The appointment of insolvency practitioners

in South Africa: time for change?

JC CALITZ*
DA BURDETTE**
1

Introduction

It would be fair to state that the appointment of insolvency practitioners1 in

insolvent estates in South Africa is a controversial subject. This is not due to
the complexity of the legislative provisions or their practical application, but
due to the continuous allegations of the irregularities that accompany such
appointments.2 That this is so was clearly illustrated by the evidence submitted
to the ministerial committee of enquiry into the liquidations industry during
2004 and 2005.3
The insolvency profession currently finds itself in total disarray, although
thankfully this comes at a time when the economy is strong and insolvencies
are at a relative low when seen in a historical context. However, the recent
increase in interest rates will in all probability result in increased insolvencies in
the near future. The question is how the insolvency profession will respond to
the many blows it had to endure over the past five or six years.
One of the most important and controversial aspects of the insolvency profession as it currently finds itself in South Africa, is the appointment procedures for the appointment of insolvency practitioners in insolvent estates. The
insolvency profession is, and always has been, one of the few unregulated4
professions in South Africa. Until the late 1990s, the insolvency profession

* Senior Lecturer, Department of Mercantile Law, University of Johannesburg.

** Professor of Law, Department of Mercantile Law, University of Pretoria.
1
Insolvency practitioner is the generic term used in this article to denote the appointment of
both trustees (sequestrated estates) and liquidators (companies and close corporations in
liquidation). The appointment of liquidators of close corporations will not be dealt with here.
2
The deputy minister of justice confirmed the allegation of irregularities in a recent speech to the
Association for the Advancement of Black Insolvency Practitioners. See http//:www.doj.gov.za/
2004dojsite/m_speeches/sp2005/2005_10_28_assoc_black_insolvency.htm (11-07-06).
3
The minister of justice and constitutional development appointed the ministerial committee of
enquiry in July 2004. In February 2005, the committee submitted their report to the minister, but
this report has to date not been made public. However, the minister, in her budget speech on 20
May 2005, confirmed the following: I am pleased to report that the Committee has delivered its
final report and has provided me with a comprehensive overview of the problems in the masters
offices and in the liquidation industry. The report also contains recommendations, which have
been considered by officials from my Department and Departments of Trade and Industry and
Treasury. I am in the process of reporting to Cabinet on the Committees findings and on the
recommendations made by both the Committee and the departmental officials. The report will
assist us to achieve our objectives in the masters offices. See http//:www.doj.gov.za/2004dojsite/
m_speeches/sp2005/2005_05_20_mabandla_bv2005.htm (02-07-06).
4
By unregulated is meant that there is no legislation regulating admission to, or participation in,
the insolvency profession. Requirements such as minimum qualifications, practical experience,
registration and codes of conduct are non-existent.

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was run by a small band of insolvency practitioners scattered amongst the main
economic centres of the country. Many will argue that it has never been necessary to regulate the insolvency profession, especially considering the small
number of so-called professionals that used to participate in this industry. That
this has changed is evident from the dramatic increase in the number of insolvency practitioners registered as such with the master of the high court.5
This article submits that the unregulated nature of the South African insolvency profession is the underlying cause of the tensions and irregularities that
can be found in this industry, as well as the cause of the general ineffectiveness
of the South African insolvency system as a whole. In making this submission,
the legislative provisions and the practice surrounding the appointment of
insolvency practitioners in insolvent estates will be analysed, the attempts at
transforming the profession in order to make it more accessible to previously
disadvantaged individuals will be discussed, and suggestions for resolving these
problems will be made. In addition, the historical context of the regulation of
the insolvency profession by the state (viz the master of the high court) will be
discussed and compared to the regulation of the insolvency profession in two
other national jurisdictions, namely Australia and the United Kingdom.
2

Historical development of the supervision of insolvent estates by the master

of the high court

2.1

Introduction

By way of introduction it needs to be stated that although the insolvency

profession in South Africa is unregulated, the state does to a large extent
regulate the insolvency profession by way of the many legislative obligations
placed on the master of the high court. Before commencing with a discussion of
the current manner in which appointments are made under South African
insolvency law, it is essential to understand the role of the master of the high
court as regulator of the insolvency profession. This requires a cursory study
of the roots of South African insolvency law, viz Roman law, Roman-Dutch
law, English law and the law that applied in the Cape Colony at the time.
2.2

Roman law

An examination of the supervisory role of the state in early Rome6 reveals that
it was very limited. Private redress traditionally prevailed in Roman law. It was

Although these figures could not be officially verified, it is alleged that prior to 1998 there were
approximately 250 insolvency practitioners countrywide. According to figures provided by a
member of staff of the master of the high court in Pretoria, there are currently over 2,500
registered insolvency practitioners in the Pretoria office of the master alone.
Visser Romeinsregtelike aanknopingspunte van die sekwestrasieproses in die Suid-Afrikaanse
insolvensiereg 1980 DJ 42 45; De la Rey Mars, The Law of Insolvency in South Africa (1988) 1-2
1; Stander Geskiedenis van die insolvensiereg 1996 TSAR 371 371-372. See also Levinthal The
early history of bankruptcy law 1918 University of Pennsylvania Law Review 223 232-233 for a
discussion of the historical development regarding execution against the debtors person and
execution against the debtors property.

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not until the days of Marcus Aurelius7 that the so-called self-help culture by
creditors was rendered penal among the citizens of Rome.8
The magister appointed under the bonorum emptio9 was one of the creditors
and although the missio in bona was granted by the praetor, the magister was
merely an agent of the creditors and was by no means a public officer.10 Ownership of the estate never vested in him and he acted purely in his own interest
and in the interest of those who appointed him.11 Under the distractio bonorum12 the position was different, as the praetor committed the administration of
the estate to a curator bonorum whose duty it was to dispose of the assets of the
debtor in separate lots.13 The curator represented to a limited extent the principle of public interest, which requires that bankruptcy proceedings be conducted on a uniform platform and all creditors obtain an equitable satisfaction
of their claim.14 However, the curator never received the status of a public
officer charged with conducting of a state-regulated procedure of bankruptcy.15
2.3

Roman-Dutch law

The first legislation in Holland dealing with bankruptcy was enacted in 1531 by
Charles V of Spain.16 The legislation mentioned the great increase in trade, and
debtors had to be compelled to pay their debts and be prevented from evading
their liabilities.17 By all accounts it appears that the Roman law procedure of
cessio bonorum18 was in its main features introduced into Holland in approximately the last part of the fifteenth century.19 The granting of a cessio ceased to
be a right which the debtor could claim, but was regarded as a privilege which
the court could in its discretion grant to the debtor.20 When the cessio was
7

Imperator Caesar Marcus Aurelius Antoninus Augustus (26 April 26 121 to 17 March 180 AD)
was Roman emperor from 161 AD till his death. He was born Marcus Annius Catilius Severus,
and at marriage took the name Marcus Annius Verus. When he was named emperor, he was given
the name Marcus Aurelius Antoninus.
8
Levinthal (n 6) 240.
9
In approximately 104 BC a praetor named Publius Rutilius introduced a process of general
execution against the property of a debtor, known as the bonorum emptio or venditio. The
bonorum venditio afforded the creditors the opportunity of receiving possession of the debtors
estate (missio in possessionem).
10
Levinthal (n 6) 240.
11
Stander (n 6) 373.
12
The bonorum emptio and distractio constituted the Roman system of bankruptcy, a system which
is thought to be the origin and source of all bankruptcy systems.
13
Swart is of opinion that the bonorum distractio is the origin of the South African insolvency
system, as it represents the first signs of a collective debt-collecting system. See Swart Die Rol van
n Concursus Creditorum in Suid-Afrikaanse Insolvensiereg (1990 LLD dissertation UP).
14
Levinthal (n 6) 241.
15
Stander (n 6) 373.
16
One of the great acts of the Spanish king, which stated in its preamble that it was promulgated
in order to check the heresy that was creeping into the provinces, to remedy the expense
connected with law suits, and to provide for a pure administration of justice, which would deal
equally with rich and poor. See Levinthal (n 6) 246.
17
Levinthal (n 6) 246.
18
The surrender of his estate by the debtor exempted him from arrest, imprisonment, slavery and
infamia.
19
Dalhuisen I Dalhuisen on International Insolvency and Bankruptcy (1986) 1-11-17 par 2.02[5];
Wessels History of the Roman Dutch Law (1908) 661; De la Rey (n 6) and Stander (n 6) 374.
20
De la Rey (n 6) 3.

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granted by court, the estate was administered by commissioners under supervision of the scout and schepenen, or local magistrates.21
During the eighteenth century it became practice to afford the administration of insolvent estates to chambers known as Desolate Boedelkamers, instead
of appointing a curator.22 These chambers were entrusted with, inter alia, the
administration of insolvent estates.23 In 1777 an important ordinance was
passed in Amsterdam24 which has widely been accepted as the origin of South
African insolvency law.25 The passing of this ordinance is an important milestone in South African insolvency law as it was also the source of the insolvency practice of the Cape of Good Hope at the time of annexation.26 The
main principles of the ordinance were introduced into the various colonial
ordinances, and still form the basis of our bankruptcy practice.27
2.4

English law

English law followed more or less the same pattern as that which was followed
on the continent, in the sense that individual debt collection procedures preceded the development of formal insolvency law.28
The act of 1831 was responsible for the introduction into bankruptcy of
what has been described as officialism.29 The predominant role of creditors
in the administration of insolvent estates was reduced by the introduction of
officers known as official assignees,30 who were attached to the London bankruptcy court. This spelt the end for the time being of the court of chancerys
250-year long jurisdiction over bankruptcy.31 This system was by no means free
of corruption, and was itself abolished in 1869.32
The concept of some form of official control over bankrupt estates was reexamined during the period 1869 to 1883. This was in consequence of the
scandals that were associated with the administration of bankrupt estates during this period.33 The Bankruptcy Act of 1883 was a direct response to public
dissatisfaction with the administration of bankrupt estates, and introduced a
feature of impartial investigation into the insolvents affairs.34 Until the passing of the act of 1883, the system of insolvency administration employed in
England involved creditor control over the administration of bankrupt estates.35 The Bankruptcy Act of 1883 can be credited with devising a new system
of joint official and creditor control which has endured until the present day.36
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35

De la Rey (n 6) 3.
De la Rey (n 6) 3.
(n 48) below.
Ordinance 1777 (Amsterdam) Nederlandsche Jaarboeken 291.
Fairlie v Raubenheimer 1935 AD 135 146.
Wessels (n 19) 668.
Visser (n 6) 45.
Dalhuisen (n 19) par 2.02 [8] 1-39. See also Burdette A Framework for Corporate Insolvency Law
Reform in South Africa (2002 LLD dissertation UP) 27.
Duns Insolvency: Law and Policy (2002) 25.
also registrars and deputy registrars of bankruptcy.
Duns (n 29) 25.
See report of the Review Committee on Insolvency Law and Practice Chairman Sir Kenneth Cork
GBE Cmnd 8558 (1982) (Cork report) 18.
Cork report (n 32) 18.
Cork report (n 32) 19.
as provided by the Bankruptcy Act 1869.

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The 1883 act was also responsible for the establishment of the office of the
official receiver.37 After the filling of a bankruptcy petition, the court could
make a receiving order that authorised the official receiver of the debtors to act
pending the appointment of a trustee.38 The official receiver was required to act
under the directions of the board of trade, and in this way was made responsible to parliament.
It is interesting to note the explanation of the objectives of the 1883 act given
by the then president of trade, Chamberlain.39 In the explanation he mentioned
as objectives firstly the honest administration of bankrupt estates, and secondly the improvement of the general tone of commercial morality.40 Chamberlain argued that the only way to secure these objectives was to ensure that
there was an independent and impartial examination into the circumstances of
each case. For this reason Chamberlain thought that it was necessary to have a
public officer examine the circumstances of each bankruptcy.41
The basic philosophy and approach of the 1883 act was not challenged for
most of the twentieth century. It retained its influence right up to the time of
the comprehensive assessment of bankruptcy law under the Cork report42 in
1982. The act of 1883 was later replaced by a series of bankruptcy statutes
culminating in the Bankruptcy Act of 1914,43 which codified bankruptcy law
and remained in force until 1986 when it was repealed by the Insolvency Act of
1985.44
From the above it is evident that English insolvency law was, until the
eighteenth century, a system which was mainly regulated by creditors. Since
the nineteenth century this system of private sequestration developed into a
system where the administration was mainly regulated by the state.45
2.5

Early Cape law

As a result of the Vredestraktaat van Amiens of 1802, the Cape of Good Hope,
after having been under British control for almost seven years, again came
under the control of Holland.46 The Batavian Republic immediately requested
that the asiatische raad prepare a report making suggestions about the post of
governor-general, as well as the eventual management of the Cape in consideration of the new volksplanting in the Cape.47 The person responsible for the

36
37
38
39

40
41
42
43
44
45
46
47

Cork report (n 32) 19.

(n 248) below.
Duns (n 29) 29.
Joseph Chamberlain (8 July 18362 July 1914) was a British statesman. In his early years he was
a successful businessman, a radically minded Liberal, a campaigner for educational reform and
he became president of the board of trade. See Tolmie Corporate and Personal Insolvency Law
(2003) 11.
Heath Insolvency law reform: the role of the state 1999 NZ Law Review 569.
Heath (n 40) 569.
(n 32).
The Muir Mackenzie Committee of 1908 was perceived as a tidying-up operation, and led to the
Bankruptcy Act of 1914.
Fletcher The Law of Insolvency (1996) 6.
Stander (n 6) 376.
De Villiers Die Ou-Hollandse Insolvensiereg en die Eerste Vaste Insolvensiereg van de Kaap de
Goede Hoop (1923) 77.
De Villiers (n 46) 78.

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compilation of the report was Jacobus Abraham de Mist,48 who had been a
member of the asiatische raad since 1795. With the enactment of the Vredestraktaat van Amiens on 27 March 1802, the Batavian Republic appointed De
Mist as commissioner-general of the Cape.49
After settling in the Cape, De Mist wrote a letter to the justice council50 on
24 March 1803, and for the first time his idea of creating the desolate boedelkamers is mentioned.51 Although he had complete authority to act as he
wished, De Mist compiled a report to the asiatische raad setting out the necessity of creating a desolate boedelkamer in the Cape. In this report he mentioned the fact that all insolvent estates were then administered by a sequester
who was also the temporary secretary of justice. The sequester was responsible
for the administration of between 300 and 400 estates, the execution of civil
sentences and, as a member of the justice council, this office also formed part of
the judiciary. The sequester was therefore responsible for both the administration of justice and the enforcement of the law.52
De Mist had the foresight that the desolate boedelkamers should operate
according to an official ordinance. However, at the time of the establishment
of the boedelkamers the ordinance had not yet been finalised, and as a temporary measure De Mist issued a so-called provisional instruction53 to the
appointed members on 22 April 1803, setting out the procedures and jurisdiction of the boedelkamers.54 On 22 May 1804 De Mist received a draft of the
ordinance55 prepared on his request by the justice council, and soon afterwards
the official ordinance56 regulating the functions and procedures of the desolate
boedelkamer was published.57 This ordinance, known as the Provisionele Instruksie, represented the first concrete and substantial insolvency law in the
Cape of Good Hope.58 The ordinance issued by De Mist was largely based on
the principles found in the ordinance of Amsterdam 1777,59 which has been
widely accepted as the origin of South African insolvency law.60 It is interesting
to note that although the instructions relating to the desolate boedelkamers
were founded on the ordinance of Amsterdam,61 they differed in two important
respects, namely that creditors did not feature in the administration of the

48

49
50
51
52
53
54
55
56
57
58
59
60
61

De Mist had to act according to a formal instruction issued by the Batavian Republic, which had
as its basis his report, and together with the instruction form the basis of the Batavian rule
between 1803 and 1806. It is also to these two important documents that we owe the existence of
the so-called desolate boedelkamers.
De Villers (n 46) 78.
Raaden van justitie.
De Villiers (n 46) 84.
De Villiers (n 46) 90.
Instructie voor de Commissarissen van de Desolate Boedels.
De Villiers (n 46) 96.
Ordinance known as De Concept Ordonnantie op de Gerechtelijke Beheering van Boedels en op de
Executie van Civiele Vonnisen.
This ordinance was known as the Provisionele Instructie voor de Commissarissen van de Desolate
Boedelkamer van 1804. See De Villiers (n 46) 105.
De Villiers (n 46) 105.
De Villiers (n 46) 107.
Nederlandse Jaarboeken (1777) 291.
Fairlie v Raubenheimer (n 25) 146.
It should be noted that under the ordinance the charge of the insolvent estates was granted to
curators or trustees chosen by the creditors themselves, acting under the supervision of the
desolate boedelkamer.

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insolvent estate, and secondly that creditors could not apply for the sequestration of the debtors estate.62
In 1806 the Cape was again under British rule, but this had no immediate
effect on legal developments in the Cape.63 The desolate boedelkamers supervised insolvent estates until 1818, at which time they were abolished and replaced64 by a sequestrator who had the same jurisdiction and function as its
predecessor. The ordinance issued by De Mist remained unchanged, and for
the next fourteen years it remained the main source of insolvency law in the
Cape.65
A mere nine years after its commencement the office of the sequestrator was
abolished, leaving a huge amount of outstanding debt claimed to be due to
estates under administration.66 In 1827 the British government issued the first
Royal Charter of Justice, and the justice council was replaced by the supreme
court of the Cape of Good Hope.67 Inter alia the court had to make provision
for the post of a master of the supreme court,68 which took over the functions
of the official sequestrator and also possessed many of the functions of the
Amsterdam commissioners69 serving in the desolate boedelkamers in Holland.70
A few other statutory developments followed,71 until the master was firmly
established in its current form by the 1916 Insolvency Act,72 the predecessor of
the current 1936 Insolvency Act.73
2.6

Union legislation

In 1916 the parliament of the Union of South Africa repealed all the existing
insolvency statutes in the various provinces and substituted them with the 1916
Insolvency Act,74 a uniform law assigned to apply throughout the (then) Union
of South Africa.75 The 1916 Insolvency Act provided for the master of the
supreme court76 to appoint, in matters where a custodian was required, a

62
63
64
65
66
67
68

69
70

71
72
73
74

75
76

Burton Observations on Insolvent Law of the Colony (1829) 8.

De Villiers (n 46) 105.
GG (04-12-1818).
De Villiers (n 46) 105.
Burton (n 62) 29.
Theal Records of the Cape Colony (1898).
Ordinance 64 of 1829 introduced the master of the supreme court into our insolvency system. In
its present form the institution of the master of the high court can be defined as a public servant
who is charged, inter alia, with control over the administration of insolvent estates. S 1 of the
Administration of Estates Act 66 of 1965 defines master in relation to any matter, property or
estate, as the master, deputy master or assistant master of the high court who has jurisdiction in
respect of the matter, property or estate.
Wessels (n 19) 670.
The development of the master of the high court as regulator of insolvency law in South Africa is
not merely linked to the development of insolvency law, but also to the historical influences of
the institution referred to as the weeskamer or orphan chamber.
Ordinance 64 of 1829, which wove together English and Dutch principles and was later repealed
by Ordinance 6 of 1843.
32 of 1916 (hereinafter referred to as the 1916 Insolvency Act).
24 of 1936 (hereinafter referred to as the Insolvency Act).
This act was in essence an adaptation of the old Cape Ordinance. For a useful commentary on
the 1916 Insolvency Act and the impact of the 1926 amendments, see Nathan South African
Insolvency Law (1928).
De la Rey (n 6) 6; Stander (n 6) 377.
(n 68).

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curator bonis to take care of and have custody of the insolvent estate.77 With
the authority of the master the curator bonis had the powers to collect debts,
sell or dispose of property and carry on business in connection with the estate.78 The more usual course, however, was for the court to appoint a provisional trustee.79 The provisional trustee had the powers of a final trustee, but
was unable to take legal action without the courts permission and could not
realise any of the estate assets without the permission of the master.
The appointment of a provisional trustee was done by way of a petition by
the master or a creditor to the court, and was contained in the petition for
sequestration of the debtors estate.80 The court had a discretion to appoint a
provisional trustee, and was not bound to have regard to the wishes of any of
the creditors. In fact, in some instances the court disregarded the person
nominated by the creditors and appointed a person chosen by itself.81 Generally, however, the wishes of the majority of creditors prevailed82 and the
court appointed the nominated applicant if such person was supported by a
substantial body of creditors.83 Where the application was supported by none
of the creditors, or an insignificant number of them, but the circumstances
revealed urgency, the court made the appointment but reserved leave to the
creditors to have the appointment set aside.84
The 1916 Insolvency Act was amended by Act 29 of 1926 and Act 58 of 1934.
These amendments to the 1916 Insolvency Act made provision for the master
to appoint a curator bonis in circumstances where only a notice of surrender, in
the case of a petition for voluntary surrender, had been published.85 This
amendment added to the powers of the master to appoint a curator bonis after
a provisional sequestration order had been granted in terms of section 17 of the
1916 Insolvency Act.86
On 1 July 1936 the 1916 Insolvency Act was replaced by the current Insolvency Act 24 of 1936.87 The 1936 Insolvency Act conferred on the master the
power to appoint a provisional trustee,88 but failed to state how such an
appointment should be made. This effectively conferred on the master an unfettered discretion to appoint a person of choice as the provisional trustee of an
insolvent estate.

77
78
79
80
81
82
83
84
85
86
87

88

s 17 of 1916 act.
Nathan (n 74) 70.
s 57 of the 1916 act.
Nathan (n 74) 196.
Nathan (n 74) 197.
Ex Parte Reid 1922 CPD 62.
Nathan (n 74) 197.
Nathan (n 74) 197.
S 5 of the amendment act of 1926 amended s 6 of the 1916 act by adding ss (3) and (4).
s 17 of the 1916 act.
Burdette (n 28) 15. It is important to note that however complete the Insolvency Act 24 of 1936
may be, it did not totally repeal the common law in respect of South African insolvency law, and
that English law played an important role in the development of our insolvency law.
s 18(1). See par 3.2.1 below.

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The current manner in which trustees and liquidators are appointed by the
master of the high court

3.1

Introduction

It is interesting to note that the provisions contained in the Insolvency Act

and the Companies Act are completely out of step with what actually takes
place in practice when it comes to the appointment of trustees and liquidators. The procedures followed in practice for the appointment of provisional
trustees and liquidators are, to say the least, unsatisfactory, in that there is
very little consistency in the manner in which the criteria for the making of
provisional appointments are applied in the various masters offices around
the country.
At this point it is important to point out that a distinction must be made
between the making of provisional and final appointments by the master. The
provisions for the making of final appointments have to an extent become
obsolete due to the fact that it very rarely happens that creditors will vote
for the appointment of a trustee or liquidator at the first meeting of creditors.
This is due to the fact that the making of provisional appointments has superseded the procedure for the making of a final appointment.
As already pointed out above,89 the courts used to appoint a provisional
trustee or curator bonis for the purpose of taking control of the insolvents
estate in cases where it was deemed appropriate.90 The court would normally,
but not always, make an appointment on the basis of the wishes of creditors.
Since South Africa has a creditor-friendly insolvency system, the wishes of
creditors carry a lot of weight in the administration of insolvent estates. This
can be seen from many of the provisions contained in both the Insolvency Act
and the Companies Act. The whole purpose, for example, of convening creditors meetings is for the trustee or liquidator to obtain instructions from the
creditors regarding the manner in which the estate in question must be wound
up.
3.2
3.2.1

Statutory provisions providing for the making of appointments by the

master
The Insolvency Act 24 of 1936

Section 18(1) of the Insolvency Act makes provision for the appointment of a
provisional trustee by the master of the high court. Section 18(1) reads as
follows:
As soon as an estate has been sequestrated (whether provisionally or finally) or when a person
appointed as trustee ceases to be trustee or to function as such, the master may, in accordance
with policy determined by the Minister, appoint a provisional trustee to the estate in question
who shall give security to the satisfaction of the master for the proper performance of his or her
duties as provisional trustee and shall hold office until the appointment of a trustee.91

89
90

91

par 2.6 above.

It is interesting to note that the court no longer has the power to make a provisional appointment
see eg Goldfields Training Co (Pty) Ltd v Schutte 1956 3 SA 1 (O); Gilbert v Bekker 1984 3 SA
774 (W).
as amended by s 3 of Judicial Matters Amendment Act 16 of 2003 emphasis added.

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From the wording of this subsection it is clear that the legislature intended that
the appointment of a provisional trustee should be an extraordinary appointment, the word may indicating that it was not the intention that such an
appointment should be made in all cases.92 Sadly, the section does not state
what criteria the master should apply when making the appointment, and for
this reason the making of provisional appointments falls solely within the
discretion of the master. It has been stated that the master has an unfettered
and exclusive administrative discretion to appoint a provisional trustee of his
choice.93
Section 54 of the Insolvency Act contains the rules for the election of a final
trustee at the first meeting of creditors. In terms of section 54(2) of the Insolvency Act, any person who has obtained a majority in number and in value
of the votes of the creditors entitled to vote, and who voted at such meeting,
shall be elected as the trustee of that estate. Its bears mentioning that section
54(1) states that the creditors may elect one or two trustees at the first meeting
of creditors. The reason for this is that the voting rules in section 54 are taken a
step further due to the fact that it may happen that no one person has the
majority of the votes in both number and value. It frequently occurs that one
person obtains the majority of the votes in value (especially those trustees who
enjoy the support of the larger creditors such as banks), while another person
obtains the majority of the votes in number. In such a case both persons will be
elected as (co-) trustees of the estate in question.
Considering the rather detailed provisions relating to the appointment of a
final trustee, it is rather surprising to find an absolute lack of rules94 relating to
the appointment of provisional trustees. This further entrenches the view that
the appointment of a provisional trustee was meant to be an extraordinary
appointment by the master.
It is also worth mentioning the provisions of section 18(4) of the Insolvency
Act, which provide for the appointment of the provisional trustee as final
trustee when no person has been elected as the final trustee at the first meeting
of creditors. Section 18(4) reads as follows:
When a meeting of creditors for the election of a trustee has been held in terms of section forty
and no trustee has been elected, and the master has appointed a provisional trustee in the estate
in question, the master shall appoint him as trustee on his finding such additional security as the
master may have required.

Finally, it is to be noted that the master has the discretion to appoint a cotrustee at any time if he or she deems it appropriate in the circumstances.95 This

92
93

94
95

See also Kunst et al Meskin Insolvency Law and its Operation in Winding-up (loose-leaf ed, issue
19) 4-1.
Lipschitz v Wattrus 1980 1 SA 662 (T) 671. See also Meskin (n 92) par 4.1 4-1. Considering the
fact that exercising such a discretion amounts to an administrative action by the master, it is
doubtful whether the master still has an unfettered discretion in view of the provisions of s 5(1)
of the Promotion of Administrative Justice Act 3 of 2000. At the very least the master may be
compelled to provide reasons for appointing a specific person, or refusing to appoint a specific
person, as provisional trustee.
Although there are no legislative rules for the appointment of provisional trustees, the master has
developed a set of criteria for this purpose see par 3.3 below.
s 57(5) of the Insolvency Act.

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brings to three the total number of trustees that may be appointed in estates
under sequestration.96
3.2.2 The Companies Act 61 of 1973
Section 368 makes provision for the appointment of a provisional liquidator in
the case of a company being wound up by the court or by resolution.97 Section
368 reads as follows:
As soon as a winding-up order has been made in relation to a company, or a special resolution
for a voluntary winding-up of a company has been registered in terms of section 200, the master
may, in accordance with policy determined by the Minister, appoint any suitable person as
provisional liquidator of the company concerned, who shall give security to the satisfaction of
the master for the proper performance of his or her duties as provisional liquidator and who
shall hold office until the appointment of a liquidator.98

Even though the section is similarly worded to section 18(1) of the Insolvency
Act, Meskin99 is of the opinion, with reference to section 361(1) of the Companies Act, that section 368 intends that the master should ordinarily make
such an appointment. This is probably due to the fact that the section provides
for the property of the company to fall under the custody and control of the
master until the appointment of a provisional liquidator. Despite the wording of
section 361(1), it is nevertheless submitted that provisional liquidators are also
supposed to be appointed as extraordinary appointments, although a far more
cogent case can be made for the appointment of a provisional liquidator than
for the appointment of a provisional trustee.
One important difference between the wording of section 368 of the Companies Act and section 18(1) of the Insolvency Act is that section 368 requires
the appointment of a suitable person as provisional liquidator. By suitable
is meant an independent person who is able to discharge the responsibilities of
such office competently, honestly and impartially.100
As far as the election of a final liquidator is concerned, the rules for the election
of such a person are the same as those provided for in the Insolvency Act,101
although there is one major difference in that the separate meetings of members
and creditors may nominate and elect different persons for appointment as final
liquidator, and in such a case the master must appoint both such persons.102
Finally, the master has the authority to appoint a co-liquidator at any time
should he or she deem it desirable.103

96

This is of particular interest considering that the master has on occasion appointed more than
three trustees to administer the estate in question.
This article only deals with appointments made by the master in the case of a company being
wound up by the court, although similar rules apply in the case of a company being wound up
voluntarily by resolution.
98
as amended by s 16 of Judicial Matters Amendment Act 16 of 2003 emphasis provided.
99
(n 92). See also par 3.2.1 above.
100
See eg Murray v Edendale Estates Ltd 1908 TS 17 22; In re Greatrex Footwear (Pty) Ltd (II)
1936 NPD 536 537-539; Wolstenholme v Hartley Farmers Agricultural Co-operative Co Ltd 1965
4 SA 73 (SR); Ex parte Clifford Homes Construction (Pty) Ltd 1989 4 SA 610 (W) 614; Krumm v
The Master 1989 3 SA 944 (D).
101
s 364(2) of the Companies Act.
102
s 369(2) of the Companies Act.
103
s 374 of the Companies Act.
97

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3.3
3.3.1

CALITZ AND BURDETTE

Non-statutory criteria used by the master to make appointments

The masters panel of trustees and liquidators

Although the Insolvency Act sets out certain disqualification criteria for the appointment of trustees,104 it does not categorically state who should be appointed by
the master as a provisional or final trustee. By contrast, the Companies Act requires that a suitable person should be appointed by the master as provisional or
final liquidator,105 although this act also contains a list of disqualifications.106
It is quite disconcerting that nothing has ever been done to regulate the
insolvency profession by establishing certain minimum criteria that aspirant
trustees and liquidators have to comply with prior to being appointed as a
trustee or a liquidator. Be that as it may, the master, of his own accord,
commenced the use of a register to which he could add the names of persons
who, in his view, qualified for appointment as a trustee or liquidator. In time
this became known as the masters panel of trustees and liquidators. To this
day no person whose name does not appear in the register may be appointed as
a trustee or a liquidator in an insolvent estate.
In order for ones name to be added to the register, or in order to be placed on
the masters panel, prospective trustees and liquidators have to make application to the relevant masters office. Although each masters office has a different
modus operandi when it comes to the placement of prospective trustees and liquidators on the panel, the procedure usually consists of the submission of certain
documentation to the master, and a subsequent interview of the candidate by a
panel consisting of personnel from the masters office, and one or more practising
liquidators who represent either AIPSA107 or AABIP108 (or both).
The documentation that is required is usually submitted in terms of a checklist dealing inter alia with the following aspects of the administration of estates:
the applicants experience in the field of insolvency (usually contained in a
curriculum vitae submitted by the applicant); the applicants infrastructure,
such as office space, telephone and facsimile facilities, personnel, etc; the applicants ability to provide short-term insurance (security); the applicants formal and other qualifications, if any.
The purpose of the interview is to determine whether or not the person has
the requisite knowledge and infrastructure, and to determine whether or not
the person is fit and proper to act as an insolvency practitioner. Acquiring
the AIPSA Diploma in Insolvency Law and Practice109 would normally be an

104
105
106
107
108
109

See s 55 of the Insolvency Act for a list of these disqualifications.

s 368 of the Companies Act.
s 372 of the Companies Act.
AIPSA is the acronym for the Association of Insolvency Practitioners of Southern Africa, a
voluntary member organisation representing the interests of insolvency practitioners.
AABIP is the acronym for the Association for the Advancement of Black Insolvency Practitioners,
a voluntary member organisation that caters for the needs of Black insolvency practitioners.
During the 1980s members of AIPSA commenced a course that could be attended by its
members. Initially the course was presented on an ad hoc basis, but in 1995 the Rand Afrikaans
University (as it was then known) and the University of Pretoria took over the presentation of
the course. Currently the course is presented by the University of Johannesburg and the
University of Pretoria. Although the course is known as a diploma course, it is not an official
qualification at either of the universities. The diploma is issued by AIPSA, with the lectures
being presented under the auspices of the above-mentioned institutions.

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additional recommendation for any prospective insolvency practitioner seeking

to be placed on the panel.
While this system no doubt goes a long way towards ensuring that suitable
persons are appointed to act as trustees and liquidators, it is far from perfect
and it is submitted that the element of subjectivity by members of the interviewing panel plays too great a role in determining who should and who should
not become insolvency practitioners. The main point of concern here, though,
is that the masters so-called panel does not have any legal status whatsoever.
3.3.2

The requisition system

In terms of section 20(1)(a) of the Insolvency Act, the estate of an insolvent

vests first in the master and then in the trustee (once one has been appointed).
In terms of section 361(1) of the Companies Act, the assets of a company in
liquidation fall under the custody and control first of the master, and then of
the liquidator (once one has been appointed). This is important in the context
of the making of provisional appointments by the master in insolvent estates.
In 1977 the then master of the supreme court in Pretoria issued a directive110
stating that due to the fact that the estate vested in the master (or fell under his
custody and control), and due to the fact that the master could not sufficiently
protect the interests of creditors until such time as a trustee or liquidator had
been appointed at the first meeting of creditors, the master was implementing a
system whereby a provisional trustee or liquidator would be appointed, as far
as possible, in all insolvent estates. By making such an appointment the master
would be divested of the estate and the appointee could take the necessary steps
to protect the interests of creditors in that particular estate.111
However, the master obviously also wants to avoid a situation, as far as
possible, where one person would be appointed as the provisional trustee or
liquidator, and another as the final trustee or liquidator at the first meeting of
creditors. It is desirable, as far as is practicable, to have some form of continuity in the persons that are appointed as both provisional and final trustee
or liquidator. In order to assist the master in appointing a person as the
provisional trustee or liquidator who would in all probability also be elected
as the final trustee or liquidator, the master introduced what is today known as
the requisition system.112
The requisition system entails the submission of nominations by the creditors of the estate as to who should be appointed as the provisional trustee or
liquidator of the estate. In order to allow the creditors sufficient time to lodge
their nominations, the master will usually not make a provisional appointment

110

111

112

The directive was sent to all insolvency practitioners by the master in the form of a letter,
informing them that the master would in future ask for nominations from creditors prior to
making a provisional appointment.
The making of an appointment is the most effective means of protecting the interests of
creditors, which of course is what has been intended by the legislature. See Meskin (n 92) par 4.1
4-1 and the authority quoted therein in n 6 4-3.
For a discussion of the reasons for the introduction of the requisition system, see Meskin (n 92)
par 4.1 4-2.

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until 48 hours have elapsed from the moment of the granting of the sequestration or liquidation order by the court.113
The requisitions (nominations) by the creditors are then scrutinised in order
to determine which insolvency practitioner has received the majority of the
votes in both number and value. In most cases, but not always, the person
or persons with the majority of votes in number and value are then appointed
as the provisional trustee(s) or liquidator(s). To the consternation of many
insolvency practitioners, the master did not always appoint the person or
persons with the majority of support of the creditors. Any complaints by the
nominated insolvency practitioners in this regard would be met by the argument that the master is not bound by the requisitions and has an unfettered
discretion to appoint any person as the provisional trustee or liquidator. In
some cases the master would even appoint a person or persons who received no
nominations from creditors at all, once again in terms of the unfettered discretion granted to the master in terms of the provisions of the various acts.
One of the problems with this system is that the master is supposed to have
an unfettered discretion as to who is appointed as the provisional trustee or
liquidator.114 It has always been the masters view that the requisitions are used
as a guide only, and that appointments are not issued as a matter of course to
the person who has received the majority of the support in number and value.
It occurs frequently that the master is accused of acting mechanically when
making provisional appointments in terms of the nominations made by creditors, and the courts have even been known to criticise the master for doing
so.115 When the department of justice issued a policy document relating to the
appointment of previously disadvantaged individuals,116 which effectively obliged the master to appoint certain persons as trustees and liquidators in estates
above a certain value, further problems arose as regards the master exercising
an unfettered discretion when making provisional appointments.
To summarise, the requisition system was introduced in 1977 in order to
obtain from creditors an indication as to who they would have supported for
appointment, as liquidator or trustee, at the first meeting of creditors. This the
master then uses as a guide to determine who should be appointed as the
provisional trustee or liquidator. The master is not bound by the requisitions,
due to his or her unfettered discretion, and can appoint some, all or none of the
persons nominated by the creditors.
Unfortunately there have been continuous allegations of irregularities regarding the application of the requisition system in practice, eg the submission
of false requisitions and the duplication of requisitions in various estates. It is
submitted that the application of the requisition system in practice is flawed,
and the following aspects can be pointed out as inherent weaknesses of the

113

114
115

116

This is the practice in the office of the master of the high court in Pretoria. Other offices of the
master do not necessarily follow this modus operandi, eg the Cape Town office which will make
an appointment as soon as possible after the granting of a sequestration or liquidation order.
(n 93).
It should be clear that the master can hardly be said to be exercising his or her discretion when
appointments are made mechanically in terms of a system whereby the creditors nominate a
provisional trustee or liquidator. However, it has to be emphasised that the master merely
wishes to appoint a person as trustee or liquidator who will in all probability have been elected
by the creditors at the first meeting of creditors.
This issue is dealt with in more detail in par 3.3.3.

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system. Requisitions are not made under oath,117 which makes the content of
many of them questionable, to say the least. The requisition system encourages
active touting amongst insolvency practitioners, in that creditors are actively
canvassed for their support in the 48 hours following the granting of a sequestration or liquidation order. There is no credible system at the masters office for the
monitoring of the submission of requisitions, which often results in submitted
requisitions being lost in the system. There is no way of verifying the requisitions that are submitted in the 48-hour period, which allegedly results in false
requisitions being submitted. The requisition system has no legal status.118
3.3.3

The policy document issued by the minister of justice and constitutional

development

It is fair to state that the insolvency profession in South Africa has always been
dominated by (white) male practitioners.119 Even after democratisation in
1994, the insolvency profession continued to be dominated by white male
insolvency practitioners without any noticeable transformation regarding
race or gender.
In the late 1990s the department of justice and constitutional development
realised that the insolvency industry had not transformed, and set about finding a manner in which this could be done quickly and effectively. The solution
was introduced in the form of a policy document issued by the department.120 In essence the policy document states that in all estates above R5
million, the master is obliged to appoint a previously disadvantaged individual
as co-trustee or co-liquidator, even if such person does not have the support of
the creditors. The policy document also describes who qualifies as a previously
disadvantaged individual, which essentially amounts to the designated groups
as set out in the Employment Equity Act of 1998.121 The idea behind the policy
document is to ensure that previously disadvantaged individuals are co-appointed with experienced practitioners who can in turn train the previously
disadvantaged individuals co-appointment in the art of administering insolvent estates an in-house training of sorts. Once the previously disadvantaged
individual has gained sufficient experience, he or she can then take appointments on his or her own. To this end, the master of the high court created a
special panel for previously disadvantaged individuals appointments.
117

118
119
120

121

The importance of this is that creditors may only vote for the appointment of a trustee or
liquidator at the first meeting of creditors if they have proved their claims. Claims are proved
under oath in terms of s 44 of the Insolvency Act. By appointing a person on the basis of
requisitions, the nominating creditors have not yet proved formal claims, under oath, and in
many instances these nominating creditors do not prove claims at all. This in effect means that
the provisional trustee or liquidator, who is eventually appointed as the final trustee or
liquidator, does not necessarily have the majority, or any, support of the creditors who do
eventually prove their claims.
See Meskin (n 92) par 4.1 4-2 and n 7B 4-4.
This was recently confirmed by the deputy minister of justice in a speech to AABIP. See n 2
above.
It is not clear when the policy document was implemented for the first time. The original policy
document is termed Policy: Strategy on/procedures for appointment of liquidators and
trustees, and is undated. The document would appear to have been implemented in 1998 or
1999. The document deals not only with the appointment of trustees and liquidators, but also
inter alia with topics such as training and the lodging of requisitions.
Act 55 of 1998.

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While the objectives of the policy document are indeed noble, they have to
date not been achieved in practice. The simple reality of the matter is that
experienced practitioners resent the fact that they are obliged to train inexperienced practitioners, and also that they have to share their fees with their
previously disadvantaged co-appointees. Besides the fact that the exercise
has to a large extent been a failure in practice, allegations of fronting by
established practitioners in order to obtain appointments via the previously
disadvantaged individual panel have also become rife.122
An additional problem that surfaced as a result of the introduction of the
policy document was the fact that it limits the masters discretion to make
provisional appointments. After all, it can hardly be said that the master is
exercising an unfettered discretion when he or she is obliged to appoint
certain persons as co-provisional trustee or liquidator in terms of a departmental policy document. However, this problem has since been solved by
introducing a number of amendments to the provisions of the Insolvency
Act and the Companies Act that provide for the master to apply the policy
document when exercising his discretion in the making of appointments.123
One concern is that the legislative amendments provide for the application
of a policy document that has been accepted and approved of by parliament.
To date this has not been done, although the master continues to apply what
seems to be a revised policy document making provision for the appointment
of pdis in all estates (not only those in excess of R5 million), and which does
not recognise white women as previously disadvantaged individuals.124
3.4

Conclusion

From the above it is clear that the making of provisional appointments in

South Africa has been the cause of a number of unsatisfactory practices
when determining who should be appointed in a particular estate. From the
legislative provisions it is clear that provisional appointments are meant to be
extraordinary appointments, and that the actual election of a trustee is supposed to take place in an orderly, regulated manner at the first meeting of
creditors. In essence the master has shifted the appointment procedure away
from the first meeting of creditors, to a period very soon after the granting of a
sequestration or liquidation order, at a time when no formal claims have been
proved. This system has obviated the need to conduct a proper election of a
trustee or liquidator at the first meeting of creditors, as envisaged by both the
Insolvency Act and the Companies Act.
It is clear that the system used to make provisional appointments is flawed
and open to abuse. The continued use thereof has resulted in confusion and
unhappiness amongst many insolvency practitioners, and has undermined the
confidence that both the public and creditors have in the insolvency profession.

122
123

124

(n 2).
S 368 was amended, and s 15(1A) inserted, by s 16 and 15 respectively of the Judicial Matters
Amendment Act 16 of 2003. The amendments make provision for the minister to determine the
policy for the appointment of, inter alia, provisional liquidators.
(n 116).

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Regulation of the insolvency industry in the United Kingdom and Australia

4.1
4.1.1

Australia
General

Australian insolvency legislation is dealt with in dual statutes.125 Individual (or

consumer) bankruptcy126 is dealt with in the Bankruptcy Act127 and corporate
insolvency is dealt with in part 5 of the Corporations Act.128 However, unlike
the position in South Africa,129 Australian corporate insolvency law is completely separate from the law regulating the insolvency of individuals.130 Each
of the two statutes regulating consumer bankruptcy and corporate insolvency
contains its own complete set of rules that can be applied to the administration
of that specific type of entity or individual.131
In October 2005 the federal government132 published a package of insolvency reforms for commentary.133 One of the areas addressed in the proposed
reforms is an increased regulation of insolvency practitioners in relation to
disclosure requirements, independence and remuneration.134 The reforms
have been developed having regard to the recommendations of a number of
recent reviews of the corporate insolvency framework in Australia.135
4.1.2

Regulating body

According to one commentator, bankruptcy is an area where great potential

for fraud, self-dealing and the diversion of funds exists. Bankruptcy also directly affects many people, not just those who might have been involved in the
particular events or circumstances which led to the bankruptcy. The responsi-

125
126

127
128
129

130

131
132
133
134
135

See Burdette (n 28) 89-95.

In Australia the term bankruptcy is used to refer to the process which involves dealing with
the affairs of an individual, and liquidation or winding-up refers to the process dealing
with the affairs of an insolvent corporation.
Bankruptcy Act of 1966 (Cth).
Corporations Act 2001.
Under South African law the Insolvency Act also applies to companies that are wound up under
the Companies Act 61 of 1973, and which are unable to pay their debts. S 339 of the Companies
Act makes the Insolvency Act 24 of 1936 applicable in such cases, a feature not found in
Australian legislation. See Burdette (n 28) 136.
Despite the matter having been considered prior to its report, the Australian Law Reform
Commission, in a report commonly known as the Harmer Report (Australian Law Reform
Commission Report No 45 General Insolvency Inquiry) did not consider it a major issue that
needed to be decided, and consequently a unified act was never introduced. See also Burdette (n
27) 91.
Keay Insolvency, Personal and Corporate Law and Practice (1998) 361.
It was done by Pearce, parliamentary secretary to the treasurer.
It is anticipated that draft legislation will be circulated for public comment in 2006.
See http//:www.aar.com.au/pubs/insol (04-07-06) for a discussion of the recent proposals.
Specifically, the reforms are based on the findings of the following reviews and inquiries into the
corporate insolvency framework: the 1997 Review of the Regulation of Corporate Insolvency
Practitioners; the 1998 corporations and markets advisory committee (CAMAC) report
Corporate Voluntary Administration; the 2000 CAMAC report Corporate Groups; the 2004
CAMAC report Rehabilitation of Large and Complex Enterprises; the 2004 parliamentary joint
committee on corporations and financial services (PJC) report Corporate Insolvency Laws: A
Stocktake and the 2004 report of the Hardie special commission of inquiry.

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bility on the person appointed to represent the competing interests of those

people is therefore substantial.136
4.1.2.1

Personal insolvency

The inspector-general is in charge of the general administration of bankruptcies

in Australia.137 He or she138 heads the Insolvency and Trustee Service Australia139(ITSA), which forms a branch of the attorney-generals department.140
ITSA is an executive agency within the attorney-generals portfolio with the
responsibility of administering and regulating the personal insolvency system.
One of ITSAs responsibilities is to administer bankrupt estates on behalf of
the official trustee.141 Another of these responsibilities is to regulate private
bankruptcy trustees and the official trustee. These two responsibilities are
managed and fulfilled independently of each other.
The independent bankruptcy regulation branch of ITSA has the responsibility of regulating insolvency practitioners. The bankruptcy regulation branch
licences private bankruptcy trustees, monitors debt agreement administrators,
inspects the systems and files of practitioners, investigates complaints about
their activities and applies sanctions when appropriate.142
As mentioned,143 ITSA also administers, as the official trustee, personal
bankruptcies,144 part IX debt agreements145 and part X personal insolvency
agreements146 when private bankruptcy trustees or other administrators are
not appointed.147
136
137
138
139
140
141
142
143
144

145

146

147

Gallagher The role of regulators in insolvency regimes a paper presented at the IAIR
Colombo Conclave, Sri Lanka 13-15 February 2004.
This position is established by s 11 of Bankruptcy Act of 1966.
ITSA is headed by the chief executive and inspector-general in Bankruptcy in the national office
located in Canberra.
See http//:www.itsa.gov.au (04-07-06) for the official website of the insolvency and trustee
service Australia (ITSA).
Keay (n 131) 21.
The official trustee is a corporation solely created by s 18 of the Bankruptcy Act 1966. The
official trustee is the trustee of an estate whenever no registered trustee consents to act.
See s 179 of Bankruptcy Act 1966.
(n 141).
Bankruptcy is a legal status offering protection from further action by creditors whose debts are
provable in bankruptcy. A person can become bankrupt by filing a debtors petition, a
statement of affairs, and an acknowledgement of having read the prescribed information with
the official receiver. The bankrupts trustee will either be a registered trustee, if he has agreed in
writing to be the trustee prior to the person becoming bankrupt, or the official trustee
(represented by ITSA).
A part IX debt agreement is a simple method for debtors to negotiate a binding compromise
with their creditors. Debt agreements represent a low-cost flexible alternative to bankruptcy. A
debt agreement involves a person in debt proposing a deal with his or her creditors. The debt
agreement proposal may be accepted or rejected by creditors. ITSA handles the voting process.
A proposal is accepted if a majority of creditors with 75% of the value of debts vote in favour of
the deal. All creditors with provable debts are bound, even those who voted against the
proposal. Debt agreements are negotiated compromises.
Part X of the Bankruptcy Act provides a process by which a debtor may make a proposal to his or her
creditors, which they consider and vote upon at a formal meeting. It is an alternative to bankruptcy.
Once accepted, the proposal is binding on the debtor and all creditors in respect of their unsecured
provable debts. It enables the debtor and creditors to come to a mutually agreed compromise in a
relatively simple manner, without reference to the court. On 1 December 2004 a new part X, called a
personal insolvency agreement (PIA), was introduced to replace the existing regime of three types of
agreements: a deed of assignment, a deed of arrangement and a composition.
(n 141).

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4.1.2.2

739

Corporate insolvency

In regard to corporate insolvency law, the Australian securities and investments commission (ASIC) is the regulatory authority responsible for administering the corporations legislation.148 ASICs powers are obtained from the
Australian Securities and Investments Commission Act 2001.149 The Investments Commission Act 2001 provides for the establishment of the Australian
securities and investments commission, a corporations and market advisory
committee, and certain other bodies.
4.1.3
4.1.3.1

Procedure for registration as trustee or liquidator

Personal insolvency

To become a registered trustee, a person must lodge an application with the

inspector-general in bankruptcy.150 The application must be accompanied by
an application fee151 and certain documents which are listed in the Bankruptcy
Regulations.152
Once a properly-made application has been received with the application fee, the
inspector-general will convene a committee to consider the application.153 The
committee will consist of the inspector-generals delegate, an officer of the Australian public service (APS) and a registered trustee nominated by the Insolvency
practitioners association of Australia (IPAA).154 The committee will consider the
application, including all the supporting documents, and interview the applicant.155 The applicant may also be asked to sit for an examination.156
The committee will decide, within 60 days157 of the interview, whether or not
to register an applicant as a trustee and provide reasons for its decision to both
the applicant and the inspector-general. To complete the registration process,
the applicant, if successful, must pay a registration charge158 and evidence that
he or she has obtained, or will obtain, professional indemnity insurance.159
The committees decision is based on the criteria of qualifications, experience, knowledge and abilities of the applicant as prescribed by section
155A(2)(a) of the Bankruptcy Act of 1966.160 If an applicant is not satisfied
148

149
150
151
152
153
154
155

156
157
158
159
160

Corporations Act 2001; Australian Securities and Investments Commission Act 2001; Insurance
Contracts Act 1984; Superannuation (Resolution of Complaints) Act 1993; Superannuation
Industry (Supervision) Act 1993; Retirement Savings Accounts Act 1997; Life Insurance Act
1995; Medical Indemnity (Prudential Supervision and Product Standards) Act 2003.
Act 51of 2001.
s 154A of the Bankruptcy Act of 1966.
currently AUS$1 500 in terms of s 4 of the Bankruptcy (Registration Charges) Act 1997.
Bankruptcy Regs 1996 Reg 8.02.
s 155(1) of the Bankruptcy Act 1966.
s 155(2) of the Bankruptcy Act 1966.
On 1 December 2004, new eligibility requirements for solicitor-controlling trustees were
introduced. Bankruptcy reg 8.35(1)(f) provides that for subsection 188(2A) of the Bankruptcy
Act 1966, a person (other than the official trustee or a registered trustee) is not eligible to act as
a controlling trustee if the person has not by 1 December 2006: (i) become a full member of the
insolvency practitioners association of Australia; or (ii) satisfactorily completed a course in
insolvency approved by the inspector-general.
s 155A (1A) of the Bankruptcy Act 1966.
s 155(1) of the Bankruptcy Act 1966.
currently AUS$1 000 as provided for in s 5 of the Bankruptcy (Registration Charges) Act 1997.
s 155C of the Bankruptcy Act 1966.
Keay (n 131) 27.

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with the committees decision to refuse an application, he or she may apply to

the administrative appeals tribunal (AAT) for a review of the decision. 161
For the purposes of section 155A(2)(a) of the Bankruptcy Act of 1966, the
following qualifications, experience, knowledge and abilities are prescribed in
relation to an applicant for registration as a trustee:
(a) completion of the academic requirements for the award of a degree, diploma or similar
qualification from an Australian university or college of advanced education, or other
Australian tertiary institution of an equivalent standard, being a degree, diploma or similar
qualification granted to a person who has completed:
(i) a course of study in accountancy of not less than 3 years duration; and
(ii) a course of study in commercial law of not less than 2 years duration;
(b) engagement in relevant employment on a full-time basis for a total of not less than 2 years in
the preceding 5 years;
(c) the ability to perform satisfactorily the duties of a registered trustee immediately after
registration.162

Once the relevant fee has been paid and the existence of professional indemnity
insurance confirmed, the registration officer will register the successful applicant on the national personal insolvency index (NPII)163 and issue him or her
with a certificate of registration for a period of three years.164
4.1.3.2

Corporate insolvency

The Australian securities investments commission (ASIC) released its new policy statement on the registration of registered liquidators and official liquidators on 30 September 2005.165 The policy replaces the previous ASIC policies
that were introduced in 1992 (and minimally updated in 1997).166
Policy statement 186 details the application process to become a registered
liquidator or official liquidator and is a significant ASIC policy update,167 as it
is the result of the first substantive review of liquidator registration following
the introduction of part 5.3A of the Corporations Act in 1993. Importantly, the
new policy statement also explains the ongoing obligations of registered liquidators and ASICs expectations of liquidators.168
Policy statement 186 updates ASICs guidelines on the operation of section
1282(2) of the Corporations Act. Under this section, ASIC must satisfy itself
that an applicant for registration as a liquidator has the appropriate qualifications, has winding-up experience, is capable of performing the duties of a
liquidator and is a fit and proper person to be a registered liquidator.169
161
162
163
164
165
166
167

168
169

s 155A(7) of the Bankruptcy Act 1966.

Bankruptcy Regs 1996 reg 8.02.
The NPII is a database that stores the bankruptcy records, and specifically details, of trustees.
See Keay (n 131) 19.
s 155D of the Bankruptcy Act of 1966.
Policy statement 186 external administration liquidation registration .
Policy statement 40 registration of liquidators experience criteria and policy statement 24
registration of official liquidators.
ASIC is required by part 9.2 of the Corporations Act to register as liquidators those applicants
who satisfy the criteria contained in s 1282(2) of the Corporations Act and are not disqualified
from managing corporations under part 2D.6 of the act.
See Quinlan ASIC introduces a new policy on liquidator registration 2005 at http//:
www.aar.com.au (30-06-06).
Criteria contained in s 1282(2) of the Corporations Act.

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The new criteria in policy statement 186 regarding the base qualifications set
out in section 1282(2)(a) of the Corporations Act, are principally concerned
with defining what is an equivalent qualification for applicants who have not
graduated from an Australian university course with standing certification.170
These new criteria are likely to be of interest principally to applicants whose
qualifications were not gained in Australia.
The changes to the level of experience required for liquidator registration are
the most significant aspect of policy statement 186. Section 1282(2)(b) of the
Corporations Act prescribes that ASIC must be satisfied as to the experience of
an applicant for registration in connection with corporate winding-up, and the
previous policy statement 40 defined the relevant experience as: five years in
public practice; a wide range of experience in external corporate administration
under the direction of an official liquidator for a continuous period of at least
three years; and full-time supervision of external corporate administration for
at least two consecutive years during the five years prior to the application.
The new criteria in policy statement 186 address experience somewhat differently. In relation to section 1282(2)(b) of the Corporations Act, the new
criteria simply state that ASIC will assess the applicants winding-up experience as part of the broader personal capacities in relation to section
1282(2)(c) of the Corporations Act.171
The first part of section 1282(2)(c) of the Corporations Act requires that the
applicant must be capable of performing the duties of a liquidator. The basis
ASIC used for these criteria in policy statement 186 follows the decision of Re
Lofthouse and ASIC,172 where the AAT held that capacity refers not simply to
a persons technical abilities but also to the more ephemeral quality of judgment.173 ASIC now interprets this requirement as referring to the overall
capacities that enable a person to perform adequately and properly the duties
and functions of a registered liquidator. Policy statement 186 now defines
capability as personal and practical capacities.
The final part of section 1282(2)(c) of the Corporations Act 2001 requires
that applicants for registration as liquidators be fit and proper persons.
ASIC interprets a fit and proper person as having an overall capability of
performing the duties and functions of a liquidator, and overall honesty, integrity, good reputation and personal solvency.174
Policy statement 186 represents a comprehensive and significant change in

170

171
172
173
174

s 1282 (2)(a)(iii) of the Bankruptcy Act 1966. If the applicant relies on s 1282(2)(a)(iii) he or she
must satisfy ASIC that qualifications and experience taken together have provided the applicant
with the knowledge that would have been gained from an Australian three year full-time
bachelors degree that includes a three year course of study in accountancy, and a two year
course of study in commercial law.
Policy statement 186.18-20.
2004 AATA 327.
par 74.
Policy statement 186 notes that ASICs above approach is consistent with current case law,
including Davies v Australia Securities Commission (1995) 131 ALR 295, and Australian
Broadcasting Tribunal v Bond (1990) 170 CLR 321. ASIC does not regard a person who is
disqualified from managing corporations to be a fit and proper person to be registered as a
liquidator, regardless of any specific permissions granted to that person to manage
corporations.

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ASICs approach to liquidator registration.175 In particular, applicants for

liquidator registration will now have to show greater levels of experience
than under the previous policies, with the experience criteria increasing from
three years of corporate insolvency, including two years working at a very
senior level, to five years total experience, including three years working at
a very senior level.176 In addition, applicants for registration will now have to
satisfy ASIC that they have access to certain resources and procedures that are
considered necessary for the conduct of external administrations.177
These changes were not received with much surprise in Australia, as they
largely followed the policy proposal that was released by ASIC in the last part
of 2004. However, ASIC has since emphasised that it will be monitoring the
continuing experience and levels of practice resources closely.
4.2
4.2.1

United Kingdom
General

The Insolvency Act 1986178 was a significant piece of new legislation, implementing the most comprehensive review of bankruptcy in the United Kingdom
in over a century.179 Its provisions were largely based on the recommendations
contained in the so-called Cork report.180 It affected a radical reconstruction of
the law relating to both personal and corporate insolvency.181
Further reforms182 have since been implemented, including the Enterprise Act
2002,183 which resulted in the restriction of the use of the procedure of administrative receivership.184 The corporate provisions of the Enterprise Act 2002 came
into force on 15 September 2003, and provide for streamlined administration
proceedings, the eventual abolition of administrative receiverships, and the

175

176
177
178

179
180
181
182
183
184

Another key consequence of these changes is that the practical difference between registered and
official liquidators has now effectively been eliminated. The requirements of experience and
practice capability under policy statement 186 also affect liquidators maintenance of their
registration, with new ongoing obligations of being a registered liquidator.
Policy statement 186.19.
(n 166). Quinlan ASIC introduces a new policy on liquidator registration 2005 at http//
:www.aar.com.au (30-06-06).
Although it received the royal assent and became law on 30 Oct 1985, the government decided
to delay implementation of all but a few of its provisions and to draw up a new act,
consolidating its provisions with those parts of the Companies Act 1985 dealing with
receivership and winding-up. This became the Insolvency Act 1986. The act received royal
assent on 25 July 1986 and was brought into force on 29 December 1986.
Sealy Annotated Guide to the Insolvency Legislation (2004) 1.
(n 32).
For a detailed discussion of the recommendations included in the Cork report (n 32), see
Fletcher (n 44) 18.
See eg the Insolvency Act 1994; the Insolvency (no 2) Act 1994; the Insolvency Act 2000 and the
Human Rights Act 1998.
The Bill was introduced in the house of commons and received royal assent on 7 Nov 2002.
Administrative receivership, which can often be confused with administration, is the
appointment of an insolvency practitioner by a creditor who holds a floating charge over the
assets of the company created before 15 Sept 2003.

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abolition of the preferential claims of the state (crown) in respect of certain

taxes.185
The individual insolvency provisions of the Enterprise Act 2002 came into
force on 1 April 2004. These provisions introduced an early discharge after one
year (if not earlier), restrictions being placed on culpable and irresponsible
bankrupts, and the lifting of a range of prohibitions, disqualifications and
restrictions currently automatically imposed as a consequence of bankruptcy.186
An additional consideration when dealing with the working of insolvency
law in the United Kingdom is the impact187 of the EC Regulation on Insolvency Proceedings 2000.188 Being a regulation, as distinct from a convention or
directive, it has immediate force throughout the European Union189 without
the need for ratification or implementation by domestic legislation in the
member states.190 The regulation makes major advances in inter alia areas
such as ensuring the recognition of court orders without further formalities
or winding-up resolutions.191
4.2.2

Regulating body

The Cork committee192 observed that the success of any insolvency system is
very largely dependent upon those who administer it193 and that
while the method of control over the administration of bankruptcy varies from country to
country, in almost all bankruptcy systems creditors were originally given the primary
responsibility for administrating the process. In country after country however, this had led
to scandal and abuse, and exclusive control has been progressively removed from creditors and
varying degrees of official control have been introduced as it has increasingly accepted that the
public interest is involved in the proper administration of the Bankruptcy system.194

The scheme of regulation of insolvency practitioners in the United Kingdom is

one of government-monitored self-regulation.195 The overall responsibility for

185

186
187

188
189
190
191
192
193
194
195

See http//:www.insolvencyreg.org (30-06-2006) the official website of the international

association of insolvency regulators (IAIR) for a list of personal insolvency procedures and
corporate insolvency procedures.
McKenzie-Skene Reforming insolvency law: a comparative study of Scotland and South
Africa 2005 Nottingham LJ 17.
See Credit Institutions (Reorganisation and Winding-up) Regulations 2004, which came into
force on 5 May 2004. These regulations implement the directive of parliament and the council
on the reorganisation and winding-up of credit institutions (2001/24/EC) for all UK credit
institutions. These regulations provide that as from 5 May 2004, no winding-up proceedings or
reorganisation measures in respect of EEA credit institutions can be undertaken in the UK,
except in the circumstances permitted by the regulations. EEA reorganisation measures and
winding-up proceedings must be recognised in the UK. See also Insolvency Act 1986
(Amendment) Reg 2002.
Council Reg (EC) no 1346/2000 of 29 May 2000 on Insolvency Proceedings. See Sealy (n 179)
604.
apart from Denmark.
See also s 31-34 for provisions relating to communication between office-holders.
Article 3 deals with jurisdiction.
(n 32).
Cork report (n 32) par 732. See Tolmie (n 39) 208.
Cork report (n 32) par 702.
Norris Insolvency practitioner regulation in the United Kingdom paper presented at the
academics meeting of the INSOL congress held in Cape Town on 2 and 3 April 2004.

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the administration and supervision of insolvency law in England and Wales

rests with the department of trade and industry.196 The insolvency service197 is
an executive agency within the department of trade and industry under the
direction of the inspector-general of insolvency, and is responsible for regulating insolvency practitioners, either directly or through recognised professional
bodies.198
Most of those who acted as insolvency practitioners prior to the introduction
of authorisation contained in the Insolvency Act 1986 were members of professions and were subject to general regulation by their various professional
bodies. However, that regulation alone was insufficient to protect the various
stakeholders in an insolvency proceeding since there was no restriction on who
could act as an insolvency practitioner. Consequently, professional bodies
could not prevent poorly qualified members from acting as insolvency practitioners. Even the sanction of expulsion did not prevent them from acting as
insolvency practitioners, and those who were not members were not subject to
any form of regulation.199
The introduction of authorisation and the power of recognition by the secretary of state200 addressed these difficulties by allowing bodies to regulate
which of their members could act as insolvency practitioners, and by regulating
their conduct when doing so. The secretary of states power of authorisation
also ensured that the insolvency profession did not become a closed shop,
but that it was kept open to all those who were fit and proper and possessed the
appropriate qualifications.201
When licensing was first introduced, it was possible for someone who had
acted as an insolvency practitioner in the past to obtain a licence on the basis of
his or her past experience, without passing the examination that new applicants
are now required to take.202 However, applicants now have to pass the joint
insolvency examination, set by the joint insolvency examination board, in
addition to a minimum level of experience.203 The examination process has
been one of the manners in which standards in the insolvency profession have
been improved.204
An applicant may obtain a licence to be authorised to act as an insolvency
practitioner in one of two alternative manners, viz by virtue of membership of a
recognised professional body, or by direct application to the department of
trade and industry.205 In both instances a licence will only be granted if a
person has proved that he or she is a fit and proper206 person, and has
satisfied the prescribed requirements for education and practical training and
experience within the meaning of the Insolvency Act 1986.

196
197
198
199
200
201
202
203
204
205
206

Fletcher (n 44) 26.

See http//:www.insolvency.gov.uk (01-07-06) for the official website of the insolvency service.
s 399-410 of the Insolvency Act 1986.
Norris (n 195) 10.
Darling, secretary of state for trade and industry.
Norris (n 195) 10.
Norris (n 195) 11.
reg 7 of Insolvency Practitioners Regulations 2005.
Fletcher (n 44) 30.
Secretary of state through insolvency service.
reg 6 of Insolvency Practitioners Regulations 2005.

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Having granted recognition to the recognised professional bodies,207 the

secretary of state has a continuing duty to ensure that the bodies enforce their
professional membership rules, and discipline members who fall below the
standards required of insolvency practitioners.208 The insolvency service therefore has a dual function in regulating its own insolvency practitioners, on the
one hand, and regulating the regulators, on the other.209
Officials at the insolvency service regularly undertake visits to the recognised
professional bodies, with the aim of monitoring the procedures that ensure that
only fit and proper persons who meet the requirements are granted a licence to
practice.210 Officials also have to satisfy themselves that these bodies have
proper procedures in place to investigate complaints against their members.211
Section 393(1) of the Insolvency Act 1986 contains the power to grant or
refuse the authorisation to act as an insolvency practitioner. Where the secretary of state refuses an application, or withdraws a holders authority to act,
the applicant or holder will be notified in writing, setting out the reasons for
the refusal or withdrawal, and informing the interested party of the date the
action will take effect.212 The person on whom notice has been served may,
within fourteen days, respond to the secretary of state who will take such
representation into account when making his or her final determination.213
Section 396 of the Insolvency Act 1986 introduces a more substantial procedure, which involves referring the case to the insolvency practitioners tribunal.214 The insolvency practitioners tribunal was established as an independent
statutory body by the Insolvency Act, and its function is to deal with cases
referred by the secretary of state regarding whether or not an individual should
be an authorised insolvency practitioner.215 The tribunal is not concerned with
decisions about authorisations by recognised professional bodies, which have
their own review procedures.
The functions of the tribunal in relation to any case referred to it are exercised by three members: a legally qualified chairman and two other members
who are experienced in insolvency matters. The tribunal members are drawn
from a panel selected, and from time to time revised, by the secretary of
state.216 When the tribunal has concluded its consideration of the evidence,
it makes a report stating what the appropriate decision in the opinion of the
tribunal would be, and its reasons for that opinion. It is the duty of the
secretary of state to decide the matter in accordance with the opinion of the
tribunal.217
The United Kingdom does not have specialised insolvency courts218 and
207
208
209
210
211
212
213
214

215
216
217
218

s 391(2) of Insolvency Act 1986.

Fletcher (n 44) 30.
Norris (n 195) 9.
Norris (n 195) 9.
s 391 of Insolvency Act 1986.
Fletcher (n 44) 33.
This mode of recourse is designed to enable relatively minor matters to be adjusted or rectified.
The insolvency practitioners tribunal deals with cases where the secretary of state proposes to
refuse an individuals application or withdraw an existing authorisation and the individual
concerned has required the matter to be referred to the tribunal.
s 396-397 of Insolvency Act 1986.
See http//:www.insolvency.gov.uk./freedomofinfo (04-07-06).
Fletcher (n 44) 34.
s 363 and 373 of Insolvency Act 1986.

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jurisdiction in insolvency matters is exercised throughout England and Wales

by the high court and the county courts.219 The role played by the courts is to
determine petitions by debtors and creditors for bankruptcy and compulsory
winding-up, and to determine issues in insolvencies brought to them by the
insolvency service, insolvency practitioners, insolvents, creditors and others.220
The court does not therefore exercise a supervisory role, and serves merely as a
standby authority.221
4.2.3

Procedure to be recognised as an insolvency practitioner

A major recommendation of the Cork committee222 was that every insolvency

practitioner should have a minimum qualification, or alternatively be a member of a recognised professional body.223 A cogent case was made for the
introduction of a system of centralised, ministerial control over all persons
who are appointed to hold office in insolvency proceedings.224
The provisions of the Insolvency Act 1986 are largely based on the recommendations contained in the Cork report.225 The Insolvency Act 1986 provides
that insolvency practitioners should be licensed and that only those persons
who are suitably qualified in terms of education, training and experience, and
also meet the fit and proper person test, should be authorised to act.226
The present regulation of insolvency practitioners is derived from an in-built
requirement within the Insolvency Act 1986, whereby eligibility to act as an
office-holder regarding any aspect of insolvency proceedings is restricted to
persons who are qualified within the meaning of the act.227
In order to act as an insolvency practitioner within the meaning of the
Insolvency Act 1986, a person must satisfy a number of criteria contained in
section 390. This section deals mainly with the general requirement to act as
insolvency practitioner. The criteria of qualifications and experience are
further dealt with in subordinate legislation in the form of the Insolvency
Practitioners Regulations.228
Thus, in relation to a company a person acts as an insolvency practitioner by
acting as its liquidator,229 administrator230 or administrative receiver,231 or as

219
220
221
222
223
224
225
226
227
228
229

230

231

Fletcher (n 44) 30.

Ziegel Comparative Consumer Insolvency Regimes A Canadian Perspective (2003) 115.
McBryde et al Principles of European Insolvency Law (2003) 29.
Cork report (n 32) chs 15-17.
(n 240).
Fletcher (n 44) 28.
Fletcher (n 44) 29.
Norris (n 195) 9.
Fletcher (n 44) 29.
issued under s 419 of Insolvency Act 1986.
S 163 of Insolvency Act 1986 defines the term liquidator. A liquidator may be appointed in a
company under liquidation in terms of a voluntary winding-up; creditors voluntary winding-up
and a winding-up by court.
S 13 defines the term administrator. Administrators can be appointed to a company that is
unable, or is likely to become unable, to pay its debts. They can be appointed by any of the
following: the courts (upon application by a creditor), the holder of a qualifying floating charge
over the assets of the business, or the company or its directors. An administrators primary goal
is to rescue the company as a going concern. If this is not possible, the administrator will try to
obtain a better result for the creditors than would be possible if the company was wound up.
(n 184).

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the supervisor of a voluntary arrangement232 approved under part I of the

Insolvency Act 1986. In relation to an individual, a person will be acting as
insolvency practitioner by acting as his trustee in bankruptcy,233or interim
receiver234 of his property, or as permanent or interim trustee in the sequestration of his estate, or as supervisor235 of a voluntary arrangement236 proposed
by him and approved under part VIII of the Insolvency Act 1986.
On 1 April 2005 the United Kingdom introduced new insolvency regulations237 concerning the regulation of insolvency practitioners.238 Regulation
6 sets out the matters to be taken into account by a competent authority in
deciding whether an individual is a fit and proper person to act as an insolvency practitioner.239
Regulations 7 and 8 set out prescribed requirements regarding education and
training in relation to insolvency practitioners seeking an authorisation from a
competent authority. A person will therefore not be able to accept an appointment as an insolvency practitioner if he or she is not authorised to do so by
virtue of membership of a professional body240 recognised under the Insolvency Act 1986.241
232
233

234

235

236

237
238

239
240

241

The directors of the company may take a proposal under part I to the company and to its
creditors for a composition in satisfaction of its debts, or a scheme or arrangement of its affairs.
s 292 and 293 of Insolvency Act 1986. Where a bankruptcy order has been made and no
certificate for the summary administration of the bankrupts estate has been issued, it is the duty
of the official receiver, as soon as practicable in the period of twelve weeks beginning with the
day on which the order was made, to decide whether to summon a general meeting of the
bankrupts creditors for the purpose of appointing a trustee of the bankrupts estate.
s 286 of Insolvency Act 1986. The court may, if it is shown to be necessary for the protection of the
debtors property, at any time after the presentation of a bankrupts petition and before making a
bankruptcy order, appoint the official receiver to be interim receiver of the debtors property.
The Insolvency Act 2000 inserted a new s 389A into the Insolvency Act 1986, which authorises
the secretary of state to recognise bodies that are not licensed insolvency practitioners to act as
nominees or supervisors of voluntary arrangements.
s 252 and 253 of Insolvency Act 1986. Application to the court for an interim order may be made
where the debtor intends to make a proposal to his creditors for a composition in satisfaction of his
debts, or a scheme of arrangement of his affairs. The proposal must provide for some person (the
nominee) to act in relation to the voluntary arrangement either as trustee or otherwise for the
purpose of supervising its implementation. This procedure makes provision for a moratorium for
the insolvent debtor pending the implementation of a proposal to creditors.
Statutory Instrument 2005 no 524, the Insolvency Practitioners Regulations 2005.
See also Credit Institutions (Reorganisation and Winding-up) Regs 2004, which came into force
on 5 May 2004. These regulations implement the directive of the parliament and the council on
the reorganisation and winding-up of credit institutions (2001/24/EC) for all UK credit
institutions. The regulations provide that as from 5 May 2004, no winding-up proceedings or
reorganisation measures in respect of EEA credit institutions can be undertaken in the UK
except in the circumstances permitted by the regulations. EEA reorganisation measures and
winding-up proceedings are to be recognised in the UK.
See Calitz The role of the master of the high court as regulator in a changing liquidation
environment: a South African perspective 2005 TSAR 728 735.
The relevant order is the Insolvency Practitioners (Recognised Professional Bodies) Order 1986
(SI 1986/1764) under which the following bodies are recognised: The chartered association of
certified accountants, the institute of chartered accountants of England and Wales, the institute
of chartered accountants of Scotland, the institute of chartered accountants of Ireland, the
insolvency practitioners association, the law society of Scotland and the law society.
S 391(2) of the Insolvency Act 1986 reads as follows: A body may be recognised if it regulates
the practice of a profession and maintains and enforces rules for securing that such of its
members as are permitted by or under the rules to act as insolvency practitioners (a) are fit and
proper persons so to act, and (b) meet acceptable requirements as to education and practical
training and experience.

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The new regulations identify strict criteria with regard to the qualifications
and experience of a person who wants to be regarded as a fit and proper
person within the meaning of the Insolvency Act 1986.242 Thus, apart from
setting the requirement243 that an applicant will have to be a member of a
professional body,244 the regulations also require such an applicant to have
passed the joint insolvency examination set by the joint insolvency examination
board.245
The regulations also lay down the criteria with regard to the experience of
the applicant in regulation 7(3) and (4):246
An applicant must either
(a) have held office as an office-holder in not less than 30 cases during the period of 10 years
immediately preceding the date on which he made his application for authorisation; or
(b) have acquired not less than 7000 hours of insolvency work experience of which no less than
1400 hours must have been acquired within the period of two years immediately prior to the
date of the making of his application and show that he satisfies one of the three
requirements set out in paragraph (4).

The key concept underlying the new insolvency practitioner regulations is that
of acting as insolvency practitioner within the meaning of the Insolvency Act
1986. Section 388 of the Insolvency Act 1986 supplies a statutory definition of
this concept.247 The provisions of the regulations are therefore made applicable
to insolvency practitioners by defining the sphere of proceedings which will be
governed by the regulations.
It should be noted that apart from the private insolvency practitioner, a
member of the official receiver may also be appointed to administer an insolvent estate.248 The official receiver is a civil servant employed in the office of
the insolvency service, which in turn falls under the control of the department
of trade and industry.249 Section 400(2) of the Bankruptcy Act 1986 confers
upon the official receiver the status of officer of the court in relation to which
he exercises the functions of his office.250

242

S 389 of Insolvency Act 1986 makes it an offence for one to act as insolvency practitioner when
one is not qualified to do so. The word qualified refers not only to a professional qualification
but to a complex set of requirements.
243
reg 7(2) of the Insolvency Practitioners Regulations 2005.
244
(n 240). Each regulatory body publishes a guide to professional conduct and ethics.
245
or have acquired in, or been awarded in, a country or territory outside Great Britain,
professional or vocational qualifications that indicate that the applicant has the knowledge and
competence that is attested to by a pass in that examination.
246
Reg 7(4) reads as follows: The three requirements referred to in paragraph (3)(b) are
(a) the applicant has become an office-holder in at least 5 cases within the period of 5 years
immediately prior to the date of the making of his application;
(b) the applicant has acquired 1,000 hours or more of higher insolvency work experience or
experience as an office-holder within the period referred to in sub-paragraph (a); and
(c) the applicant can show that within the period referred to in sub-paragraph (a) he has
achieved one of the following combinations of positions as an office-holder and hours
acquired of higher insolvency work experience (i) 4 cases and 200 hours; (ii) 3 cases and
400 hours; (iii) 2 cases and 600 hours; or (iv) 1 case and 800 hours.
247
s 388(1) and 388(2) of the Insolvency Act 1986.
248
s 32 of Insolvency Act 1986.
249
Fletcher (n 44) 26.
250
Fletcher (n 44) 27.

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The official receiver will serve as trustee in personal insolvency, or liquidator

in compulsory liquidations, where no private sector insolvency practitioner has
been appointed. These will normally be in insolvent estates where the assets are
insufficient to bear the cost of a private sector appointment.251
5

Some thoughts on the way forward for the insolvency profession in South
Africa

5.1

Introduction

While it is fair to state that the insolvency profession in South Africa is generally perceived as being corrupt and ineffective,252 there is no reason why this
perception cannot be changed to one of professionalism and effectiveness.
There are many honest and well-respected insolvency practitioners who strive
to provide a professional service to both the public and the creditors that they
serve.
However, it is submitted that this can only occur once the necessary steps
have been taken to rid the profession of the unsatisfactory practices that are
currently being experienced. The question therefore arises as to how the problems currently experienced by the insolvency profession may be alleviated.
5.2

Statutory body or statutory recognition

It is submitted that the first step in bringing about much-needed change to the
insolvency industry in South Africa is the establishment of a statutory regulatory body similar to the law society of South Africa (LSSA). Alternatively, the
statutory recognition of existing bodies such as AIPSA, AABIP and the LSSA
would go a long way to providing these organisations with the statutory backing that is required in order to make them effective.
The latter of these two options is indicated as being the preferred one by the
South African law reform commission (SALRC).253 In terms of the proposals
made by the SALRC, only a person who is a member of a professional body
recognised by the minister of justice, and who is permitted to act as a member
of that body in terms of its rules, may be appointed as a liquidator.254 In terms
of the SALRCs proposals, the minister of justice may from time to time
publish the name of a recognised professional body if it appears to the minister
that such body regulates the practice of a profession and maintains and enforces rules for ensuring that a member is a fit and proper person to be appointed as a liquidator, and meets acceptable requirements for education and
practical experience and training.
5.3

Qualifications and other entry-level requirements

Currently there are no entry-level requirements in order to practise as an in-

251
252
253

254

See Tolmie (n 39) 206.

(n 2) and (n 3).
South African Law Reform Commission Project 63 Discussion Paper 86 Review of the Law of
Insolvency (Draft Insolvency Bill) par 4.7 11. See http//:www.doj.gov.za/salrc/reports.htm
(02-07-06) for a copy of Draft Insolvency Bill.
cl 53(1)(a) of the Draft Insolvency Bill (n 253).

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solvency practitioner in South Africa. While this may have been acceptable in
1936 when the Insolvency Act was promulgated, it is submitted that this is no
longer an acceptable state of affairs. Under contemporary South African insolvency law trustees and liquidators are regularly exposed to complex legal
and financial problems in practice. For this reason it is submitted that insolvency practitioners should have at least some formal training before being
allowed to enter this profession.255 This does not necessarily entail obtaining
a bachelors degree in law or commerce, but should entail at least a specialised
training programme in insolvency law and practice.
Additional criteria, such as the completion of one years articles and the
passing of an admission examination, should also be set as criteria prior to
persons being authorised to accept appointments in insolvent estates.
Finally, and from a personal point of view, it is submitted that insolvency
practitioners should be designated as officers of the court. In fact, it would go a
long way towards establishing insolvency practitioners as professionals if all
insolvency practitioners were to be declared fit and proper by the high court
prior to being authorised to practice.
5.4

Scrapping of the requisition system

If the insolvency profession wishes to obtain some modicum of credibility, it is

submitted that the requisition system will have to be scrapped in its entirety.
The systems inherent weaknesses create fertile ground for manipulation, dishonesty and even fraud. An alternative manner in which provisional appointments can be made must be investigated by the department of justice,
preferably as part of the insolvency law reform process that has been underway
since the late 1980s. While it is known that the ministerial committee of enquiry
into the liquidations industry did make recommendations in this regard, it is
not known what the extent of these recommendations are. According to the
deputy minister of justice256 a unified Insolvency Act, dealing with the liquidation of all types of entities, is once again on track, and any workable recommendations made by the ministerial committee of enquiry will be incorporated
into this new piece of legislation.
However, considering that the requisition system has been applied in various
forms for nearly 30 years, it is almost certain that the more established insolvency practitioners will vehemently oppose the abolition of this system of
making provisional appointments. Let us hope, then, that the system will be
modified in order to make it less susceptible to manipulation, and that it will
become an open and transparent method of making appointments on an urgent basis.
6

Conclusion

When one looks at the regulation of the profession in other jurisdictions, such
as those discussed in this article, it is clear that South Africa lacks an adequate
regulatory framework. Although the South African insolvency profession

255
256

It is encouraging to note that the deputy minister of justice shares this view. See (n 2).
(n 2).

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needs proper regulation, it is probably not necessary to establish an overregulated environment such as that found in the United Kingdom and Australia.
Any regulation of the insolvency profession needs to take cognisance of the
socio-economic realities that prevail in South Africa. In addition, any such
regulation needs to be sensitive to an industry that is in dire need of transformation. However, any regulatory measures need to be of an international
standard so that foreign investors will have the peace of mind that their affairs
will be conducted in an impartial and regulated environment.257
The ministry of justice and constitutional development appears to be moving
in the right direction, with both the minister and the deputy minister having
indicated that proper regulation of the insolvency industry has become a priority. Let us hope that this will happen sooner rather than later.
SAMEVATTING
DIE AANSTELLING VAN INSOLVENSIEPRAKTISYNS IN SUID-AFRIKA: TYD VIR
VERANDERING?
Die aanstelling van insolvensiepraktisyns in insolvente boedels is n kontroversiele onderwerp nie
as gevolg van die kompleksiteit van die toepaslike wetsbepalings nie, maar weens volgehoue
bewerings van onreelmatighede wat met die maak van hierdie aanstellings gepaard gaan. Hierdie
artikel het ten doel om die reguleringsfunksie van die meester van die hooggeregshof, as
staatsorgaan, en die maak van aanstellings deur die meester ingevolge huidige wetgewing, te
ondersoek en krities te bespreek. Daar word aan die hand gedoen dat die onderliggende oorsaak
van die huidige probleme in die insolvensiebedryf die ongereguleerde aard van die Suid-Afrikaanse
insolvensiebedryf is.
Die geskiedkundige ontwikkeling van die kantoor van die meester word ondersoek met
verwysing na die staat se rol by die regulering van die insolvensiebedryf. Daar word ook krities
gekyk na die meester se implementering van huidige wetgewing wat voorsiening maak vir die
aanstelling van voorlopige kurators en likwidateurs, sowel as na die nie-wetgewende kriteria wat die
meester toepas ten einde aanstellings in die praktyk te maak. Die rol van transformasie, wat deur
middel van n departementele beleidsdokument in werking gestel is, word ook krities bespreek. Na
n vergelykende ondersoek na die regulering van die insolvensiebedryf in die Verenigde Koningkryk
en Australie, word voorstelle gemaak vir die behoorlike regulering van die insolvensiebedryf in
Suid-Afrika.
Die gevolgtrekking word gemaak dat die huidige stelsel vir die aanstelling van insolvensiepraktisyns in Suid-Afrika onvoldoende is en dat die probleme wat hiermee gepaard gaan slegs
opgelos sal word deur middel van behoorlike regulering en die doeltreffende opleiding en
lisensiering van insolvensiepraktisyns. Hierdie oplossings word blykbaar tans deur die staat
ondersoek.

257

In terms of the World Banks Principles for Effective Creditor Rights and Insolvency Systems
and UNCITRALs Legislative Guide on Insolvency Law, the bodies responsible for regulating
or supervising insolvency practitioners should be independent of individual representatives, set
standards that reflect the requirements of the legislation and public expectations of fairness,
impartiality, transparency and accountability, and have appropriate powers and resources to
enable them to discharge their functions, duties and responsibilities effectively see Creditor
Rights and Insolvency Standard based on the World Bank Principles for Effective Creditor
Rights and Insolvency Systems and UNCITRALs Legislative Guide on Insolvency Law found
at
http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/LAWANDJUSTICE/GILD/
0,,contentMDK:20774191pagePK:64065425piPK:162156theSitePK:215006,00.html (10-07-06).

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