estate becomes insolvent or they become
mentally or physically incapable of acting.
4. Creditor or member request: If the majority of creditors or members request removal
in writing.
5. Unsuitability: If the Master deems the liquidator unsuitable.

Additionally, Section 379(2) empowers the court to remove the liquidator in these
circumstances or for any other good cause, upon application by the Master or an interested
person. In Ma-Afrika Groepbelange (Pty) Ltd & another v Millman and Powell NNO & another
(1997), The court held that good cause for removal exists only if it benefits all interested
parties. In Hudson & others NNO v Wilkins NO & others (2003), The court considered the
impact of removal on the liquidator’s professional standing and reputation.(page 301)

3.3.In the context of Business Rescue Proceedings, “rescuing the company” means
achieving the goals outlined in Section 128(1)(b) and (h), which aims to facilitate the
rehabilitation of a company or corporation in financial distress. This is accomplished
through temporary supervision and management of the company’s affairs, business, and
property, as well as a temporary moratorium on claimants’ rights. The primary objectives are
to develop and implement a rescue plan that restructures the company’s affairs, business,
property, debt, liabilities, and equity. This plan should either maximize the likelihood of the
company continuing in existence on a solvent basis or, if this is not possible, result in a better
return for the company’s creditors or shareholders than would result from the immediate
liquidation of the company.(page 322)
 MRL3701 OCT/NOV 2023

QUESTION 1

1.1.A formal defect in an application for the sequestration of an insolvent estate will be
considered fatal under Section 157(1) of the Insolvency Act if it has caused a substantial
injustice that, in the opinion of the court, cannot be remedied by any order. This means that
if the defect has resulted in significant prejudice to creditors and no corrective order can
alleviate this prejudice, the procedural step will be deemed invalid. However, if the defect
has not caused substantial injustice or if the prejudice can be cured by an appropriate order,
the court may validate the procedural step. The concept of “formal defect” refers to a
departure from prescribed or established procedures. To determine if a defect is formal,
courts consider factors such as whether the breach could defeat the purpose of the
provision, whether the provision is peremptory or directory, and whether creditors’ rights are
affected. If the defect meets these criteria and cannot be remedied, it will be considered
fatal, rendering the application invalid. This strict approach ensures that procedural integrity
is maintained while also allowing flexibility to address minor irregularities that do not
compromise the fairness of the process, as demonstrated in cases such as Ex parte Cowley
(1950), Ex parte Slabbert (1960), and Swart v Starbuck & others (2017). (page 12-13)

1.2.In the landmark case of Ex Parte Arntzen (Nedbank Ltd as Intervening Creditor) 2013 (1)
SA 49 (KZP), the court held that creditors are more vulnerable in voluntary surrender
applications than in compulsory sequestration, necessitating a higher level of disclosure.
This decision was based on the inherent risks associated with voluntary surrender
applications, where the debtor initiates the process, potentially undermining the interests of
creditors. Unlike compulsory sequestration, where creditors drive the process to recover
debts, voluntary surrender allows debtors to control the narrative, potentially hiding assets
or manipulating information to their advantage.

The court recognized that voluntary surrender applications carry a greater risk of abuse, as
debtors may attempt to protect certain assets or favour specific creditors. To mitigate this
risk, the court emphasized the importance of complete disclosure and sound evidence to
ensure that creditors’ interests are protected. This higher level of disclosure enables the
court to make informed decisions about accepting the surrender, ensuring that creditors are
not prejudiced. As noted in Ex Parte Hayes (1970 (4) SA 94 (NC) 96), the applicant must be
candid and make a full and frank disclosure of all material facts. Failure to do so may result
in the court refusing the surrender, even if all statutory formalities have been complied with.

In Ex Parte Arntzen, the court adopted the Mthimkhulu guidelines, typically applied to
friendly sequestrations, to voluntary surrender applications. These guidelines require
debtors to provide detailed evidence supporting their applications, including documents
and admissible evidence. By doing so, the court can verify that the debtor has met the
requirements under Section 6 of the Insolvency Act and exercise its discretion judiciously.
This approach is consistent with Ex Parte Veitch (1965 (1) SA 667 (W)), where the court held
that debtors should consent to deductions from excess income to demonstrate advantage
to creditors.

Furthermore, the court in Ex Parte Arntzen emphasized the importance of transparency and
accountability in voluntary surrender applications. This is evident in Ex Parte Van Dyk (2015
JDR 0667 (GP)), where the court refused to accept the debtor’s offer of earnings due to
concerns about policing the order and potential constitutional challenges. Similarly, in Ex
Parte Concato and similar cases (2016 (3) SA 549 (WCC) 555-6), the court required explicit
renunciation of protection under Section 82(6) to ensure creditors’ interests are protected.

The rationale behind this decision Is to safeguard creditors’ interests and prevent potential
abuses of the voluntary surrender process. By demanding a higher level of disclosure, the
court can better assess the debtor’s financial situation, identify potential risks, and ensure
that creditors receive a fair share of the debtor’s assets. As noted in Ex Parte Erasmus &
another (2015 (1) SA 540 (GP) 542-3), the applicant must supply detailed evidence to satisfy
a sceptical court that they have met the Section 6 requirements.

In conclusion, the court’s decision in Ex Parte Arntzen highlights the importance of

transparency and accountability in voluntary surrender applications. By requiring a higher
level of disclosure, the court protects creditors’ interests and prevents potential abuses of
the process. This approach is consistent with established case law, emphasizing the need
for candour, full disclosure, and sound evidence in voluntary surrender applications. (page
35-36)

1.3.Section 8 of the Insolvency Act 24 of 1936 is a comprehensive provision that outlines the
various acts of insolvency that warrant the sequestration of a debtor’s estate. This section
provides a clear and concise framework for identifying situations where debtors attempt to
evade or compromise their financial obligations, potentially harming creditors. The eight
specific scenarios outlined in Section 8 serve as a safeguard to protect creditors’ interests
and ensure fairness in financial transactions. These scenarios include abandoning
residence or leaving the country to evade debt payment, failing to satisfy court judgments,
making dispositions that prejudice creditors, removing property to prefer creditors, making
arrangements to release debts, failing to comply with surrender requirements, notifying
creditors of inability to pay debts, and publishing notice of insolvency as a trader.

The subsections of Section 8 further clarity on the acts of insolvency. Subsections (a) to (d)
address debtors’ attempts to evade or compromise their financial obligations, such as
abandoning their residence, failing to satisfy court judgments, making dispositions that
prejudice creditors, and removing property to prefer creditors. Subsections € to (g) focus on
debtors’ admissions of insolvency, including making arrangements to release debts, failing
to comply with surrender requirements, and notifying creditors of inability to pay debts.
Subsection (h) specifically applies to traders who publish notice of insolvency in the Gazette
and subsequently cannot pay all debts. By considering these scenarios as acts of
insolvency, Section 8 promotes fairness, transparency, and accountability in debtors’
financial dealings.

The primary purpose of Section 8 Is to safeguard the interests of creditors by providing a clear
definition of acts that constitute insolvency. By empowering creditors to take action against
debtors who engage in prejudicial conduct, this section maintains balance between debtors’
interests and creditors’ rights. The significance of Section 8 lies in its ability to provide clarity
on when sequestration is justified, facilitating the rehabilitation of debtors and the
protection of creditors’ rights. By outlining specific acts of insolvency, Section 8 enables
courts to make informed decisions regarding sequestration applications, ultimately
promoting fairness and stability in financial transactions. Through this provision, the
Insolvency Act ensures that debtors are held accountable for their financial obligations,
protecting both creditors and the integrity of the financial system.( Act)

1.4.The landmark case of Amod v Khan 1947 (2) SA 432 (N) concerns the compulsory
application of a debtor’s estate under the Insolvency Act 24 of 1936. The facts of the case
reveal that the appellant had petitioned for the compulsory sequestration of the
respondent’s estate, which was initially granted through a provisional order. However, the
respondent successfully challenged this order, leading to its dismissal and the setting aside
of the provisional sequestration. The issue at hand was whether the court should grant a final
sequestration order, considering the requirements of Section 12 of the Insolvency Act.

At the heart of the matter was the court’s discretion in sequestration applications,
particularly when evaluating the motivations behind such petitions. The court recognized
that Section 12 mandates that sequestration must benefit the debtor’s creditors, while
Section 6 places a heavier burden of proof on debtors in voluntary surrender applications.
However, the court also acknowledged its discretion to refuse a sequestration order, even
when all requirements are met, if it detects abuse of process or ulterior motives. In this case,
the court found that the appellant’s real motive was to prevent the respondent from
enforcing a claim against the appellant’s son, constituting an abuse of process.

The judgment ultimately led to the final decision of the court, refusing the compulsory
sequestration application due to the appellant’s abuse of process. The court exercised its
discretion, considering all circumstances surrounding the application, and prioritized
fairness and justice. This decision underscores the importance of scrutinizing the
motivations behind sequestration applications to prevent exploitation and ensure fairness.
The Amod v Khan case serves as a precedent, emphasizing the need for creditors to
demonstrate genuine concerns for their interests rather than pursuing sequestration for
ulterior motives. By examining this case through the lens of relevant legislation, we gain
insight into the complexities of balancing creditor interests and debtor protection, ultimately
protecting the integrity of the financial system.

1.5.Section 27 of the Insolvency Act 24 of 1936 has the potential to violate Section 9(3) of
the Constitution of the Republic of South Africa, 1996, which prohibits unfair discrimination
on various grounds, including marital status. Specifically, Section 27(1) provides that certain
benefits conferred upon a spouse or child through an antenuptial contract may not be set
aside as dispositions without value, unless the husband’s estate is sequestrated within two
years of registration. This provision raises concerns regarding discriminatory treatment
based on marital status, as it appears to favour married individuals over unmarried ones.

From a transformative constitutionalism perspective, Section 27 of the Insolvency Act may

be seen as perpetuating existing power dynamics and social inequalities. Transformative
constitutionalism seeks to address historical injustices and promote social transformation
through the Constitution. In this context, Section 27 may be viewed as inconsistent with the
transformative vision of the Constitution, as it fails to account for diverse family structures
and relationships beyond traditional marriage. Furthermore, the provision’s focus on marital
status may unfairly disadvantage individuals in non-traditional relationships or those who
choose not to marry, potentially perpetuating economic vulnerability and inequality.

The potential violation of Section 9(3) of the Constitution by Section 27 of the Insolvency Act
highlights the need for legislative reform to align with constitutional values. A transformative
constitutionalism approach would require reconsidering the provision to ensure equal
treatment and protection for all individuals, regardless of marital status. This could involve
revising Section 27 to account for diverse family structures and relationships, eliminating
discriminatory language, and promoting economic equality and security for all. By doing so,
the Insolvency Act can be brought in line with the Constitution’s vision of a just and equitable
society, realizing the principles of transformative constitutionalism and upholding the rights
and dignity of all individuals.

QUESTION 2

2.1.a. Name of case: Estate Wege v Strauss 2932 AD 76

Ratio dicendi of the case: Although a betting transaction was an invalid agreement and
thus Unenforceable in a court of law, payment of such a wavering debt Was not a disposition
without value.

Area of Insolvency: Section 26 Insolvency Act 24 of 1936

b. Name of case: Sarrahwitz v Maritz NO and Another 2015 (4) SA 491 (CC)

Ratio dicendi of the case: The statute did not provide for the transfer of a residential
property From the insolvent estate in order to prevent a vulnerable Purchaser being left
homeless. The purchaser had paid the full Purchase price within one year of the contract.
This outcome was Found to be inconsistent with the Constitution of the Republic of South
Africa, 1996 and invalid.

Area of Insolvency: Alienation of Land Act 68 Of 1981 (as Amended)

c. Name of case: Pretorius’ Trustee v Van Blommenstein 1949 (1) SA 267 (O)

Ratio dicendi of the case: A court must determine whether the defence of “ordinary course
Of business” and “intention to prefer” is applicable in each case

Area of Insolvency: Section 29 Insolvency Act 24 of 1936

d. Name of case: Ex Parte Snooke 2014 (5) SA 426 (FB)

Ratio dicendi of the case: This was an application for rehabilitation. Several cases of
abuses Of the sequestration process. Attorneys should limit their fees and Expenses to
those stated in application and trustees may not Consent to taxation of attorney’s bill
without it. The effects of Rehabilitation in terms of s 124(3), if the order is granted, is to
Reinvest insolvent with his estate.

Area of Insolvency: Rehabilitation And abuse of Sequestration Proceedings

e. Name of case: Prinsloo en ‘n Ander v Van Zyl NO 1967 (1) SA 581 (T)

Ratio dicendi of the case: Regarding the requirement that three-fourths in value and in
Number of the creditors who proved their claims, must accept the Offer of composition to
render it valid and enforceable.

Area of Insolvency: Section 119 Insolvency Act 24 of 1936

2.2.Rachel’s trustee’s opinion that she should not begin her political career at this stage is
correct. As an insolvent, Rachel is not capable of being a member of a provincial legislature
(section 106(1)© of the Constitution of the Republic of South Africa, 1996), and similarly, this
disqualification extends to municipal council positions (section 158(1)©). This
constitutional provision explicitly disqualifies unrehabilitated insolvents from holding public
office. Therefore, Rachel’s trustee is justified in advising against her pursuing a political
career at this time, as her insolvent status renders her ineligible to hold the office even if she
were to be elected.( page 83)

2.3.The Master may remove a trustee from office under the following circumstances, as
outlined in Section 60:

1. Lack of qualification or illegal appointment/election: If the trustee was not qualified

for appointment or their election/appointment was illegal.
2. Disqualification: If the trustee has become disqualified from holding office.
3. Failure to perform duties: If the trustee fails to perform duties satisfactorily or comply
with the Master’s lawful demands.
4. Incapacity: If the trustee is mentally or physically incapable of performing duties.
5. Creditor request: If the majority of creditors request removal in writing.
6. Unsuitability: If the Master deems the trustee no longer suitable for the estate. (page
153)
QUESTION 3

3.1.A special meeting of creditors, specifically for the purpose of “Proof of Claims,” is a
critical component of the insolvency process, typically convened after the second meeting
of creditors, where the trustee is obligated to call it under section 42(1) if an interested
person requests it and covers the associated expenses. The primary objective of this
meeting is to provide a platform for creditors to substantiate their claims against the
insolvent estate, presenting evidence to support their claims, which are then verified and
validated by the trustee. This process ensures that all legitimate claims are accounted for,
enabling the trustee to accurately distribute the estate’s assets accordingly. However, the
trustee must not abuse their powers by convening a meeting under the pretext of “further
proof of claims” solely to interrogate the insolvent or other witnesses, as emphasized by the
court’s decision in Marques & another v De Villiers & another NNO 1990 (4) SA 415 (W), which
renders such a meeting improperly convened. Ultimately, the special meeting for proof of
claims serves as a vital mechanism for ensuring transparency, fairness, and accountability
in the insolvency process, providing a structured framework for creditors to prove their
claims and enabling the trustee to fulfil their fiduciary duties.(page 137)

3.2.A pledge is a type of security arrangement where movable property is delivered to a

creditor as security for a debt, as seen in Bank of Lisbon and South Africa Ltd v The Master &
others 1987 (1) SA 276 (A), where movable incorporeal property was pledged through a
cession in securitatem debiti. In contrast, a right of retention, or lien, allows a party to retain
possession of another’s property due to expended labour or incurred expenses. Unlike a
pledge, a lien arises automatically by operation of law and does not require delivery of
property. There are two types of liens: enrichment liens, based on unjustified enrichment,
and debtor and creditor liens, securing an amount due under a contract. For instance, in
Business Aviation Corporation (Pty) Ltd & another v Rand Airport Holdings (Pty) Ltd 2006 (6)
SA 605 (SCA), the lessee enjoyed an enrichment lien for necessary and useful improvements
to the immovable property.
The key distinction between a pledge and a right of retention lies in their creation and scope.
A pledge requires explicit agreement and delivery of movable property, whereas a lien arises
automatically due to labour or expenses incurred. In Development Bank of Southern Africa
Ltd v Van Rensburg & others NNO 2002 (5) SA 425 (SCA), the court held that a holder of a
general notarial bond over movables, who obtained possession under a court order, was in
the position of a pledgee. Conversely, in Euromarine International of Mauren v The Ship Berg
& others 1984 (4) SA 647 (N), the court recognized a lien arising under the Admiralty
Jurisdiction Regulation Act 105 of 1983, without requiring possession. (page 219)

3.3.Daniel’s recently acquired motorcar, valued at R250,000, does not form part of his
insolvent estate. According to Section 20 of the Insolvency Act, assets acquired during
sequestration, before rehabilitation, typically vest in the trustee. However, assets acquired
after sequestration fall into the solvent estate of the insolvent. Since Daniel won the car in a
competition after his estate’s sequestration in 2022 and before his rehabilitation, the car
falls within his solvent estate. As a result, the trustee cannot claim the car, and Daniel is not
obligated to deliver it. This distinction between the insolvent and solvent estates protects
Daniel’s newly acquired assets from being used to settle his pre-existing debts, unless the
trustee chooses to waive their rights or a declaratory order is obtained, which is not
applicable in this scenario.

3.4.A Members’ Voluntary Winding-up (MVW) is a process where a solvent company, able to
pay its debts in full, is voluntarily dissolved by its members. This procedure is initiated when
the members decide to wind up the company’s affairs, typically due to fulfilled purposes,
internal conflicts, or other strategic reasons. To proceed, the company must provide
security, satisfactory to the Master, to settle debts within 12 months or obtain a waiver by
submitting an affidavit from directors confirming no debts exist and an auditor’s certificate
verifying this claim. In an MVW, members retain control throughout, and creditors do not
participate in meetings or claim proof. Notably, even factually insolvent companies can
undergo MVW if security is arranged for full debt payment. The process is simpler and
quicker than court-driven winding-up or creditors’ voluntary winding-up. Ryan should note
that MVW cannot be excluded from the company’s articles of association, and shareholders
holding the requisite majority can resolve to wind up the company without court
interference, as established in National Union of Leather Workers v Barnard and Perry NNO
2001 (4) SA 1261 (LAC). (page 294)

3.5.The four grounds for winding up a Close Corporation by court are stipulated in Section
68 of the Close Corporation Act as:

1. Member-initiated winding-up: If a majority of members (holding over half of the

total voting power) resolve to dissolve the corporation through a written resolution at
a specially convened meeting.
2. Inactivity: If the corporation fails to commence business within one year of
registration or suspends operations for an entire year.
3. Insolvency: If the corporation is unable to pay its debts.
4. Just and equitable grounds: If the Court determines, upon application, that
dissolving the corporation is just and equitable, considering all relevant factors.
(page 313)

MRL3701 MAY/JUNE 2023

QUESTION 1

1.1.The primary purpose of a sequestration order is to ensure the orderly and equitable
distribution of a debtor’s assets among all creditors when the debtor is unable to meet their
debts. This collective debt-collection procedure prevents individual creditors from
recovering their debts selectively, potentially leaving other creditors with little or nothing.
Upon sequestration, the debtor’s estate is divested, and assets are liquidated and
distributed according to a predetermined order of preference. The law prioritizes the
interests of creditors as a group over individual creditors, establishing a concursus
creditorum. The sequestration order “crystallizes” the insolvent’s position, ensuring that no
further transactions can diminish the estate assets or prejudice creditors’ rights. The
ultimate goal is to benefit creditors by providing a fair and structured process for recovering
their claims. Consequently, sequestration is only granted when it advantages creditors,
typically when there are multiple creditors, and not when a single creditor already holds a
judgment or when the estate’s assets would be depleted by sequestration costs, leaving
nothing for creditors.(page 4)

1.2.The statement “A sequestration order may not be granted if a debtor has only one creditor
and there are not enough assets to cover the costs of sequestration” is true. In South African
law, sequestration is primarily designed to benefit creditors, and the court will only grant a
sequestration order if it’s shown that it will be to the advantage of creditors ¹. If a debtor has
only one creditor who already holds a judgment against them, the normal execution
procedure is considered a less expensive means of exacting payment, making sequestration
unnecessary. Additionally, if the debtor’s estate lacks sufficient assets to cover
sequestration costs, leaving nothing for creditors, the court won’t grant the order. This
ensures that creditors receive an equitable share of the debtor’s estate and protects them
from other creditors’ greediness and dishonesty. The law prioritizes the interests of creditors
as a group over individual creditors, establishing a concursus creditorum, where the debtor’s
estate is divested, and assets are liquidated and distributed according to a predetermined
order of preference. (page 6)

1.3.Compulsory sequestration is a legal process initiated by a creditor submitting an

application to the court, seeking to declare a debtor’s estate insolvent and appoint a trustee
to manage and distribute the estate’s assets. In this scenario, David, as a creditor, has a valid
claim against Samuel, his brother, for R15,000 in unpaid painting services. Samuel’s letter
to Lenny, another creditor, admitting inability to pay debts and proposing instalment
payments, constitutes a crucial act of insolvency.

This act of insolvency, as defined in Section 8 of the Insolvency Act, demonstrates Samuel’s
admission of inability to pay his debts. Specifically, Samuel’s letter satisfies the
requirements of Section 8(a) of the Act, which considers an act of insolvency as “a debtor’s
admission in writing that he is unable to pay his debts.” This admission serves as prima facie
evidence of Samuel’s insolvency.
To initiate compulsory sequestration, David must establish a claim that entitles him to apply
for sequestration of Samuel’s estate in terms of Section 9(1) of the Insolvency Act. Since
David’s claim exceeds R100, he meets the statutory requirement. Furthermore, Samuel’s
indebtedness to multiple creditors, including David and Lenny, indicates that sequestration
will likely benefit more than one creditor.

Section 12(1) of the Insolvency Act requires the court to consider whether sequestration will
be to the advantage of creditors. Given Samuel’s insolvency and multiple creditors, the court
may conclude that sequestration is indeed advantageous. Sequestration would facilitate the
fair distribution of Samuel’s assets among creditors, preventing selective payment and
ensuring an equitable outcome. In granting the application, the court will consider factors
such as the extent of Samuel’s indebtedness, the number of creditors, and the potential
recovery from his estate. The court may also take into account Samuel’s conduct, including
his admission of insolvency and any attempts to avoid payment. Upon granting the
sequestration application, the court will appoint a trustee to manage Samuel’s estate,
realize assets, and distribute funds among creditors. This process ensures a structured and
transparent approach to addressing Samuel’s insolvency, ultimately benefiting David,
Lenny, and other affected creditors.

In conclusion, David has a valid claim, and Samuel’s act of insolvency, coupled with his
indebtedness to multiple creditors, provides a strong basis for compulsory sequestration.
The court’s consideration of Section 9(1) and Section 12(1) of the Insolvency Act will
ultimately determine whether sequestration is granted, paving the way for a fair distribution
of Samuel’s assets among his creditors.(page 42)

1.4.The landmark case of Harksen v Lane 1998 (1) SA 300 (CC) is a pivotal judgment that
navigates the intersection of insolvency law and constitutional rights in South Africa. This
case involved Mrs. Harksen, whose property was vested in the Master and then the trustees
following her husband’s insolvency. According to her statement of affairs, the property had
a substantial value of R6,120,352.50.
Notably, none of this property had been released by the trustees to Mrs. Harksen, and it
appeared that she had not made any application for such release. Furthermore, Mrs.
Harksen was summoned under sections 64 and 65 of the Insolvency Act to submit to
interrogation at the first meeting of creditors in her husband’s insolvent estate. She was also
required to produce documentation relating to her financial affairs and those of her
husband.

The central legal question in this case was whether provisions of sections 21, 64, and 65 of
the Insolvency Act were inconsistent with the provisions of the Constitution. Specifically,
Mrs. Harksen challenged the constitutionality of these sections, arguing that they infringed
upon her rights. The Constitutional Court’s finding was that the provisions of section 21 and
the impugned parts of sections 64 and 65 of the Insolvency Act were not inconsistent with
the interim Constitution. This ruling was based on the court’s analysis of the Insolvency Act’s
purpose and the rights of solvent spouses.

In its ratio decidendi, the court explained that in vindicatory actions, the claimant must
establish ownership. The onus of proof rests on either the Master, the trustee, or the solvent
spouse, depending on who has access to relevant facts. The court deemed this allocation of
burden understandable and justifiable, as the solvent spouse typically possesses necessary
information. Moreover, the court clarified that section 21 does not contemplate permanent
transfer of property. Instead, its purpose is to enable the Master or trustee to determine
whether property belongs to the insolvent estate. This temporary vesting facilitates efficient
estate administration. The Harksen v Lane judgment has significant implications for
insolvency law and practice in South Africa. It reinforces the importance of balancing
individual rights with effective estate administration while ensuring fairness and
proportionality.

1.5.Section 27 of the Insolvency Act 24 of 1936 has the potential to violate section 9(3) of the
Constitution due to its discriminatory nature. Specifically, this section protects benefits
arising from an antenuptial contract given by a man to his wife or child born of their marriage,
excluding same-sex partners, children born outside of wedlock, and children born to same-
sex partners from keeping benefits given to them in an antenuptial contract ¹. This
differentiation based on marital status, sexual orientation, and birth raises concerns about
unfair discrimination.

The Constitution's equality clause seeks to provide equal benefits before the law to persons
in the same or similar positions, prohibiting unfair discrimination ¹. Section 27’s limitations
render it vulnerable to constitutional review under section 9(3) of the Constitution. The
section’s focus on traditional heterosexual marriages disregards the rights of individuals in
same-sex relationships, customary marriages, and children born outside of marriage. This
exclusion has the potential to impair the fundamental human dignity of affected individuals,
constituting unfair discrimination.

To address these concerns, proposals have been made to amend section 27 and the
definition of “spouse” in section 21(13) of the Insolvency Act ¹. These reforms aim to
eliminate discriminatory effects and ensure consistency with the Constitution. However,
even proposed reforms may still distinguish between the rights afforded to children,
potentially violating the right to equality based on birth ¹. Ultimately, the courts must balance
the objectives of insolvency law with the constitutional mandate to deter unfair
discrimination to determine the provision’s validity.

1.6.The Sarrahwitz v Maritz NO and Another 2015 (4) SA 491 (CC) case is a landmark
judgment that highlights the challenge of balancing the rights of creditors against the
fundamental rights of individuals, particularly the right to housing. This case involves a
complex scenario where the applicant, Sarrahwitz, purchased a house from Rayonier
Posthumus, but before the transfer of property could be finalized, Posthumus was declared
insolvent.

The seller’s trustee, Maritz NO, then attempted to sell the property as part of the insolvent
estate. However, Sarrahwitz argued that this action infringed on her right to adequate
housing, as enshrined in Section 26 of the South African Constitution. This argument formed
the crux of the case, as it pitted the rights of creditors against the fundamental rights of
individuals.
The Constitutional Court's judgment In this case marked a significant shift towards
prioritizing constitutional rights over traditional insolvency practices. The court held that the
Alienation of Land Act 68 of 1981 was inconsistent with the Constitution and invalid, as it
failed to provide for the transfer of residential property from an insolvent estate to avoid
homelessness of a vulnerable purchaser who paid the full purchase price within one year of
the contract. This ruling set a precedent for the protection of vulnerable individuals in legal
processes traditionally dominated by creditor interests. The judgment underscores the
importance of the judiciary in enforcing constitutional mandates and ensuring that
legislation complies with constitutional rights. The effect is that all laws, including those
governing economic transactions and insolvency, must be interpreted in a manner
consistent with the Constitution.

However, this progressive judgment creates practical challenges. Insolvency proceedings

are inherently complex, and adding considerations of housing rights compounds additional
layers of complexity. Trustees and creditors must navigate these complexities while ensuring
compliance with both insolvency and constitutional law.

The Sarrahwitz v Maritz NO and Another case simplifies the dynamic interconnection
between insolvency law and constitutional rights in South Africa. The Constitutional Court
has set a precedent for the protection of vulnerable individuals in legal processes
traditionally dominated by creditor interests. Furthermore, this case serves as another
reminder that all laws must align with constitutional values, particularly those that affect
fundamental human rights.

QUESTION 2

2.1.A secured claim is a type of claim that is backed by collateral or a specific asset, which
serves as security for the creditor. This means that if the debtor defaults, the secured creditor
can seize and sell the collateral to recover their losses. Secured claims are typically ranked
in order of preference, with claims secured by immovable property, such as mortgage bonds,
taking precedence over those secured by movable property, like pledges. For instance, in the
event of insolvency, the proceeds from the sale of the encumbered asset are applied to pay
secured claims, including interest earned on the price obtained for the asset.

In contrast, a preferent claim is an unsecured claim that is given priority over other
unsecured claims due to statutory provisions. These claims are not backed by specific
assets but are instead granted priority due to their nature. Examples of preferent claims
include certain types of taxes, wages, and contributions to employee benefit plans.
Preferent creditors are paid from the general pool of assets after secured creditors have been
paid. This means that preferent creditors are more likely to receive payment in the event of
an insolvent estate with limited assets.

The primary difference between secured and preferent claims lies In the presence of
collateral and statutory priority. Secured claims rely on specific assets to secure payment,
whereas preferent claims rely on statutory provisions to ensure priority. Additionally,
secured claims are typically paid before preferent claims in the event of insolvency. (page
222)

2.2.Rachel’s trustee’s opinion that she should not begin her political career at this stage is
correct. As an insolvent, Rachel is not capable of being a member of a provincial legislature
(section 106(1)© of the Constitution of the Republic of South Africa, 1996), and similarly, this
disqualification extends to municipal council positions (section 158(1)©). This
constitutional provision explicitly disqualifies unrehabilitated insolvents from holding public
office. Therefore, Rachel’s trustee is justified in advising against her pursuing a political
career at this time, as her insolvent status renders her ineligible to hold the office even if she
were to be elected.( page 83)

2.3.To succeed in bringing the actio Pauliana action, a plaintiff must prove the following four
essential elements:

1. The transaction diminished the debtor’s assets.

2. The person who received from the debtor did not receive their own property.
3. There was an intention to defraud.
4. The fraud took effect.
These requirements are established by legal precedents, including Hockey NO v Rixom NO
& Smith 1939 SR 107 118 and Fenhalls v Ebrahim & others.(page 178)

2.4.The Master may remove a trustee from office under the following circumstances, as
outlined in Section 60:

1. Lack of qualification or illegal appointment/election: If the trustee was not qualified

for appointment or their election/appointment was illegal.
2. Disqualification: If the trustee has become disqualified from holding office.
3. Failure to perform duties: If the trustee fails to perform duties satisfactorily or comply
with the Master’s lawful demands.
4. Incapacity: If the trustee is mentally or physically incapable of performing duties.
5. Creditor request: If the majority of creditors request removal in writing.
6. Unsuitability: If the Master deems the trustee no longer suitable for the estate. (page
153)

QUESTION 3

3.1.In Ex Parte Snooke 2014 (5) SA 426 (FB), the court had to consider several critical issues
regarding the abuse of the sequestration process. Firstly, the court addressed the non-
compliance with Section 125 of the Insolvency Act 24 of 1936, which requires that security
for payment of costs be furnished three weeks prior to the application for rehabilitation. The
applicant, John William Snooke, had furnished security less than three weeks before the
application, but by the time the matter was heard, the three-week period had lapsed, curing
the non-compliance.

The court also scrutinized the process of proving claims against the Insolvent estate. Despite
no claims being lodged, the court expressed concern that creditors had not been given
sufficient opportunity to make informed decisions on whether to prove claims. The trustees’
report was deemed inadequate, failing to provide reasonable creditors with necessary
information to make informed decisions. Consequently, the court instructed the remaining
trustee to convene a special meeting of creditors for late proof of claims, postponing the
application for rehabilitation. This decision underscores the importance of ensuring that
creditors are properly notified and informed throughout the insolvency process.

Another significant issue was the excessive attorneys’ fees and expenses incurred during the
sequestration process. The court noted that the initial application for voluntary surrender
estimated costs at R20,000, yet the taxed sequestration costs exceeded twice that amount.
The court held that a voluntary surrender or sequestration order implies a limitation on
attorneys’ fees and expenses to those stated in the application. Consequently, the court
ruled that trustees should not consent to taxation of attorneys’ bills exceeding the initially
stated costs. This ruling aims to prevent abuse of the sequestration process by curbing
excessive legal fees and ensuring transparency and accountability in insolvency
proceedings.

3.2.Daniel’s recently acquired motorcar, valued at R250,000, does not form part of his
insolvent estate. According to Section 20 of the Insolvency Act, assets acquired during
sequestration, before rehabilitation, typically vest in the trustee. However, assets acquired
after sequestration fall into the solvent estate of the insolvent. Since Daniel won the car in a
competition after his estate’s sequestration in 2022 and before his rehabilitation, the car
falls within his solvent estate. As a result, the trustee cannot claim the car, and Daniel is not
obligated to deliver it. This distinction between the insolvent and solvent estates protects
Daniel’s newly acquired assets from being used to settle his pre-existing debts, unless the
trustee chooses to waive their rights or a declaratory order is obtained, which is not
applicable in this scenario.

3.3.A Close Corporation (CC) in South Africa, as governed by the Close Corporations Act 69
of 1984, is required to have a minimum of one and a maximum of ten members. The nature
of members is restricted to natural persons only, meaning that juristic persons, such as
companies or trusts, are not eligible to be members of a Close Corporation. This restriction
is aimed at maintaining the unique characteristic of Close Corporations as closely held,
privately owned entities. Membership interest is acquired by contributing something,
typically capital or skills, and each member’s interest is reflected in the founding statement.
When a new member joins, the founding statement must be amended to record the new
member’s interest. Furthermore, each member must receive a certificate, signed by or on
behalf of every member, stating the current percentage of their interest in the CC. This
ensures transparency and clarity among members regarding their respective interests and
rights within the Close Corporation.

3.4. A director of a company cannot directly apply for the winding-up of the company.
However, the company itself can initiate the process based on a resolution of the directors,
as stated in Section 346(1)(a) of the 1973 Act ¹. This is because the board of directors has
the power to manage the company’s business and affairs, which includes the authority to
initiate winding-up proceedings, according to Section 66(1) of the 2008 Companies Act ¹.

In fact, requiring only a board decision is considered the preferable approach, as convening
a meeting of members can be time-consuming and expensive, especially for large or
financially struggling companies. This delay can harm not only the company and its creditors
but also the directors, who may face accusations of reckless trading if they don’t act
promptly.

It’s worth noting that once a provisional winding-up order is granted, the directors’ powers
cease, and control vests in the Master pending the appointment of a liquidator. However, the
board may retain a residual power to oppose the application for final liquidation. (page 288)

MRL3701 OCT/NOV 2022

QUESTION 1

1.1.The concept of “concursus creditorum” refers to a concourse of creditors, aimed at

ensuring that a company’s property is collected and distributed among creditors in the
prescribed order of preference. This principle is established by the granting of a winding-up
order, including a provisional order. It presupposes that the company’s assets will be
distributed fairly and equally among all creditors, ensuring no single creditor receives
preferential treatment. Upon winding-up, the company retains its corporate identity and title
to its assets, but the directors’ powers cease, and control vests in the Master until a
provisional liquidator is appointed.(page 296)

1.2. The Western Cape High Court, Cape Town, would likely have jurisdiction to sequestrate
ABC Ltd.’s estate due to the presence of its property in Cape Town harbour, as per section
149(1) proviso of the Insolvency Act, which allows a court to refuse or postpone surrender or
sequestration if it’s equitable or convenient for another court to handle the matter. This
situation is similar to Lawclaims (Pty) Ltd v Rea Shipping Co SA (1979 (4) SA 745 (N)), where
the Natal court had jurisdiction over a foreign company’s ship lying in Durban harbour but
declined to sequestrate as it was more equitable and convenient for the company’s domicile
court to handle the matter, citing factors such as the ship being the company’s only link to
South Africa, contracts concluded outside South Africa, and uncertainty surrounding the
administration of the estate.

However, in ABC Ltd.’s case, the fact that its only link to South Africa is the property in Cape
Town harbour may not be enough to relinquish jurisdiction, as seen in Deutsche Bank AG v
Moser & another (1999 (4) SA 216 ©), where the court refused to relinquish jurisdiction due
to the debtor owning immovable property within its jurisdiction. In deciding whether to
sequestrate ABC Ltd.’s estate, the Western Cape High Court will consider factors such as
the convenience of parties and the court, and the general disposal of litigation, as
established in Goode, Durrant and Murray (SA) Ltd & another v Lawrence (1961 (4) SA 329
(W)), where the court transferred a sequestration application to the Durban court due to the
majority of matters arising in that area. The court must determine where the estate can be
more conveniently administered, and if necessary, transfer the matter to another court,
which doesn’t require original jurisdiction, as per section 27 of the Superior Courts Act 10 of
2013 and Mulder & another v Beacon Island Shareblock Ltd (1999 (2) SA 274 ©).(page 10)

1.3. Fred is considering applying for the compulsory sequestration of Jenna’s estate due to
her unpaid debt of R24,000 for cleaning services rendered by his company. Despite
numerous attempts to collect the debt over several months, Jenna has failed to make any
payment. This situation may qualify as an act of insolvency, specifically if Jenna is attempting
to send her property to her sister in the United States to avoid paying her debts. Such action
would be considered fraudulent preference, which is an act of insolvency under Section 9(1)
of the Insolvency Act.

To apply for compulsory sequestration, Fred must meet three key requirements as outlined
in Section 12(1) of the Insolvency Act. Firstly, he must establish a valid claim against Jenna,
providing evidence of the debt and her failure to pay. Secondly, Fred must demonstrate that
Jenna is insolvent, meaning she cannot pay her debts as they become due. Lastly, he must
show that sequestrating Jenna’s estate will be to the advantage of her creditors, potentially
by realizing assets to settle debts. The application process for compulsory sequestration
involves submitting a notice of motion and affidavit to the court. The affidavit must contain
sufficient information to establish the requirements for sequestration, including Fred’s locus
standi to apply, Jenna’s insolvency, and the benefits of sequestration. Additionally, Fred
must serve Jenna with a notice indicating his agreement or opposition to mediation, as per
Rule 41A(2)(a) of the Uniform Rules of Court. The respondents, in this case, Jenna, must also
serve notice on Fred of their agreement or opposition to mediation.

If the court grants the application, a trustee will be appointed to manage Jenna’s estate, sell
her assets, and distribute the proceeds among her creditors. The trustee’s role will be to
realize Jenna’s assets, including any property she may have attempted to transfer to her
sister, and distribute the funds to settle her debts. Throughout the process, Fred must ensure
compliance with relevant legislation, including the Insolvency Act and the Uniform Rules of
Court.(page 42-60)

1.4.Amod v Kahn 1947 (2) SA 432 (N) is a seminal case in South African insolvency law that
underscores the significance of judicial discretion in granting sequestration orders. This
landmark decision highlights the court’s role in preventing abuse of process and ensuring
that sequestration benefits the collective interests of creditors. At its core, the case revolves
around the tension between individual interests and the broader goals of insolvency law.

The facts of the case are that the respondent had a substantial claim against the applicant’s
son, exceeding the applicant’s claim against the respondent. Sequestration would have
effectively eliminated the respondent’s claim against the son, thereby not benefiting the
creditors as a whole. In light of this, the court dismissed the applicant’s sequestration
application, prompting an appeal. The appellate court upheld the lower court’s decision,
emphasizing the importance of judicial discretion in insolvency proceedings.

A critical aspect of this case is the court’s finding that the applicant’s true intention was to
prevent the respondent from enforcing their claim against the applicant’s son. This ulterior
motive constituted an abuse of process, as the applicant sought to utilize sequestration for
personal gain rather than recovering their debt. The court astutely recognized that granting
the sequestration order would have undermined the integrity of insolvency proceedings. By
refusing the application, the court safeguarded the collective interests of creditors and
prevented the applicant from exploiting the sequestration process.

The ratio decidendi of the case is that even if sequestration appears to benefit creditors, the
court may exercise its discretion to refuse the application if it determines that the applicant’s
primary goal is to abuse the process. This principle has far-reaching implications for
insolvency law, as it empowers courts to scrutinize sequestration applications and prevent
individuals from manipulating the system for personal advantage.

The Amod v Kahn decision has significant consequences for creditors, debtors, and the
administration of justice. Firstly, it underscores the importance of transparency and good
faith in insolvency proceedings. Applicants must demonstrate a genuine intention to recover
their debts, rather than pursuing ulterior motives. Secondly, the case highlights the critical
role of judicial discretion in ensuring that sequestration serves its intended purpose: to
benefit creditors collectively. By exercising discretion, courts can prevent abuse of process
and maintain the integrity of insolvency proceedings.

Furthermore, Amod v Kahn provides valuable guidance for legal practitioners and creditors
navigating insolvency law. The case emphasizes the need for careful consideration of the
applicant’s motivations and the potential consequences of sequestration. Creditors must
be aware that sequestration is not a tool for resolving individual disputes or advancing
personal interests but rather a collective process aimed at maximizing returns for all
creditors.

1.5.The legal implications of Mr. Mpho repudiating the contract with Rand Bank regarding the
2021 Toyota SUV financed by the bank are multifaceted. As trustee, Mr. Mpho has the power
to elect whether to perform the contract or not, but this power is not equivalent to
terminating the contract. Instead, it excludes Rand Bank’s right to invoke specific
performance, as established in Smith & another v Parton NO 1980 (3) SA 724 (D). In this case,
the court held that the trustee’s power to repudiate a contract does not amount to
termination, but rather precludes the other party from seeking specific performance. This
principle is crucial in understanding the implications of Mr. Mpho’s decision. If he repudiates
the contract, Rand Bank will be prevented from obtaining an order of specific performance,
despite having fulfilled their obligations.

However, Rand Bank may exercise other remedies for breach of contract, similar to those
available against a solvent party, as noted in Somchem (Pty) Ltd v Federated Insurance Co
Ltd & another 1983 (4) SA 609 ©. In this case, the court emphasized that the trustee’s act of
repudiation is subject to the same consequences as an unlawful repudiation by a solvent
party. Rand Bank may choose to disregard the repudiation, prove a concurrent claim for
damages in lieu of performance, and remain liable for their counter-performance.
Alternatively, Rand Bank may cancel the contract, recover the vehicle, make restitution
according to contract law principles, and claim concurrent liability for transferred property,
payments made, and losses suffered due to the breach. The case of Ellerine Brothers (Pty)
Ltd v McCarthy Ltd 2014 (4) SA 22 (SCA) underscores the importance of considering the
interests of the concursus creditorum. The court emphasized that the trustee must act in
accordance with the instructions of the general body of creditors. In Mr. Mpho’s decision-
making process, he must carefully weigh the potential consequences and prioritize the
interests of the concursus creditorum.

Furthermore, Mr. Mpho’s election to repudiate or continue the contract is irreversible, as

established in Gordon NO v Standard Merchant Bank Ltd 1983 (3) SA 68 (A). Once made, this
decision cannot be altered. Failure to make payments or indicate intent to affirm the
contract within a reasonable time will be deemed repudiation. In the context of Benny’s
situation, where two months of payments have been missed, Rand Bank may assume
repudiation and cancel the contract, as seen in Tangney & others v Zive’s Trustee 1961 (1) SA
449 (W). In this case, the trustee carried on the business for more than six months but did
not make any payments or indicate intent to affirm the contract. The court held that the
trustee’s failure to give due notice of intention to abide by the contract entitled the other
party to assume repudiation.

Additionally, the case of Vision Projects (Pty) Ltd v Cooper Conroy Bell & Richards Inc 1998
(4) SA 1182 (SCA) highlights the exception to the trustee’s power to repudiate. Where the
insolvent purchased immovable property and resold it before sequestration, the trustee is
obliged to pass transfer to the purchaser against payment of the price.

In conclusion, Mr. Mpho’s decision to repudiate the contract with Rand Bank must be
carefully considered, taking into account the potential consequences, the interests of the
concursus creditorum, and the established legal principles. By understanding the
implications of repudiation and the relevant case law, Mr. Mpho can make an informed
decision that promotes a fair outcome for all parties involved. (page 108)

QUESTION 2

2.1.A General Meeting of creditors is a vital gathering in the context of insolvency

proceedings, facilitating communication and decision-making between the trustee,
creditors, and other stakeholders. This meeting may be convened at any time by the trustee
to seek instructions on matters related to estate administration, as stipulated in Section 41
of the Insolvency Act. Additionally, the trustee is obligated to call a General Meeting upon
request by the Master or creditors representing one-fourth of the total value of proven claims
against the estate. Furthermore, a General Meeting is mandatory when considering an offer
of composition, which is a proposal to settle debts, as established in Mia v The Master &
others 1940 TPD 86 and Ilic v Parginos 1985 (1) SA 795 (A) 803. The trustee must also convene
this meeting when informing creditors of an offer of composition, as required by Section
119(5). The primary purpose of a General Meeting is to provide instructions to the trustee on
matters related to estate administration, consider and vote on proposals, and address
specific issues not covered by previous meetings or directions.

The convening of a General Meeting”is subject to specific requirements. The meeting must
be convened in the same manner as the second meeting of creditors, with notice given to
creditors stating the matters to be discussed at the meeting, as stipulated in Section 41. The
meeting must be properly called by the trustee, specifying the purpose and agenda. It is
essential to note that a General Meeting cannot be convened solely for interrogating
witnesses, as held in Essop v The Master & another 1983 (1) SA 926 ©. However, witness
interrogation can occur if the meeting is properly called for seeking directions, as
established in Marques & another v De Villiers & another NNO 1990 (4) SA 415 (W) 420. (page
137)

2.2.Pretorius’ Trustee v Van Blommenstein is a pivotal case in South African insolvency law,
addressing the principles governing voidable dispositions under Section 29 of the Insolvency
Act, 24 of 1936. The case revolves around the setting aside of a disposition made by Pretorius
in favor of Van Blommenstein, where Pretorius’ estate was subsequently sequestrated.

On February 17, 1947, Pretorius pledged a motor lorry to Van Blommenstein as security for
a debt. Approximately three months later, on May 1, 1947, Pretorius’ estate was
sequestrated. The trustee, acting on behalf of Pretorius’ estate, sought to set aside the
pledge, alleging that Pretorius’ liabilities exceeded his assets at the time of the disposition,
and that the disposition preferred Van Blommenstein over other creditors, rendering it void
under Section 29(1) or 30 of the Insolvency Act.

The primary Issue before the court was whether the disposition made by Pretorius in favor of
Van Blommenstein was voidable under Section 29(1) of the Insolvency Act. Specifically, the
court had to determine whether Van Blommenstein had discharged the onus of proving that
the disposition was made in the ordinary course of business and that Pretorius had no
intention to prefer him.
The court held that the defendant, Van Blommenstein, had to discharge the onus of proving
that the disposition was made in the ordinary course of business and that Pretorius had no
intention to prefer him. The court applied an objective test to determine if the disposition
was made in the ordinary course of business, ignoring the fact that Pretorius’ liabilities
exceeded his assets. Ultimately, the court ruled in favour of Van Blommenstein, finding that
the disposition was made in the ordinary course of business and that Pretorius had no
intention to prefer him.

The Pretorius' Trustee v Van Blommenstein case has significant Implications for insolvency
law in South Africa. Firstly, it clarifies the burden of proof and the factors to consider when
determining whether a disposition is voidable under Section 29(1). Secondly, it emphasizes
the importance of objective criteria in assessing whether a disposition was made in the
ordinary course of business. Finally, the case highlights the complexities involved in
establishing intention to prefer, underscoring the need for a nuanced approach in evaluating
the insolvent’s intentions.

In conclusion, Pretorius’ Trustee v Van Blommenstein is a landmark case that provides

valuable guidance on the principles governing voidable dispositions under Section 29 of the
Insolvency Act, 24 of 1936. The case’s findings on the burden of proof, intention to prefer,
and the ordinary course of business test remain relevant today, influencing judicial
decisions and informing legal practice in South African insolvency law. As such, this case
remains a crucial precedent for legal practitioners, judges, and scholars navigating the
complexities of insolvency law.

2.3.An insolvent person in South Africa faces significant restrictions on holding public office
or certain positions due to the perceived risks associated with their financial instability. The
primary concern is that an insolvent individual may not manage public resources or finances
effectively, potentially harming the public interest, and may also engage in dishonest
business practices, putting others’ interests at risk. Furthermore, their financial situation
could create conflicts of interest, leading to decisions that benefit themselves rather than
the organization or public. As a result, insolvents are disqualified from holding various
positions, including trustee in an insolvent estate, member of parliament, company director
(unless granted a court exemption), business rescue practitioner, and certain roles within
the legal profession. Additionally, they face restrictions on becoming registered
manufacturers or distributors of liquor, property practitioners, and credit providers, debt
counsellors, or payment distribution agents. These restrictions aim to protect the public,
maintain trust, and ensure that individuals in positions of power are financially stable and
capable of making sound decisions, ultimately upholding the integrity of various institutions
and professions.(page 83)

QUESTION 3

3.1.Lerato, as the owner of a solar installation and maintenance business affected by the
COVID-19 pandemic lockdown, faces a provisional sequestration order. Fortunately, she has
two options to consider to avoid insolvency and its consequences.

Lerato can opt for a common-law compromise, which involves entering into a written
agreement with all her creditors to pay a certain dividend on their claims. This agreement
requires approval from every creditor and must include a condition that she will be released
from her debts and the provisional sequestration order will be discharged. The benefits of
this option are numerous. Firstly, Lerato will be released from her debts without suffering the
consequences of sequestration, allowing her to start anew. Additionally, creditors may
receive their dividends earlier and potentially in higher amounts since sequestration costs
are saved. Furthermore, Lerato may be able to continue running her business, benefiting
creditors who rely on her trade.

Alternatively, Lerato can consider a statutory composition under Section 119 of the
Insolvency Act. This option involves submitting a written offer to the trustee after the first
meeting of creditors. The trustee will then send the offer to all proven creditors with their
report, and creditors will vote on the offer. If accepted, the decision of the majority of
creditors will bind the dissenting minority and absent creditors. While this option doesn’t
require unanimous approval, it has a significant drawback: it cannot discharge the
sequestration order, leaving Lerato an unrehabilitated insolvent. However, she may be
eligible for early rehabilitation under certain circumstances.

The primary difference between these two options lies in the level of creditor participation
required. A common-law compromise demands approval from all creditors, whereas a
statutory composition only requires a majority decision. Additionally, a common-law
compromise can provide for the discharge of the sequestration order, whereas a statutory
composition cannot. Ultimately, Lerato should carefully weigh the benefits and drawbacks
of each option and consider seeking professional advice to determine the best course of
action for her specific situation. By choosing the right option, Lerato can mitigate the
financial consequences of the pandemic and work towards rebuilding her business.(page
282)

3.2.The landmark case of Rand Air (Pty) Ltd v Bester Investments (Pty) Ltd 1985 (2) SA 345
(W) established that a summons is not a demand, and more importantly, clarified the “just
and equitable” ground for winding up a company under section 344(h) of the Companies Act
71 of 2008. This ground is not a “catch-all” provision, but rather a special ground that allows
courts to scrutinize specific aspects of a company’s operations.

The court has Identified several instances where winding up a company would be considered
just and equitable. These include situations where *the company’s main object can no
longer be attained*, such as when the company’s substratum has disappeared, as seen in
the case of In re Rhenosterkop Copper Co 1908 CTR 931. Another instance is when *the
company’s objects are illegal or fraudulent*, or when *there is a justifiable lack of confidence
in the directors’ management*, as in Moosa NO v Mavjee Bhawan (Pty) Ltd 1967 (3) SA 131
(T).

Additionally, winding up may be justified in cases of *deadlock in management*, where

voting power is divided and no other solution is available. This can also apply to *quasi-
partnerships* where personal relationships between members are based on good faith.
*Minority shareholder oppression* by controlling shareholders is another valid reason, but
only if the oppression cannot be removed by another suitable remedy.
It’s worth noting that the courts retain discretion to identify new situations where winding up
is just and equitable. This means that the above instances are not exhaustive, and each case
will be evaluated on its unique circumstances. The goal is to balance the interests of
shareholders, creditors, and the company itself, ensuring that winding-up orders are issued
judiciously.

3.3.A company is deemed unable to pay its debts in three main situations:

• Failure to Pay a Creditor: When a creditor, owed at least R100, serves a demand for
payment at the company’s registered office and the company fails to pay, secure, or
compromise the claim within three week.
• Insufficient Assets: If a warrant of execution issued on a judgment against the
company is returned by the sheriff, stating that the company’s disposable property is
insufficient to satisfy the judgment.
• Proof of Inability to Pay: When the court is satisfied that the company cannot pay its
debts, considering contingent and prospective liabilities.

MRL3701 MAY/JUNE 2022

QUESTION 1

1.1.The court in Magnum Financial Holdings (Pty) Ltd (in liquidation) v Summerly NO 1984 (1)
SA 160(W) faced a novel issue: whether a trust could be considered a debtor in the usual
sense, and thus be sequestrated, under Section 2 of the Insolvency Act. The problem arose
because the Summerly Trust had committed an act of insolvency and was insolvent, with
Magnum Financial Holdings having a valid claim of R 1.6 million against it. To resolve this,
the court drew on the Southern Rhodesian case of Ex parte Milton and a South African
decision concerning a club that owned property independently of its members.

The court was satisfied that Magnum Financial Holdings had made out a case for relief due
to several key factors. These included the trust’s ability to acquire property and incur
liabilities through its trustees, making it a debtor in the ordinary sense. Additionally, the court
noted that creditors would be paid only from the trust’s property, with trustees incurring no
personal liability. The court also considered the urgent basis of the application, sufficient
service of papers on the trustee, the provisional liquidator’s locus standi, and the lodging of
the necessary security bond. Ultimately, the court granted the provisional sequestration
order, establishing that a trust estate may indeed be sequestrated.

1.2.The court in Stratford v Investec Bank Ltd 2015 (3) SA 1 (CC) determined that domestic
employees are indeed entitled to be informed of the sequestration of their employer’s estate.
Section 9(4A) of the Insolvency Act 24 of 1936 requires that a copy of the sequestration
application be furnished to employees before an order for provisional sequestration may be
granted.

The term “employees” is not defined in the Insolvency Act, except for the definition of
“employee” in section 98A(5), which is similar to the definition of “employee” in the Labour
Relations Act (LRA). However, the court held that “employees” in section 9(4A) includes all
employees, including domestic employees. The court’s reasoning was based on the
importance of notice, which prevents employees from showing up to work and suddenly
finding out that they can no longer render their services or receive remuneration. Notice
signifies respect for the human dignity of employees, enabling them to find alternative jobs
or make necessary arrangements.

Therefore, domestic employees are entitled to receive a copy of the sequestration

application, ensuring they receive timely notice and an opportunity to re-arrange their
affairs. This interpretation better promotes the spirit, purport, and objects of the Bill of
Rights.

In the scenario involving Absa Bank’s application for the sequestration of Mr. Sting’s estate,
the candidate attorney should have ensured that all domestic employees, including Ms.
Lucy and the two other domestic workers, received a copy of the sequestration application.

1.3.The case of *Sarrahwitz v Maritz NO and Another* 2015 (4) SA 491 (CC) is a significant
decision in South African law, addressing the protection of vulnerable purchasers in the
context of property transactions and insolvency. This case centers around the constitutional
rights to housing, dignity, and equality, and the legislative framework provided by the
Alienation of Land Act 68 of 1981. The facts of the case are straightforward yet highlight a
critical gap in legal protection. Ms. Virginia Sarrahwitz, a cash buyer, purchased a house from
Mr. Reynier Posthumus by paying the full purchase price upfront. Despite taking occupation
of the property, the transfer of ownership was not completed before Mr. Posthumus’s estate
was sequestrated. Consequently, the trustee of the insolvent estate, Mr. Hermanus Maritz,
refused to transfer the property to her, arguing that it formed part of the insolvent estate
under common law.

At the time, the Alienation of Land Act 68 of 1981 provided specific protections for
instalment-sale buyers, allowing them to demand transfer of the property if the seller
became insolvent. However, this protection did not extend to cash buyers like Ms.
Sarrahwitz, leaving them vulnerable in cases of the seller’s insolvency. This discrepancy
prompted Ms. Sarrahwitz to challenge the constitutionality of the Act, arguing that it failed to
protect cash buyers and infringed on their constitutional rights. The Constitutional Court,
led by Chief Justice Mogoeng, recognized the unjust and irrational exclusion of cash buyers
from the Act’s protection. The court emphasized the constitutional rights to housing, dignity,
and equality, noting that the Act’s purpose was to safeguard vulnerable purchasers. By
excluding cash buyers, the Act impaired these rights in an unjustified manner. The court
concluded that the Act should be interpreted to extend protection to all vulnerable buyers,
including those who paid cash or within a year, to prevent homelessness in the event of the
seller’s insolvency.

To remedy this constitutional defect, the court ordered that words be read into the Act to
confer a right on vulnerable cash buyers to take transfer of the property if they risked
homelessness due to the seller’s insolvency. This decision effectively amended the Act to
provide equal protection to all vulnerable purchasers, ensuring that cash buyers were no
longer disadvantaged. However, a concurring minority judgment by Justices Cameron and
Froneman expressed concerns about the majority’s approach. They cautioned that the
remedy might intrude too far into legislative territory, potentially leading to the striking down
of beneficial consumer-protection legislation. They suggested a less intrusive remedy,
focusing on protecting possessory rights rather than altering legislative provisions.

Following the judgment, the Alienation of Land Act was effectively amended by the court’s
order. The amendments included defining a vulnerable purchaser as someone who risks
homelessness due to a seller’s insolvency. The protection previously afforded to instalment
buyers was extended to include cash buyers and those who paid within a year, ensuring they
could demand transfer in the event of the seller’s insolvency. This case underscores the
importance of aligning legislative frameworks with constitutional principles to safeguard the
rights of vulnerable individuals. It highlights how judicial interpretation can serve as a
catalyst for legislative reform, ensuring that laws evolve to meet the demands of justice and
equality. The decision also reinforces South Africa’s constitutional commitment to
protecting individuals from homelessness, a critical issue in the country’s post-apartheid
context.

1.4.Section 63 of the Long-term Insurance Act 52 of 1998 plays a vital role in safeguarding
life insurance policy benefits from being claimed by creditors in the event of insolvency. Prior
to February 28, 2014, policy benefits were only protected up to R50,000. However, this limit
was abolished, ensuring that the entire policy value is now protected from creditors.

The protection afforded by Section 63 is twofold. Firstly, policy benefits are excluded from
the insolvent estate if the policy has been in force for at least three years and the insolvent
or their spouse is the life insured. This provision ensures that the financial security intended
for beneficiaries is preserved. Secondly, assets acquired solely with policy benefits within
five years are also protected, providing a further layer of financial security for beneficiaries.

A critical amendment to Section 63 is the removal of the R50,000 limit, which previously
capped the protected amount. This change ensures that the entire policy value is now
safeguarded, providing greater financial protection for beneficiaries. Furthermore, policy
benefits are protected unless it can be shown that the policy was taken out with the intention
to defraud creditors. This provision prevents individuals from exploiting life insurance
policies to evade debt obligations.
In cases where policy benefits are payable to a third party, Section 63 stipulates that these
benefits are not part of the insolvent estate. This ensures that beneficiaries, such as family
members or dependents, receive the intended financial support. However, the trustee of the
insolvent estate retains limited rights to surrender the policy for its surrender value.

The case of Mr. Legend, who nominated his wife and son as beneficiaries a few days before
his death, illustrates the application of Section 63. Despite Mr. Legend’s insolvency, the
policy benefits are protected from creditors, ensuring that his wife and son receive the
financial support intended. However, it is essential to investigate whether the policy was
taken out with the intention to defraud creditors.

Case law, such as Pieterse v Shrosbree NO & others (2005) and Wentzel v Discovery Life Ltd
& others (2021), reinforces the importance of Section 63 in safeguarding life insurance policy
benefits. These rulings emphasize the significance of protecting policy benefits for
beneficiaries, particularly in cases of insolvency.

In conclusion, Section 63 provides robust protection for life insurance policy benefits,
ensuring they remain accessible to beneficiaries even in cases of insolvency. The
amendments to this section have strengthened these protections, providing greater
certainty for policyholders and their loved ones. By safeguarding policy benefits, Section 63
promotes financial security and peace of mind for individuals and their beneficiaries.

QUESTION 2

2.1.The trustee’s powers under sections 29 and 30 of the Insolvency Act differ significantly
when it comes to impeachable dispositions. One of the primary differences lies in the timing
of when the disposition was made. Under section 30, dealing with undue preferences, the
trustee has the authority to set aside a disposition irrespective of when it was made before
sequestration. This means that the trustee can challenge transactions that occurred at any
point prior to sequestration.

In contrast, section 29, which addresses voidable preferences, imposes a time limit. A
voidable preference can only be set aside if it was made within six months before
sequestration or the insolvent’s death. This distinction highlights the varying levels of
scrutiny applied to transactions based on their proximity to sequestration.

Another key difference relates to the insolvent’s financial status at the time of the
disposition. For a disposition to be considered an undue preference under section 30, the
debtor must have been insolvent when making the transaction. However, under section 29,
a disposition can be deemed a voidable preference even if the debtor was solvent initially
but became insolvent immediately after. This distinction underscores the importance of
considering the debtor’s financial situation before and after the transaction.

Intent also plays a crucial role in distinguishing between undue and voidable preferences. To
set aside an undue preference under section 30, the trustee must demonstrate that the
debtor intentionally preferred one creditor over others. In contrast, section 29 requires only
that the disposition had the effect of preferring one creditor, regardless of intent.

Furthermore, sections 29 and 30 differ in terms of defenses available to beneficiaries.

Section 29 provides a defense for beneficiaries of voidable preferences, allowing them to
argue against the trustee’s claims. Conversely, section 30 does not offer a defense for
beneficiaries of undue preferences, making it more challenging for them to contest the
trustee’s actions.

These differences reflect distinct approaches to addressing preferences made by debtors

before sequestration. Section 30 focuses on intentional preferences made while insolvent,
with no defense available, emphasizing the importance of fairness among creditors. Section
29, considering the effect of the preference and allowing for a defense, provides more
flexibility in addressing potentially voidable transactions. By understanding these
differences, trustees and beneficiaries can navigate the complexities of impeachable
dispositions under the Insolvency Act.

2.3.1: Special Notarial Bond

Reason: The bond specifically identifies six lorries with detailed descriptions, including
registration numbers, types of vehicles, colours, chassis numbers, and engine numbers.
This meets the criteria for a special mortgage under Section 1 of the Security by Means of
Movable Property Act 57 of 1993, which requires specially described movable property.

2.3.2: General Notarial Bond

Reason: The bond covers “all the movables owned by the debtor” without specifying
particular assets. This does not meet the criteria for a special mortgage, as it lacks specific
descriptions and instead encompasses a broader range of properties. According to the
definition in Section 2 of the Insolvency Act, this type of bond does not qualify as a special
mortgage but confers a preference in respect of the free residue of the estate.

QUESTION 3

3.1.Lerato is considering applying to the court to wind up Go-Pro Trucking Co (Pty) Ltd due
to its failure to pay her R10,000 for services rendered. To determine whether the court can
grant such an order, we need to examine the legal framework governing the winding-up of
companies and apply it to the facts of Lerato’s case.

Under section 345(1)(a) of the 2008 Companies Act, a company is deemed unable to pay its
debts if a creditor, to whom the company owes at least R100, leaves a demand for payment
at the company’s registered office, and the company neglects to pay, secure, or compromise
the claim within three weeks. Lerato has fulfilled these conditions by leaving a demand for
payment at Go-Pro Trucking’s registered office in Midrand, and the company has not
responded within the required timeframe.

The inability to pay debts is a ground for winding-up under section 344(f) of the 2008 Act.
However, the court also considers the company’s overall financial status. According to the
case of Boschpoort Ondernemings (Pty) Ltd v Absa Bank Ltd, commercial solvency is
determined by whether a company can meet its current and expected obligations with its
liquid assets. This means that even if a company is factually insolvent, it may still be
considered commercially solvent if its assets exceed its liabilities.

In Lerato’s case, Go-Pro Trucking’s assets reportedly exceed its liabilities, suggesting
commercial solvency. The court may view the non-payment as an isolated incident rather
than a sign of broader financial distress. This perspective is supported by *Johnson v Hirotec
(Pty) Ltd*, where factual insolvency did not necessarily indicate an inability to pay debts, and
*The Commissioner for the South African Revenue Service v Louis Pasteur Investments (Pty)
Ltd*, which highlighted the distinction between factual and commercial insolvency.

Given these considerations, Lerato has a valid basis to apply for a winding-up order due to
the company’s failure to respond to her demand for payment. However, the court may refuse
the order if Go-Pro Trucking can demonstrate that it is commercially solvent and that the
non-payment is not indicative of insolvency. The court’s decision will likely hinge on whether
the company can convincingly argue that its financial health is sound despite the specific
issue with Lerato.

MRL3701 OCT/NOV 2021

QUESTION 1

1.5.The first and second meetings of creditors in insolvency proceedings serve distinct
purposes and have varying requirements.

The primary purpose of the first meeting is to enable creditors to prove their claims against
the estate and elect a trustee. This meeting is convened by the Master immediately after
receiving the final sequestration order, as stipulated in Section 40(1) of the Insolvency Act.
The Master must publish a notice in the Gazette at least ten days before the meeting,
excluding the first day, as ruled in Nedcor Bank Ltd v The Master & others (2002). The notice
must specify the time and place of the meeting, which the Master chooses for the
convenience of all parties concerned.

In contrast, the second meeting has multiple objectives. Its purpose is to enable creditors to
prove their claims, receive the trustee’s report on the affairs and condition of the estate, and
provide directions to the trustee regarding estate administration, as outlined in Section
40(3)(a). The Master fixes the date for the second meeting, but the trustee is responsible for
convening it. The trustee must publish notices in the Gazette and in one or more newspapers
circulating in the district where the insolvent resides or has their principal place of business.

The language requirements for the second meeting's notices are specific. They must be
published simultaneously in English and Afrikaans, occupying the same amount of space,
as stated in Section 40(3)©. If no newspaper appears substantially in both languages,
separate newspapers mainly in each language may be used. This requirement ensures
accessibility and transparency in the process.

The timing of the meetings also differs. The first meeting occurs immediately after the final
sequestration order, while the second meeting takes place after the trustee’s appointment
and preparation of their report. Although the Insolvency Act does not stipulate how long
before the meeting the notice must be published for the second meeting, interested parties
must be given sufficient time to attend and decide on a suitable course of action.

Overall, the differences between the first and second meetings reflect the distinct objectives
and responsibilities associated with each stage of the insolvency process. These meetings
ensure a structured and fair process for creditors and insolvent estates, providing
opportunities for claim verification, trustee election, and estate administration guidance.

1.6.Jenny will be appointed as the sole trustee of Joseph’s insolvent estate. According to
Section 54(3)(a), if one person obtains a majority of votes in number and no other person
obtains a majority in value, that person must be elected as the sole trustee. In this case,
Lerato, Albert, and Ronald voted for Jenny, giving her a majority in number (three out of four
creditors). Although Susanna has the largest claim value (R40,000) and voted for Joy, Jenny’s
majority in number suffices for her appointment as sole trustee, since Joy did not obtain a
majority in value. The Master will confirm Jenny’s election and appoint her as trustee. (page
150-152)

QUESTION 2
2.1.Section 29 of the Insolvency Act refers to a voidable preference, a form of impeachable
disposition where the insolvent prefers one creditor over another within six months before
sequestration or death. This occurs when a disposition increases the liabilities of the
insolvent, exceeding the value of their assets. However, there is an exception under Section
29(1), where the beneficiary can prove that the disposition was made in the ordinary course
of business and not intended to prefer one creditor above another as stated in Janse van
Rensburg & others NNO v Steenkamp & another). To determine if this exception applies, the
court implement a two pronged test, the court assesses whether both elements are met: the
disposition was made in the ordinary course of business and lacked preferential intent.
(page 172)

2.4.For a disposition to be valid under Section 26(1) of the Insolvency Act, several key
requirements must be met. Firstly, the recipient must have provided “value” to the insolvent,
which is defined as a benefit received or promised as a quid pro quo that is adequate and
not gratuitous, and can take the form of either monetary or non-monetary consideration. To
establish validity, the court considers the timing of the disposition, specifically whether it
was made within or more than two years of sequestration, as this dictates the burden of
proof. If the disposition was made within two years, the recipient must prove that the
insolvent’s assets exceeded their liabilities immediately after the disposition, whereas if
made earlier, the trustee must demonstrate that the insolvent’s liabilities exceeded assets
to have it set aside. Furthermore, the recipient’s benefit must be sufficient and fair, and the
disposition must not be a donation or gift. Additionally, the court assesses all circumstances
surrounding the transaction to determine if value was indeed received. By satisfying these
requirements, a disposition can be deemed valid, thereby withstanding potential challenges
under Section 26(1).(page 169)

QUESTION 3

3.1.Sue-Ann, since she was sequestrated in 2009, she has exceeded the 10-year period for
automatic rehabilitation, as stipulated in Section 127A(1) of the Insolvency Act, which
deems an insolvent rehabilitated if not rehabilitated by the court within that timeframe,
unless the court ordered otherwise before the 10 years expired. Consequently, she is
automatically rehabilitated, effectively ending her insolvent status, and her credit record
should reflect this updated status. Therefore, she should inform the car dealership to update
their records, making her eligible for the loan. To confirm her rehabilitation, it is
recommended that she verifies with the Registrar of Deeds that no caveat was lodged
against her name, ensuring a smooth loan application process.(page 246-247)

3.2.In the case of Southern Palace Investments 265 (Pty) Ltd v Midnight Storm Investments
386 (Pty) Ltd 2012 (2) SA 423 (WCC), the court addressed whether business rescue
proceedings could be utilized to secure a better return for creditors or shareholders when
there is no clear prospect of the company continuing to operate on a solvent basis or being
restored to solvency. The facts involved an application by Southern Palace Investments for
business rescue, claiming a reasonable prospect of recovery. The court, however,
emphasized that such proceedings require more than speculative assertions about the
company’s future.

The court examined the requirements under Section 128(1)(b) of the Companies Act, which
defines business rescue as proceedings aimed at rehabilitating a financially distressed
company. It was highlighted that the “reasonable prospect” of recovery must include
concrete and objectively ascertainable details, such as addressing the causes of the
company’s failure and proposing a sustainable remedy. The court noted that a business
rescue plan should not merely substitute one debt for another without a clear recovery path.

Furthermore, the court considered the alternative aim of business rescue under Section
128(1)(b)(ii), which is to achieve a better return for creditors and shareholders than
immediate liquidation. The court expected the applicant to provide detailed information
about the resources available to the company and the terms of their availability. Speculative
suggestions were deemed insufficient, necessitating a substantiated plan to justify business
rescue. This case underscores the court’s discretion in granting business rescue orders and
the importance of a well-founded plan that offers a tangible path to recovery or improved
returns.
 MRL3701 MAY/JUNE 2021

QUESTION 1

1.1.The actio Pauliana, a common law action, enables creditors to challenge Lerato’s
transfer of her king-size bed to David, her brother, to settle her R20,000 debt. To succeed,
creditors must demonstrate that the transaction diminished Lerato’s assets, David received
property not originally his, Lerato intended to defraud creditors, and the fraud took effect.
Notably, “fraud” here means giving one creditor an unfair advantage over others in
insolvency. Since the transfer was for value, creditors must also show Lerato’s intent to
commit fraud and David’s knowledge and complicity. If successful, creditors can recover the
bed and benefits accruing from the fraudulent transaction, including proceeds from trading
with the alienated assets, thereby safeguarding their interests in Lerato’s insolvent
estate.(page 177-178)

1.2.