Insolvency Course Material For Namibia

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A.

AIM OF COURSE

B.

SYLLABUS The purpose of the course is to provide a broad overview of the subject from a practical point of view. During training, instructors will only cover those aspects which candidate attorneys will encounter most often in practice. The remainder of the course is self-study.

The syllabus is compiled by experts in practice. C.

AIM

PRACTICE NOTES AND PRECEDENTS The purpose of the notes is to supplement the presentation of the instructors and, hopefully, to be of use in practice. Notes do not form a complete manual on the subject - the use of relevant sources is still necessary. necessary

Notes originally compiled by E le Roux, Weavind & Weavind, Weavind, Pretoria

Candidate attorneys should be able to handle various insolvency applications, the rehabilitation of the insolvent estate and related matters.

With contributions by and 1999 update by:

Adv Diane Davis, Cape Town

D.

NOTICE OF SURRENDER

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SYLLABUS

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SYLLABUS - INSOLVENCY

SECTION 1 1. 2. 3. 4. 5. 6.

The objectives of the Law of Insolvency Two main acts governing insolvency law Application on Insolvency Act to the winding-up of a company and close corporation The application of insolvency law in commerce Effects of sequestration upon the estate of the debtor and his spouse Commercial effects of insolvency eg. on lease, credit agreements

SECTION 2 ACTS OF INSOLVENCY AND GROUNDS FOR SEQUESTRATION AND WINDING-UP 1. 2. 3. 4. 5.

Acts of Insolvency Actual insolvency Sequestration of the estate of a partnership Winding-up of a company: when a company is deemed unable to pay its debts Winding-up of a close corporation: when is a close corporation deemed unable to pay its debts

SECTION 3 1.

Purpose of and relationship between sequestration and liquidation proceedings and impeachable transactions under the Insolvency Act Interrogations under the Insolvency and Companies Act

2.

SECTION 4

1. 2. 3. 4. 5. 6. 7.

Proceedings brought by way of application Jurisdiction When application may be brought as a matter of urgency Locus standi - a liquidated claim Application must contain certain essential averments Annexures to application Advantage to creditors

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1. 2. 3.

Jurisdiction - Section 12 of the Companies Act Locus standi of applicant defined in section 346 Urgent / normal applications

III.

Voluntary Surrender

1. 2. 3. 4.

Grounds for: actual insolvency and advantage to creditors Formalities Effect of notice of surrender Application to court for surrender

IV.

Master of the Supreme Court

1. 2.

His role in insolvency applications and the administration of insolvent estates How to go about obtaining reports from the Master

SECTION 5 1. 2. 3. 4. 5. 6. 7. 8.

Impeachable transactions in terms of the Insolvency Act and Companies Act Dispositions without value Section 27 - Immediate Benefits under an Antenuptial Contract Voidable Preferences - Section 29 Section 30 - Undue preferences Collusive Dealings Remedies Onus of proof and difficulties of proof

APPLICATION FOR REHABILITATION 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11.

GENERAL Sequestration

Winding-up

SECTION 6

APPLICATION FOR SEQUESTRATION, LIQUIDATION AND VOLUNTARY SURRENDER MANNER IN WHICH APPLICATION IS MADE - NORMAL/URGENT APPLICATIONS

I.

II.

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Rehabilitation by effluxion of time Section 124 of the Insolvency Act Jurisdiction Notice to and reports by Master and trustee Notice in Government Gazette Security for costs Copy of application lodged with Master Essential allegations in the application Opposition to or refusal by court of rehabilitation Court has discretion to grant or refuse application or order a conditional rehabilitation Effects of rehabilitation

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4 12. 13. 14. 15. 16. 17. 18. 19. 20.

SECTION 7 COMPOSITIONS UNDER THE INSOLVENCY ACT 1. 2. 3. 4.

Section 119 of the Insolvency Act Procedure for achieving a composition Requirements for a composition Effect of a composition on the insolvent and on the creditors

SECTION 8

SECTION 11

JUDICIAL MANAGEMENT 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11.

In terms of section 83(7) Section 83(8) provides Section 83(9) requires The provisions of section 83(10) Section 83(11) Section 83(12) Section 83(13) Alternative method of realization of security Miscellaneous

ADMINISTRATION OF INSOLVENT ESTATE / COMPANY IN LIQUIDATION

Application for judicial management The main requirements The effect of the judicial management order Foot N.O. v Alloyes 1982(2) 249 (D) Provisional 1982(3) 378 (D) The court which has jurisdiction The essential averments Provisional judicial management order Grant of final judicial management order Three alternatives All three have occurred Judicial management does not create a concursus creditorum

1. 2. 3. 4. 5. 6.

Powers of provisional trustee / liquidator Powers of final trustee / liquidator Meetings of creditors - purpose of Voting at meetings of creditors How to prove a claim against an insolvent estate / company in liquidation The legal order of preference in the Insolvency Act according to which the trustee / liquidator pays out claims

SECTION 9 OFFERS OF COMPROMISE AND SCHEMES OF ARRANGEMENT 1. 2.

Purpose Procedure

SECTION 10

MANNER OF REALISING SECURITIES FOR CLAIMS 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11.

Section 83 Mode of dealing with securities Proof of claim Realization of security In terms of section 83(3) In terms of section 83(4) The creditor must prove his claim In terms of section 83(10) If the creditor acts under section 83 The claim cannot be admitted In terms of section 83(6) 8

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INDEX

PRACTICE NOTES AND PRECEDENTS

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1.

TAKING INSTRUCTIONS AND GIVING ADVICE

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1.1. 1.2. 1.3. 1.4. 1.5.

Formal information Identify the problem Client's interest Ethics Advice

11 11 12 13 14

2.

INTRODUCTION TO THE LAW OF INSOLVENCY

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2.1. 2.2. 2.3. 2.4. 2.5.

What does it mean to be insolvent? Insolvency proceedings as the ultimate form of execution / debt collection Sources of Insolvency Law Purpose of sequestration / liquidation Interface between Insolvency Law and Commerce

15 15 15 15 16

3.

VOLUNTARY SURRENDER

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3.1. 3.2. 3.3. 3.4. 3.5. 3.6. 3.7. 3.8. 3.9. 3.10. 3.11. 3.12.

Introduction Essentials to be dealt with in Founding Affidavit Supporting documents Procedure Time Limits General Consequences of Publication of Notice of Surrender Excursus: Voluntary surrender of a Partnership Excursus : The Matrimonial Property Act Flow Chart Check List Notice of Surrender

17 17 20 20 21 21 22 23 23 23 25 26

4.

COMPULSORY SEQUESTRATION

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4.1. 4.2. 4.3. 4.4. 4.5. 4.6 4.7. 4.8. 4.9. 4.10 4.11. 4.12. 4.13.

Introduction Acts of Insolvency Contents of Affidavit Joinder Supporting documents Notice of Motion Provisional Order of sequestration Intervention Urgent applications Partnerships Friendly sequestrations Effects of sequestration Check List

91 91 96 102 103 103 104 105 105 106 106 107 110

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Flow Chart Precedents

5.

REHABILITATION

5.1. 5.2. 5.3. 5.4. 5.5. 5.6. 5.7. 5.8. 5.9. 5.10 5.11 5.12. 5.13. 5.14. 5.15. 5.16. 5.17.

Introduction Who may apply and to which court When application may be brought General Form of application Contents of Affidavit Prayers List of supporting documents Procedure Master's Report Powers of Court Effect of rehabilitation General Procedure for Declaratory Order Insolvency Interdicts Check List Precedents

6.

COMPOSITIONS

6.1. 6.2. 6.3. 6.4. 6.5.

When Procedure Meeting of Creditors Majorities Effects

7.

LIQUIDATION OF COMPANIES

7.1 7.2. 7.3. 7.4. 7.5. 7.6.

Introduction Methods Winding-Up by Court Voluntary liquidation Close Corporations Flow Chart

8.

JUDICIAL MANAGEMENT

8.1. 8.2. 8.3. 8.4. 8.5. 8.6. 8.7. 8.8. 8.9. 8.10.

Introduction Applicant Jurisdiction Grounds for Judicial Management Contents of Affidavit Form of application and procedure Form of Court Order Return day and powers of court Duties of judicial manager Consequences of judicial management 8

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149 149 149 150 152 153 153 154 154 154 155 156 156 156 157 157 157 159

183 183 183 184 184 184

185 185 185 185 194 195 198

8.11.

Flow chart

225

9.

COMPROMISE

237

9.1. 9.2. 9.3. 9.4. 9.5. 9.6 9.7 9.8

Purpose Under what circumstances Who may apply Procedure Authorities to be consulted Standard order Companies Act Application Precedent

237 237 237 238 240

10.

MEETING OF CREDITORS AND PROOF OF CLAIMS

10.1 10.2 10.3

Introduction Procedure for proof of claims Claim forms

11.

IMPEACHABLE TRANSACTIONS

11.1 11.2 11.3 11.4 11.5 11.6 11.7 11.8 11.9

Dispositions in terms of the Common Law Dispositions without value - Section 26 Exceptions to Section 26 Voidable Preferences - Section 29 Undue preferences - Section 30 Cullusive dealings - Section 31 Remedies Onus of proof and difficulties of proof Dispositions in terms of the Common Law

E.

PRACTICAL EXERCISES

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223 223 223 223 223 223 224 224 224 225 225 1999 Edition

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1.

TAKING INSTRUCTIONS AND GIVING ADVICE

1.1

FORMAL INFORMATION

10 law well enough to apply your knowledge to the set of facts. In some cases, for instance, you would not advise the client to apply for a voluntary surrender of his estate but would rather bring an application in the Magistrate's Court to place his estate under administration. It is therefore imperative that you know the different options available to you as well as the consequences thereof and you must be able to explain it to the client in such a way that he understands it. The next question to be dealt with is when the client wants the relief. Are you dealing with an urgent matter or not? If it is urgent, to what degree is it urgent and what are the reasons for urgency ? Should you follow the normal route in approaching the Court or should you approach the Court for urgent relief ?

The object of this lecture is to teach you to obtain proper and systematic instructions from the client. When the client enters your office, he expects you to advise him fully and comprehensively how he should go about in solving his problem. In order to do so it is necessary for you to identify his problem, to consider the different alternatives available to him, and to advise him soundly on the route which he must follow in order to obtain the relief he seeks.

As practitioner you must carefully analyze the facts of each case to determine, for the purposes of setting the case down for hearing, whether a greater or lesser degree of relaxation of the Rules and of the ordinary practice of Court is required. Rule 6(12) of the Uniform Rules provides for applications to be brought on an urgent basis.

From the attorney's viewpoint it is important to ensure that the advice you give to the client is correct and that the procedure you follow in order to obtain the relief he seeks, is not only correct but is also the quickest and least costly route to be followed.

In the case of Luna Meubelvervaardigers (Edms) Bpk v. Makin & Another (trading as Makin's Furniture Manufacturers) 1977(4) SA 135(W) the Court set out the factors to be taken into account when considering whether a matter is urgent and to what degree it is urgent.

At your first consultation you should therefore obtain full particulars of the client, i.e. to his full names and address and marital status and it is also prudent to ask him to sign a Power of Attorney authorizing you to act on his behalf. Although it is not necessary to file a Power of Attorney when you approach a Court by way of action or application procedure, it is always safe to do so because it eliminates disputes between you and your client relating to the instructions given and the fees charged.

After you have established the nature of the client's problem and you have decided on the urgency of the matter, you can now determine where you will approach the Court.

In your Power of Attorney you not only make provision for an authority to act on behalf of your client but also spell out the tariff which will apply to the matter which you are undertaking on his behalf and make provision for an initial deposit to be paid. A written Power of Attorney will conclusively prove whether the person with whom you are consulting is your client or whether he is acting on behalf of a legal entity such as a company or a close corporation, in which case that company or close corporation would be your client. If this is so, it is also prudent to obtain a written Resolution from the company or close corporation whereby the client with whom you are consulting is authorized to act on behalf of the company or close corporation.

Once you have established whether the High Court and/or the Magistrate's Court will have jurisdiction, you must proceed to determine what Division and/or District will be able to exercise jurisdiction over the matter.

You should, at the outset, explain to the client what you charge for your services, how you expect him to pay for your services and what the consequences would be should he fail to pay your interim accounts. It is important to take an initial deposit which will at least cover your disbursements.

It is therefore important that you are fully conversant with the law relating to the jurisdiction of the High Court and the Magistrate's Court. Certain matters can only be brought before the High Court whilst in other cases both the High and the Magistrate's Courts have concurrent jurisdiction (e.g. an application for the liquidation of a close corporation).

The last question to be answered is how you will approach the Court, i.e. by way of action procedure or application procedure. If you opted for application procedure, you must also determine whether you will use the long form of a Notice of Motion procedure or whether you will bring an employee ex parte application without notice. We will deal with this aspect when we look at the different matters which will be dealt with.

1.3

CLIENT'S INTEREST

After you have obtained his full name, address, marital status and have completed the Power of Attorney, you will be in a position to open a file.

1.2.

At the first consultation you should explain to the client what the consequences will be if he succeeds in obtaining the relief he seeks. Both the advantages and the disadvantages must be explained to him.

IDENTIFY THE PROBLEM

If you are dealing with a client who is going to apply for the voluntary surrender of his own estate, you must explain to him that if he succeeds, his status will be affected and he will be divested of his estate. Although in practice it would not be necessary for you to explain to the client all the effects of a sequestration or liquidation order, it is important that you as practitioner are fully informed of all those effects and you should be able to inform him of the particular effects which will relate to him personally and to his estate in general.

At your first consultation it is important, after you have obtained the formal information from the client, that you immediately identify the problem - i.e. what relief does the client seek. You will usually be approached by either the insolvent himself or by a creditor who wishes to apply for the sequestration or liquidation of a third party.

If your client is a creditor who wishes to apply for the sequestration or liquidation of a third party's estate, you must explain to him what the effects are of a winding-up order on a creditor's claim. Whenever an individual is sequestrated or a company wound up, any payment to creditors after winding-up, the obligation for which payment arises before sequestration, becomes void and may be recovered by the trustee or liquidator. All civil proceedings against an estate, for instance the recovery of debt, are suspended once the sequestration or liquidation has commenced. The creditors of the estate must wait until the estate has been wound up and then they are entitled to the amount due to them in terms of the estate account. You should also point out to your client that where there is no free residue in an insolvent estate, or where the free residue is insufficient to meet all the expenses, costs and charges of liquidation/ sequestration all creditors who have proved claims against the estate are liable to make good any deficiency.

In order to identify the problem, the following questions must be asked : What ? When ? Where ? How ? After the client has given you the factual background to his problem, you should be in a position to know what kind of relief he seeks - i.e. a voluntary surrender of his own estate, a compulsory sequestration or liquidation of someone else's estate, or a rehabilitation of himself.

The applicant, if he is a concurrent creditor, will always be liable for the contribution, if one is levied, and therefore, before bringing his application, he should ensure that there are sufficient assets to pay the sequestration costs.

In order to do so you, as attorney, must ensure that you fully understand the facts given to you and you should know the 8

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The sequestration costs are the Sheriff's charges, Master's fees, costs of sequestration or winding-up, costs of drawing up the 8

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1.4

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statement of affairs, remuneration of the trustees/ liquidators, all other costs of administration and costs of the surety bond by the trustees/liquidators.

or the obtaining of inflated valuations in order to comply with the element of advantage to creditors.

ETHICS

Where the attorney is appointed as trustee/liquidator of an insolvent estate, he receives his remuneration for his administration from the estate in terms of the statutory tariff applicable to his office and he is not entitled to charge fees for work which he does in his capacity of attorney, auctioneer and conveyancer.

The two main principles are "honesty" and "full disclosure". It is the duty of the practitioner to advise his client with scrupulous honesty and complete frankness. An attorney must not participate in or support his client in anything unlawful in which his client is engaged or contemplating. He must be careful to avoid in assisting in breaking the law and he must impress on his client the need to abide by the law : If the client persists, the attorney should refuse to continue to act. Even where the client's conduct is not illegal, but dishonourable, the attorney must have no part therein.

Where the client is the trustee and the attorney is handling the administration on his behalf, the fees which the attorney may charge must at all times be reasonable fees for the work done and the tariff of trustee's remuneration is an appropriate guide.

It has been stated on numerous occasions that the utmost good faith must be observed especially when bringing an Ex Parte application.

An attorney may not in any circumstances share his professional fees with a layman. It is also unethical to support a trustee in obtaining the appointment as such on the basis that he will in return for the support, instruct that attorney in attending to all transfers to be taken care of in winding-up the estate. The only charges made by an attorney, which may be shared, are commissions of various kinds such as those on property and other sales, insurance policies and mortgage loans. The limitation on sharing does not apply to a non-legal business carried on by an attorney quite separately from his legal practice. The converse situation where a commission property levied by a layman is shared with an attorney is entire permissible, subject however to all proper disclosures and approvals.

In no circumstances may an attorney attract professional work by way of financial inducement. The payment to a third party of commission in consideration of procuring work for the attorney, is improper.

The following principles prevail:

1.

In Ex Parte applications all material facts which may influence a Court in coming to a decision must be disclosed;

2.

The non-disclosure or suppression of facts need not be willful or mala fide to incur the penalty of rescission; and

3.

The Court, apprised of the true facts, has a discretion to set aside the former order or to preserve it (Schlesinger v Schlesinger 1979 (4) SA 342 (D) at 349A).

In Standard Bank of SA Ltd v Essop 1997 (4) SA 569 (D&C) the creditor and debtor entered into an agreement providing that he application for the sequestration of the debtor=s estate is postponed sine die but in the event of the debtor failing to pay the amount referred to in the agreement on due date, the creditor is entitled to reinstate the application for sequestration on the unopposed motion roll and to utilize the affidavit deposed to by the debtor in terms of which the debtor withdraws his opposition to the application and consents to a sequestration against public policy and therefore illegal and unenforceable.

1.5

ADVICE

TO QUOTE A FEW EXAMPLES:

Your client depends on you to offer him sound advice at all times. You are therefore obliged to advise him not only as to the correct procedure to be followed in order to obtain the relief he seeks, but also as to the economic implications of a sequestration/liquidation/judicial management/ rehabilitation order.

In the case of In re The Leydsdorp & Pietersburg (Tvl) Estates Ltd (in liquidation) 1903 TS 254 a final liquidation order was granted ex parte in the Transvaal Supreme Court. It appeared subsequently that, to the knowledge of the applicant, the company had also been registered in England and was in the process of being wound up in that country when the application was brought in the Transvaal. This fact was, however, not disclosed to the Court. Application was then made to amend the final order and to issue a rule nisi which could be served on the shareholders in England to ascertain their wishes and whether they had objection to the winding-up proceeding in the Transvaal. This relief was refused by the Court who held that had it known about the pending liquidation in England, it would not have granted an order winding-up the company in the Transvaal.

If your instructions are to apply for a sequestration or liquidation order in respect of a third party, you should point out to your client what the consequences of such an order will be, the dangers of a contribution being levied, and the fact that he may not be successful in recovering his debt. If your client is the insolvent himself, and you are doing a voluntary surrender, you must point out the consequences of him being sequestrated, that is it brings about a change of status, his estate will no longer vest in him but in his trustee, and that in normal circumstances he can only be rehabilitated after a period of 4 years.

SOURCE: LEGAL ETHICS BY E.A.L. LEWIS

In Barclays Bank v Giles 1931 TPD 9 it was held that the provisional sequestration would not have been granted if certain material facts had been disclosed and the order was accordingly discharged. In practice you will sometimes find that a sequestrating creditor comes to the assistance of a debtor by bringing a "friendly sequestration application" for the sequestration of the debtor's estate. The term "friendly sequestration" carries the implication that the main object of the creditor is to assist the debtor who wishes to avoid harassment by his creditors in having his estate sequestrated. The parties resort to this procedure in order to avoid the provisions of Section 4 of the Act, which provisions are designed to protect the interests of creditors. Although there is nothing sinister in a friendly sequestration, you as practitioner should refrain from assisting the applicant acting in collusion with the debtor. You should therefore ensure that an application for the sequestration of the debtor's estate does not amount to an abuse of the process of Court. Under no circumstances should the practitioner be a party to the creation of an act of insolvency under Section 8

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2.

INTRODUCTION TO THE LAW OF INSOLVENCY

2.1

WHAT DOES IT MEAN TO BE INSOLVENT:

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To ensure the equitable distribution of the debtor's assets amongst his/her/its creditors in accordance with the legal order of preference, thereby preventing a preferring of one creditor over another. To provide a mechanism for the orderly and efficient collection and realization of the debtor's assets and payment of his/her/its creditors by the appointment of an impartial trustee/liquidator whose duty it is to administer and wind-up the debtor's estate.

One is insolvent is one's liabilities, fairly estimated, exceed one's assets, fairly valued. Note that there is a difference between actual insolvency and commercial insolvency, which refers to an inability to pay debts. A company may be solvent on paper in that its assets exceed its liabilities but have a cash flow problem which renders it unable to pay its debts, ie be commercially insolvent.

2.2

To investigate possibly impeachable transactions entered into by the person/company with a view to setting aside dispositions/preferences/collusive dealings in terms of sections 26, 29, 30 and 31 of the Insolvency Act. (Note provisions in the Insolvency Act which empower the trustee and the Master to summon and interrogate persons about the affairs of the insolvent:- Sections 65 and 152 of the Insolvency Act and sections 415 and 417 of the Companies Act)

INSOLVENCY PROCEEDINGS AS THE ULTIMATE FORM OF EXECUTION / DEBT COLLECTION 2.5

INTERFACE BETWEEN INSOLVENCY LAW AND COMMERCE

A creditor who wishes to enforce payment of his claim after judgment has a number of remedies: Writ of execution;

Insolvency affects a number of commercial contracts, eg employment contracts, leases, sale of business, sales of immovable property, mortgage bonds, credit agreements.

Garnishee orders;

Study and understand the following sections of the Insolvency Act: 34, 35, 36, 37, 38, 84, 85 and 88.

Emoluments Attachment Orders Order of payment by Installments If none of these avail him/her, sequestration or liquidation proceedings are a further step in the execution process.

2.3

SOURCES OF INSOLVENCY LAW The Insolvency Act 24 of 1936 (as amended); The Companies Act 61 of 1973 (as amended); The Close Corporations Act 69 of 1984 (as amended) as read with the Companies Act; The common law; Decided cases; and With regard to practice and procedure, vide the Practice Manuals of the different divisions. Section 339 of the Companies Act makes the Insolvency Act applicable to the winding-up of Companies unable to pay their debts (in respect of any matter not specifically provided for by the Companies Act). Section 66(1) of the Close Corporations Act makes provisions of the Companies Act which relate to the winding-up of a company applicable to the liquidation of a Close Corporation. Thus section 66(1) of the Close Corporations Act, as read with section 339 of the Companies Act, makes the Insolvency Act applicable to the winding-up of a Close Corporation. (In respect of any matter not specifically provided for by the Companies or Close Corporation Acts.)

2.4

PURPOSE OF SEQUESTRATION / LIQUIDATION To bring about a concursus creditorum, literally a "coming together of creditors:, ie. a freezing of the debtor's estate. The rights of the general body of creditors have to be taken into consideration and it is not possible for one creditor to do anything, which would prejudice the rights of the general body of creditors.

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3.

VOLUNTARY SURRENDER

3.1

INTRODUCTION

3.1.1

Whereas an application for compulsory sequestration is made by one or more of the creditors of the debtor's estate, an application for the voluntary surrender of a debtor's estate is brought by the debtor himself. (See s 3 of the Insolvency Act with regard to other persons empowered to bring the application on the debtor's behalf.

3.1.2

The primary purpose of voluntary surrender is the benefit of the creditors and not the relief of the harassed debtor. For this reason the applicant for voluntary surrender must make out a stronger case than the applicant for compulsory sequestration - he must show that sequestration will be to the advantage of his creditors.

3.1.3

The applicant for voluntary surrender must be able to show that:

The statement of affairs attached to the application should show insolvency, but a resumé of the statement should be included in the affidavit. Causes of Insolvency - facts must be given to show that the applicant has by misfortune and without fraud or dishonesty on his part become insolvent, since the court will not come to the assistance of an applicant whose conduct is shown to have been dishonest or reprehensible. The liability of a surety and co-principal debtor is not contingent, unless the principal debt is itself contingent and therefore it follows that the obligations undertaken by the applicant as surety and co-principal debtor must be included among the applicant=s liabilities - Millman and Another NNO v Masterbond Participation Bond Trust Managers (Pty) Ltd (under curatorship) and others 1997(1) SA 113(C). 3.2.3

FORMALITIES that he has complied with all the formalities (when and how) viz :

He is factually insolvent (NB: He cannot rely on one of the acts of insolvency);

Publication of Notice of Surrender in Government Gazette and newspaper. [Sect 4(1)] - Form A in Schedule 1 to the Act

That there are sufficient assets in the free residue (Section 1) of his estate to defray all the costs of the sequestration;

Notice to Creditors - per registered post. [Sect 4(2)] (Annex a confirmatory affidavit by applicant's attorney stating that this has been done) with documentary proof (registered slips thereof)

That it will be to the advantage of his creditors if his estate is sequestrated; That all the formalities prescribed in the section 4 of the Insolvency Act have been complied with.

Completion of Statement of Affairs together with its annexures. [Sect 4(3)] and verified under oath by Applicant

3.2

ESSENTIALS TO BE DEALT WITH IN THE FOUNDING AFFIDAVIT

3.2.1

IDENTIFY THE APPLICANT(S)

Lodgment thereof with Master in duplicate (and Magistrate - where applicable) [Sect 4(4)& (5)] to lie open for inspection for 14 ordinary days. (Forms B in Schedule 1 to the Act).

[See definition of Adebtor@ in Sect 1]

Sworn valuation of Property, if so directed by the Master [Sect 4(4)]

Full names

Certificate of Master (and Magistrate) that statement of affairs has lain open for inspection for a period of 14 days [Sect 4(6)] with / without objection.

Occupation: Is he a trader? [Sect 1 read with Sect 4(1)] No security is to be lodged with the Master.. Jurisdiction: Domicile of debtor (business or residential address) [Sect 149(1)]: Nahrungsmittel v Otto 1991(4) SA 416(C); 1993(1) SA 639 (A).

3.2.4

SUFFICIENT FREE RESIDUE [Sect 6(1)]

Marital Status - to determine whether a joint estate is surrendered or not.

an averment that he owns realizable property of sufficient value to defray all costs of sequestration. sequestration In Gauteng the value of the free residue must be at least R10 000 to pay for the costs of sequestration. This amount is however adjusted from time to time.

Basis for making the affidavit (personal knowledge) - to show that it is not based on hearsay or other inadmissible advice. If married in community of property, both spouses are joined to the proceedings or if only one spouse acts as Applicant, then the other should give his/her written consent - Sect 17(4) of Act 88/1984. 3.2.2

NB - costs are paid out of free residue, being that portion of the estate which is not subject to any right of preference (Sect 2)

INSOLVENCY The Practice Manual (Par F[2]) of the TPD and WLD determines as follows: [Sect 6(1)]

To facilitate calculation of costs and of advantage to creditors, the following simplification will be allowed in every ordinary uncomplicated matter: ! Costs of the application will be assumed to be R3000 or if it is proved that no correspondent is involved, R2000. Proof of limiting costs is permissible, e.g. by the attorney limiting his fees or the applicant undertaking to claim costs as if no correspondent is involved.

That he is insolvent, i.e. his liabilities exceed his assets. The fact that he is commercially insolvent in the sense that he cannot pay his day to day debts, is not per se sufficient to obtain an order but it is one of the factors taken into account in determining whether the Applicant is de facto insolvent.

NB. - Applicant Applicant cannot rely on the Acts of Insolvency 8

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Those costs are assumed to increase by:

The onus of proving advantage to creditors in a voluntary surrender application is a more strenuous onus than that of proving advantage to creditors in a compulsory sequestration application - see Ex parte steenkamp 1996 (3) SA 822(W).

R400, 00 for a postponement/extension if costs are allowed R600, 00 if notice is given to creditors. !

Costs of administration may for convenience be taken to be:

3.2.6

APPLICANT'S SALARY OR INCOME

Fees (under Tariff B, schedule II of the Insolvency Act): subject to a minimum of R2500 (Gov Notice 323, Gazette 16293 of 10 March 1995): 1% on cash or money with financial institutions 3% on immovable property and shares 10% on movables including collected debts; plus VAT.

A statement of the amount of the applicant's saplary or other income if he is in receipt of such salary or income. income 3.2.7

PRAYERS That the voluntary surrender of applicant's estate is hereby accepted and his estate be sequestrated and placed in the hands of the Master of the Supreme Court;

Other administration costs: R300 for sheriff's fees; master's fees in terms of Schedule 3; costs of giving security; etc. 3.2.5

ADVANTAGE TO CREDITORS

that the costs of the application be costs of the sequestration (optional) - Sect 97(2)(c) and 97(3).

3.3

SUPPORTING DOCUMENTS

[Sect 6(1)] a statement that sequestration will actually be to the advantage of the general body of creditors, i.e. that there is a reasonable prospect that some pecuniary benefit will result to creditors. creditors A bold statement will not do - the actual advantage must be mentioned and explained in the affidavit. Distinguish between secured, preferent and concurrent creditors - the Court will accept that there is an advantage to creditors only if it is clear that concurrent creditors will also benefit. what those advantages are, e.g. : (They also apply to compulsory sequestration proceedings): that all creditors will receive a not negligible dividend in the event of the surrender being accepted whereas if it is not accepted, it is doubtful whether creditors will receive anything;

(to be annexed to Founding Affidavit - or under cover of a supporting affidavit of the the attorney who attended to the formalities) 3.3.1.

Tearsheets from Government Gazette and newspaper in which Notice of Surrender was published - only the full page constitutes a "tearsheet", the relevant part must be clearly marked.

3.3.2.

Copy of Statement of Affairs.

3.3.3.

Affidavit in respect of notice to creditors, including registered slips and copy of notices.

3.3.4.

Sworn valuation if required by Master.

3.3.5.

Certificate from Master and, where necessary, from Magistrate stating -

Insolvency will preclude one creditor (eg one that has already obtained judgment) from benefiting to the prejudice of others;

statement of affairs has lain for inspection;

there would be a benefit to creditors where a debtor, receiving a salary, undertakes to make part of his salary available for distribution to creditors. A statement of the amount of the applicant's salary. [Where a surplus of income is alleged (as being an advantage to creditors) his consent to deductions being made in favour of the trustee should be obtained. (Ex Parte Watson 1926 WLD 106; Ex Parte Veitch 1965(1)SA667(W) at 668)]

3.3.6.

If applicant is a partnership, resolution by partners or verifying affidavit of each partner.

3.3.7.

Report from Master, should he wish to make one (Cape practice).

The trustee could collect the book debts of the insolvent more effectively.

3.3.8.

If free residue consists of cash, certificate by Master that it has been deposited with him (FS practice).

The certainty that the Insolvent cannot contract further debts and so diminish his estate.

3.3.9.

Any other document referred to in Affidavit eg. writ of execution, or a summons or return of service.

The process of the administration of the estate may result in the acquisition of property for the benefit of creditors, egg. if the debtor has made payments which prima facie are defeasible as voidable or undue preferences.

3.4.

PROCEDURE

3.4.1

TAKING INSTRUCTIONS

whether objections have been lodged.

Deal with the Receiver of Revenue as a creditor of the insolvent estate - ie disclose whether taxes are owing to him or not. He is regarded as a creditor.

Draw up statement of affairs, verified under oath. Make copies thereof for Master (in duplicate), Magistrate (where applicable), Court, Counsel and to keep.

NOTE:

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COMPLY WITH STATUTORY FORMALITIES

3.4.3.

3.5.5.

Draft Notice of Surrender

3.6

Publish it in Government Gazette and relevant newspaper

3.6.1.

File and set down application according to existing practice of the Division.

GENERAL CALCULATION OF TIME

Lodge Statement of Affairs in duplicate with Master and Magistrate (if necessary)

Sect 4(1) "No more than 30 days and not less than 14 days before date of hearing"

Deliver or post by registered post copies of Notice of Surrender to all known creditors Obtain sworn valuations if required by Master

Count back from date of hearing, excluding date of hearing but including date of publication in Government Gazette, ordinary days, not Court days. Date of Application is date stipulated in the Notice of Surrender as the date on which application will be made to court for the surrender of the estate.

After 14 days uplift Statement of Affairs together with certificate of Master and Magistrate (where applicable).

Sect 4(2) "Within a period of 7 days"

PREPARE EX PARTE APPLICATION

Count on from date of publication in Government Gazette (not newspaper) including date of publication, ordinary days.

Draft Applicant's affidavit and attend to his signature thereon Sect 4(6) "for a period of 14 days" Draft supporting affidavit dealing with compliance with formalities and attend to signature thereof Includes the first day mentioned in the Notice of Surrender, as the date from which the statement of affairs will lie for inspection. (ordinary days)

Ensure that all necessary annexures are annexed to affidavit 3.6.2.

Draft notice of motion and affix R80 revenue stamp on original notice of motion

ADMINISTRATION ORDER Section 74 of the Magistrate's Court Act contains a similar but less expensive procedure where the Applicant's debts do not exceed R50 000.

Make copies for Master, Counsel, to keep (Court gets original) File application with Registrar and serve copy (with case number) on Master. 3.4.4.

BRIEF COUNSEL TO APPEAR

3.4.5.

ATTEND COURT

3.4.6.

UPLIFT COURT ORDER

3.4.7.

ADVISE YOUR CLIENT AND RENDER YOUR ACCOUNT

3.5

TIME LIMITS

3.6.3.

FAILURE TO COMPLY WITH SECTION 4(1) AND 4(2) Although the provisions of Sect 4 are peremptory (see however 3.2 infra), non-compliance can in certain instances be condoned in terms of Section 157(1). If a formal defect has not caused a substantial injustice, the procedural step in question is valid) TEST: Did it cause prejudice to creditors? If so, can it be cured by an appropriate order of Court eg. postponement linked to further publication of notice.

[Sect 4(1), 4(2), 4(6)] 3.5.1.

If not, the defect is fatal and cannot be condoned.

Publication of Notice of Surrender in Government Gazette and newspaper (circulating in the district where applicant resides or, if he is a trader, in the district where his principal place of business is or was situated) not more than 30 days and not less than 14 days before the date upon which application will be made to Court. A notice which is not published within these time limits, is invalid and consequently the application for voluntary surrender will be dismissed. See Ex Parte Oosthuysen 1995 (2) SA 694 (T) in which the Court refused to entertain an application for voluntary surrender where the Notice of Surrender was published 39 days before the Court date.

3.5.2.

Lodge Statement of Affairs with Master and Magistrate before or on date mentioned in Notice as from when statement will lie open for inspection.

3.5.3.

Statement must lie open for inspection for at least 14 ordinary days before hearing.

3.5.4.

Within 7 days after publication in Government Gazette the Notice must be delivered/posted to known Creditors, per registered post.

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With regard to the interpretation of section 157(1), vide Ex Parte Anderson 1995 (1) SA 40 (SECLD). Contra: Kritzinger v Moreletta Motorhawe-Projek 1994(2) SA 717 (T) - the periods laid down by sect 4(1) are not peremptory.

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ASSURANCE POLICIES

3.9

EXCURSUS: EXCURSUS: THE MATRIMONIAL PROPERTY ACT (No.88/1984)

3.9.1.

This Act envisages 3 types of marriages in community of property, viz -

th

For a summary of the provisions of SA Sect 39-44, see Hockly=s Insolvency Law, 6 edition by Sharrock R et all on p52). In Namibia Section 45(1) of the Long Terms Insurance Act, 1998 protects the first N$50,000.00 on any policy older than 3 years provided it has not been pledged or ceded as security) It provides in essence that a life policy, on own life which is three years or older on the date of sequestration of the estate of the policy holder does not fall into his estate. The intention of the Legislature is clear that only that portion of the actual value of the policy (ie the surrender value which exceeds R50 000 falls into the insolvent estate. The value of the policy is to be determined as at the date of sequestration - Sackstein en 'n Ander NNO v Smith en 'n Ander 1995 (4) SA 1029 (O). See also Brink v Kitshoff NO 1996(6) BCLR 752(CC) where it was held that Sect 44(1) and (2) of the SA Insurance Act, 1943 are invalid because they are unconstitutional.

Marriages entered into before 1 November 1984; Marriages entered into on/after 1 November 1984; Marriages entered into before 1 November 1984 where the spouses have caused the provisions of Chapters II and III of the Act to apply to their marriages.

3.7

CONSEQUENCES OF PUBLICATION OF NOTICE OF SURRENDER

3.7.1.

Sales in execution of property of Applicant's estate are stayed - Sect 5(1) - but a creditor may still attach the debtor's assets in execution. (The Master can authorize sale in execution of property worth under R5000. The Court can authorize sales of property worth in excess of R5000. In such cases the Master/Court will direct how the proceeds are to be applied.);

3.7.2.

Once published in the Government Gazette and newspaper, such notice cannot be withdrawn without the written consent of the Master - Sect 7(1);

3.7.3.

If debtor does not proceed with the Voluntary Surrender of his estate, such publication is regarded as an act of insolvency Sect 8(f).

3.7.4.

The Master can appoint a Curator Bonis to take control of the assets of the Applicant - Section 5(2). (Although he is not obliged to do so.);

3.7.5.

The Master may direct that a sworn valuation of any property be obtained - Sect 4(4).

In all 3 Categories Categories an application for the acceptance of the surrender of the joint estate must be made by both spouses - Section 17(4) of Act 88/1984.

3.7.6

The notice lapses if the Court refuses to accept the surrender or if the notice is withdrawn, or of the debtor fails to apply for surrender within 14 days after the advertised date (Sect 6 (2)).

See Detkor (Pty) Ltd v Pienaar 1991(3) 406(W)

3.8

EXCURSUS : VOLUNTARY SURRENDER OF A PARTNERSHIP

NOTE:

In terms of Sect 29 of the General Law Fourth Amendment Act 1993, sect 11 of the Matrimonial Property Act, 1984 has been substituted. The effect thereof is that the rule of the common law whereby a husband has the marital power over the person and property of his wife, is repealed. The effective date of the Act is 1 December 1993.

3.9.2.

Locus Standi:

See also Joinder of Spouse married in community of property

3.10

FLOW CHART

[Sect 3(2) and Sect 13 read with the definition of "debtor" in Sect 2] Take instructions from client to apply for the voluntary surrender of his estate. 3.8.1.

All partners who reside in the RSA must apply jointly, except partners en commandite (anonymous partners)..

3.8.2.

Each partner must at the same time apply for the acceptance of the surrender of his private estate, even if it is not insolvent.

3.8.3.

Notice of intention to surrender must be given in respect of each private estate as well as the partnership estate.

3.8.4.

Statements of affairs must be prepared and lodged in respect of each private estate and the partnership estate.

3.8.5.

All creditors of the partnership and of each partner must be notified of the application.

3.8.6.

The relief sought must refer to the sequestration of the partnership estate as well as the separate estates of the partners.

3.8.7.

No necessity to observe the requirements for the surrender of the individual partners' estates, apart from the procedural ones, since the sequestration of their estates is in any event compulsory under the Act.

Advise client on risks Take deposit of approximately R3000,00 Complete draft statement of affairs. Ascertain suitable date for application. Prepare notice of surrender for publication in Newspaper Government Gazette. Arrange for publication of notice of surrender. Finalize statement of affairs and have same signed and attested to, and make copies thereof.

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Hand in statement of affairs at Master's office (duplicate) and Magistrate's office, if applicable.

Domicile

Obtain tear sheets of newspaper and Government Gazette publication of the notice of surrender.

Marital status 3.11.2

Mail copies of notice of surrender to known creditors per registered post.

INSOLVENCY Actual insolvency. (Sect 6). Give short resumé of statement of affairs.

Prepare founding affidavit for applicant in support of application. 3.11.3

Uplift certificate by master that the statement of affairs has lain open for inspection.

CAUSES OF INSOLVENCY "By misfortune without fraud or dishonesty on my part"

Uplift similar certificate by magistrate, if applicable.

Annexure VII of Statement of Debtor's Affairs [Form B in First Schedule]

Arrange for signing and attesting of affidavit. 3.11.4

Complete Notice of Motion. (Ex parte)

PUBLICATION OF NOTICE OF SURRENDER Sect 4(1) read with Form A in First Schedule:

Affix revenue stamps

Government Gazette

Make three copies of complete application with annexures.

Newspaper

Serve application on master 3.11.5

NOTICE TO CREDITORS

File original with the Registrar.

[Sect 4(2)] Instruct Counsel to move and argue the application. Per registered post Attend Court. 3.11.6

STATEMENT OF AFFAIRS

Report to client Sect 4(3)(5) read with Form B in First Schedule: Uplift brief on pay Counsel Sworn valuation of property if required by Master [Sect 4(4)] Uplift Court order. Lodged for inspection as required Prepare Bill of Costs for taxation 3.11.7

CERTIFICATES BY

Ascertain who was appointed Trustee

[Rule of Practice]

Despatch consent to taxation (Rule 70(4)(b)) for signature by Trustee

Master

Submit Bill of Costs for taxation to Taxing Master

Magistrate (if applicable)

Submit taxed Bill to trustee for payment 3.11.8

Account to Client when payment is received

3.11

CHECK LIST OF MATTERS TO BE DEALT WITH IN FOUNDING AFFIDAVIT

3.11.1

APPLICANT

Sufficient free residue [Sect 6(1)] In Western Cape at least R10 000; In Gauteng see Practice Rule F2

3.11.9. Advantage to Creditors Full names [Rule 6] [Sect 6(1)] Occupation [Rule 6] 3.11.10 Prayers 8

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[Sect 6(1)]

EXAMPLE OF NOTICE OF SURRENDER OF A DEBTOR'S ESTATE

3.12

[SECTION 4(1), ACT 24 OF 1936]

NOTICE IS HEREBY GIVEN that application will be made to the Transvaal Provincial Division of the HIGH Court on TUESDAY, the 23rd JANUARY 1990 at 10:00 or so soon thereafter as the matter can be heard, for the acceptance of the surrender of ), a businessman the estate of CHARLES ROBERT STOREY, (id no: . . . . . . . . . . . . . . . ..), of 231 Leyds Street, Rustenburg, and that a statement of his affairs will lie for inspection at the office of the Master of the Supreme Court at Pretoria and at the office of the Magistrate, Rustenburg, for a period of fourteen days as from from the 29th DECEMBER 1989. FILED BY: KOOPMANS ATTORNEYS FOR APPLICANT 111 CHURCH STREET PRETORIA TEL 312.4640

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92 Showing that the debtor has taken a large sum of money with him / that the debtor was disposing of assets to realize money with which to get away / that after making an appointment to make payment of a debt he has departed without keeping the appointment.

4.

Debtor's original departure may be innocent, but he may thereafter form the intention to stay away to evade payment of his debts.

COMPULSORY SEQUESTRATION

Not essential for the debtor to leave the RSA - sufficient if he "departs from his dwelling" or "otherwise absents himself".

4.1

INTRODUCTION

The words "otherwise absents himself" suggests that a debtor can commit this act of insolvency by retiring within his dwelling and refusing to see his creditors.

An Applicant for the compulsory sequestration of a debtor's estate needs to show that:

What would one do about service of the application on the debtor where one is relying on section 8(a) and one is therefore unable to find him for the purpose of serving the application? - See sect 11(2).

∃ He has established a claim which entitles him to apply for he sequestration of the debtor’s estate;

4.2.2

"If a court has given judgment against against him and he fails, upon the demand of the officer whose duty it is to execute the judgment, to satisfy it or to indicate to that officer disposable property sufficient to satisfy it, or if it appears from the return made by that officer that he has not found sufficient disposable property to satisfy the judgment."

∃ The debtor is actually insolvent, ie. his liabilities, fairly estimated, exceed his assets, fairly valued;

Two separate acts of insolvency contemplated, one involving presentation of the writ to the debtor personally and the other not involving personal presentation of the writ to the debtor:

OR ∃

Where there is personal service of the writ on the debtor and presentation of the writ to the debtor, the debtor commits an act of insolvency where he fails, on the presentation of the Sheriff and demand for payment by the Sheriff, to pay the judgment debt and indicate to the Sheriff sufficient disposable property to satisfy the writ. Note: It is not sufficient for the debtor simply to fail to satisfy the judgment debt; he must also fail to indicate sufficient disposable property to satisfy the writ. But where the debtor says to the Sheriff in response to his demand for payment that he has no money, property or assets of any description, it would be superfluous for the Sheriff to ask him to point out any property.

The debtor has committed an Act of Insolvency.

∃ There is a reason to believe that it will be to the advantage of creditors if the debtor’s estate estate is sequestrated. 4.2

ACTS OF INSOLVENCY

4.2.1

SECTION 8(a)

SECTION 8(b)

Where there is no personal presentation of the writ to the debtor, the debtor commits an act of insolvency where it appears from the return of service of the Sheriff that he has not found sufficient disposable property to satisfy the judgment.

"If he leaves the Republic or being out of the Republic remains absent there from, or departs from his dwelling or otherwise absents himself, with intent by so doing to evade or delay the payment of his debts."

Note:

Need to prove:

The second act of insolvency can only only be committed where personal service of the writ on the debtor is not possible, ie. only when the first act cannot be established can the second one be committed. committed Beira V RaphaelyRaphaely-weiner & others 1997 (4) SA 332 at 338 EE-f).

absence/departure by the debtor; and intent to evade/delay payment of debts Need to be able to support one's averments with the fullest possible information regarding the movements and intention of the debtor since the onus is on the Applicant to establish the debtor's intent.

Meaning of "disposable property property" in section 8: Unlike the case in the Supreme Court and Magistrates' Court Rules, "disposable property" in section 8 of the Insolvency Act includes immovable property. property.

EXAMPLES:

The Sheriff must specifically ask the debtor to point out "disposable goods" and not "movable property". The Return of

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Service must not refer to movable goods but to disposable property of whatever nature.

The effect of the disposition is the only consideration.

"Disposable" does not include immovable property subject to a mortgage bond (unless the execution creditor is the mortgagee) since this property is not freely disposable. (Tewari v Secura Investments 1960 (3) SA 432 (N) - Mars 69).

Not enough to simply make the bald allegation of prejudice - must be able to show how the creditors are prejudiced or the nature of the disposition must be such that the reasonable person would draw the inference that it would prejudice the creditors.

The demand to satisfy the judgment debt must be made of the debtor, or his/her duly authorized agent. In considering whether the disposition has had the effect of prejudicing creditors it is not necessary to show that the disposition has the effect of rendering the debtor's estate insolvent, or more insolvent than it was. Standard Bank of SA Ltd v Court 1993(3) SA 286 (C) at 294I - 295G. [Note: If this was the case, you would have to show actual insolvency in order to establish an act of insolvency which negates the whole purpose of having acts of insolvency.] One does not have to make an assessment of the Respondent's assets and liabilities.

Note: not only the executing creditor can rely on the nulla bona return in sequestration proceedings. Any creditor can rely on the nulla bona obtained by another creditor provided that the other creditor remains unpaid at the time the application is lodged - Beira v Raphaely1997(4) Sa322(SCA) Raphaely-weiner and others 1997(4) If the nulla bona return is an old one (6 months or older) you must be able to allege and show facts which show that the debtor's position is unchanged, eg. that the particular judgment debt still remains unpaid and that his financial position has not improved at all.

What is required to be established is that having regard to all the surrounding circumstances the disposition has (or would have had if it had been done) the effect of prejudicing the Respondent's creditors. The only requirement of section 8(c) is that the "disposition" and the "prejudice" be sufficiently closely related in time and causality for it to be said that the prejudice was the "effect" of the disposition See Nahrungsmittel GmbH v Otto 1991 (4) SA 414 (C).

EXAMPLES

See judgment in Lorac (Pty) Ltd v Musa 1991 (1) SA 152 ZHC, for general law relating to nulla bona return, especially on 157G - 158C.

A debtor selling his immovable property for a price far below the market value when his financial position is precarious;

Any nulla bona return should contain the following statements:

A debtor who is experiencing financial difficulties/cash flow problems paying one creditor in full while failing to pay other creditors;

that the nature and exigency of the writ was explained to the Respondent; that the Sheriff demanded payment;

A debtor ceding his claim against one of his own debtors to one of his creditors as payment for his debt at a time when he is insolvent or unable to pay his other creditors.

that the Respondent failed to indicate disposable property sufficient to satisfy the judgment;

The renunciation by a debtor of an inheritance from a deceased estate could in particular circumstances amount to an act of insolvency as intended in section 8(c) - Boland Bank v Du Plessis 1995 (4) SA 113 (T).

or that the officer did not find sufficient disposable property to satisfy the judgment despite diligent search and enquiry. An applicant who seeks a provisional sequestration order on a nulla bona return should satisfy the Court that there is only one interested party, ie the Respondent against whom the order is sought and on whom the writ was served resulting in the nulla bona return - Ratilal v Dos Santos 1995 (4) SA 117 (W). Therefor where parties are married in community of property, the writ should be served on both of them. If he, however, only applies for the sequestration of one of such spouses, the writ having been served only on such spouse, then a provisional order of sequestration which might affect the rights of the other spouse, should not be granted automatically without notice to that spouse and joinder of in the application.

The passing and registration of a mortgage bond by a debtor over his immovable property to secure the debt of his business venture in favour of one of his creditors, at a time when the debtor was not paying creditors and when his business ventures were in financial difficulties - Fittinghof and Others v Stockton 1997(1) SA 535 (W). 4.2.4

SECTION 8(d)

If he removes or attempts to remove any of his property with intent to prejudice his creditors or to prefer one creditor above another.

Section 8 (b) requires personal service only and it does not state where such service has to take place See Beira v Raphaely-Weiner supra at 338 D 4.2.3

Intention of the debtor is important here.

SECTION 8(c)

Test of intention is subjective.

property rty which has or would have the effect of If he makes or attempts to make any disposition of any of his prope another. prejudicing his creditors or of preferring one creditor above another

Intention can be inferred from the surrounding circumstances.

Intention of the debtor is not relevant here.

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96 fails to apply for the acceptance of the surrender of his estate on the advertised date;

EXAMPLE

provided the Notice of Surrender has not lapsed or been withdrawn. A debtor removing valuable furniture and paintings from his house in the middle of the night / under suspicious circumstances for no apparent reason, leading to the inference that he intended to prevent these assets being attached by his creditors. 4.2.5

In deciding whether or not an error in the statement of affairs is material or not, regard must be had to the likelihood of prejudice to creditors.

Note:

SECTION SECTION 8(e)

If he makes or offers to make any arrangement with any of his creditors for releasing him wholly or partially from his debts. Essential to prove that the debtor made an arrangement for releasing him (wholly or partially) from his debts eg. offering to pay his creditors 50c in the Rand.

If you want to rely on any act of insolvency mentioned in 6.2 above, you need to act promptly because the notice of surrender lapses 14 days after the date on which the application for acceptance of surrender was to have been made and there can be no act of insolvency where a notice of surrender has lapsed. Sect 6(2)

Note: Asking for an extension of time within which to pay in full does not constitute and act of insolvency within the meaning of section 8(e). [If made in writing, however, such a request might constitute and act of insolvency in terms of section 8(g) - see Standard Bank of South Africa Ltd v Court 1993 (3) 286 CPD.] Before an act can amount to an act of insolvency under this section it must be indicative of the debtor's inability to pay his debts; so where an offer of settlement is made on the basis that the existence or extent of the debt is disputed or not admitted, such an offer would not amount to an act of insolvency since it does not appear there from that the debtor cannot pay his debts.

4.2.7

SECTION 8(g)

If he gives notice in writing to any one of his creditors that he is unable to pay any of his debts. Notice in writing of inability to pay debts. Does the section mean any one debt / all debts? Correct interpretation is any single one or more of the debtor's debts. See Optima Fertilizers (Pty) Ltd v Turner 1968 (4) SA 29 (D) at 32F - 33A and Court v Standard Bank of SA Ltd 1995 (3) SA 123 (A) at 133I - J.

Note:

Notice must be in writing - oral notice does not suffice. The notice must be given with the intention of giving notice of inability to pay debts; but such intention is inferred from the actual wording of the notice.

Where Where the debtor acknowledges that he owes the amount but offers a lesser amount by way of settlement, he commits and act of insolvency since he by implication acknowledges that he can not pay his debts.

The test is how the notice would be understood by a reasonable person in the position of the creditor to whom it is addressed. Does the recipient, as a reasonable person, understand the notice to mean that the debtor cannot pay his debts? Distinguish between unwillingness and inability to pay.

4.2.6

SECTION 8(f) The tenor of the notice must be construed as a whole and not according to the words relied on in isolation.

If, after having published notice notice of surrender of his estate which has not lapsed or been withdrawn in terms of section six or sub--section (3) of section four, or lodges, in terms of that sub sub--section, a seven, he fails to comply with the requirements of sub statement which is incorrect or incomplete incomplete in any material respect or fails to apply for the acceptance of the surrender of his estate on the date mentioned in the aforesaid notice as the date on which such application is made.

If the wording of the notice is unambiguous, the notice alone should be looked at and interpreted. If there is ambiguity, the surrounding circumstances may be taken into consideration when construing the terms of the notice. (Mars 75).

Three acts of insolvency are contemplated here. In determining whether or not a written notice constitutes a notice of inability to pay, the approach is to consider how the notice would be understood by a reasonable person in the position of the creditor to which it is addressed. To such reasonable person must be attributed knowledge of the relevant circumstances which would have been known to the creditor at the time. See Court v Standard Standar d Bank supra at 134B.

A debtor commits an act of insolvency if after publication of a Notice of Surrender, he: fails to lodge a statement of affairs with the Master; or

An application in terms of section 74 of the Magistrates Court Act 1944 for an Administration Order is an act of insolvency as contemplated in section 8(g) - Volkskas Bank v Pietersen 1993 (1) SA 312 (C).

lodges a statement which is incorrect or incomplete in any material respect; or

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Evidence of authority can be proved aliunde;

A request for time to pay a debt which is due and payable coupled with an undertaking to pay the amount due in installments will ordinarily give rise to an inference that the debtor is unable to pay the debt.

Where the Respondent's challenge to Applicant's authority is a weak one (eg a bare, tactical denial) a minimum of evidence will suffice to establish the existence of Applicant's authority.

"A request for time to pay the debt which is due and payable will ordinarily give rise to an inference that the debtor is unable to pay a debt and such a request contained in writing will accordingly constitute an act of insolvency in terms of section 8(g). This is particularly so where the request is coupled with and undertaking to pay the amount due and payable by way of installments." - Standard Bank of South Africa Ltd v Court 1993 (3) SA 286 (C).

Spouses In community of property before or after 1 November 1984 : no locus standi on his/her own. Since 1 December 1993 each spouse would need the written consent of the other spouse - Sect 17(1) Act 88/1984.

The Appellate Division (per Vivier JA) held in Court v Standard Bank 1995(3)SA 123 (A) at 134A - C as follows:

"Whether a particular notice is such as to constitute an act of insolvency within the meaning of S 8(G) depends on a construction of its contents, read as a whole. The question when considering the letter is not whether the debtor is in fact unable to pay or whether he is solvent or insolvent. Inability to pay must be distinguished from unwillingness to pay. If the debtor us merely saying that he is unwilling to pay, the letter does not constitute an act of insolvency." 4.2.8

Out of community of property: locus standi

NOTE:

SECTION 8(h)

If, being a trader, he gives gives notice in the Gazette in terms of subsub-section (1) of section 34, and is thereafter unable to pay all his debts.

effectt from 1 December 1993. The marital power principle has been abolished with effec (Sect 11 of Act 88 of 1984 read with Sect 29 of Act 132 of 1993)

Where a trader publishes a notice in terms of section 34 of intention to sell his business, all his liabilities become immediately due at the option of the creditor.

Provisional Liquidator of a company: company

If the trader is then unable to pay any of these debts, he commits an act of insolvency. [Note: must not be a mere unwillingness to pay, must be an inability to pay. Thus a disputed debt will not suffice.]

Needs the authority of the Court to bring legal proceedings. Companies Act Sect: 386 (5) read with 387 (3) and 361 (3).

The Court considers the trader's ability to pay at the time of an immediately after the notice (and not his capacity to pay once the business has been sold and the funds recovered.)

4.3

CONTENTS OF AFFIDAVIT

4.3.1

THE APPLICANT

(See Henochsberg's Commentary on these sections of the Companies Act and Meskin Insolvency Law at paragraph 6.14.1). Final Liquidator of a company: company In order to bring/defend legal proceedings in the name and on behalf of the company, the (final) liquidator needs the authority granted by meetings of creditors and members. Sect 386 (4) (a) read with sect 386 (3) (a) of the companies Act.

(Objective is to show that he has locus standi) Company or other legal entity -

Where the liquidator cannot obtain such authority from the creditors and members (e.g for reasons of urgency) or where there is a difference between the directions of creditors and members, the liquidator may apply to the Master for directions. Sect 386 (3) (a) read with sect 386 (4) (a) and sect 387 (2) of the Companies Act.

If the company is a juristic person, obtain and annex a resolution authorizing the proceedings and the signing of the affidavit by the deponent. State the capacity of the deponent and that he/she is duly authorized to bring the application.

Where the Master refuses to give such directions, the liquidator may apply to court for leave to bring/defend legal proceedings. (Sect 386 (5) read with sect 387 (3).

It has been held that ex post facto ratification is possible after a Respondent has objected that the proceedings in the name of the company are not duly authorized. See:

Provisional liquidator of a close corporation: corporation

Baeck & Co v Ltd van Zummeren & Another 1982 (2) SA 112 (W)

Needs the authority of the court: Sect 386 (5) and 361 (3) of the Companies Act read with sect 66 (1) of the Close Corporations Act (alternatively sect 66 (1) of the CC Act read with s339 of the Companies Act and s18 (3) of the Insolvency Act).

Merlin Gerin (Pty) Ltd v All Current Drive Centre (Pty) Ltd & Another 1994 (1) SA 659 (C) National Co-op Dairies Ltd v Smith 1996 (2) SA 717 (N).

Final liquidator of a close corporation: corporation

In Tattersall and Another v Nedcor Bank Ltd 1995 (3) SA 222 (A) the AD held that:

Needs the authority of creditors given at the second meeting of creditors, to bring/defend legal proceedings (sect 66[1] and 79(e) of the CC Act read with ss 386 (3)(a) and s 339 of the Companies Act and ss 73 (1) of the Insolvency Act). Where the liquidator is unable to get the requisite authority (because of urgency or a refusal by the creditors to give directions) the liquidator needs the authority of the Master (sect 66 (1) and s 79 (e) of the CC Act read with ss 364 (a) and 339 of the Companies Act and ss 73 (1) and 81 (3) of the Insolvency Act).

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Provisional Trustee of an Insolvent Estate: Estate

be domiciled within the jurisdiction of the Court;

Needs the authority of the court (s 18 (3) or the Insolvency Act). In motion proceedings the provisional trustee can simultaneously seek the authority to bring the proceedings concerned and the substantive relief sought.

be ordinarily resident within the jurisdiction of the Court; or

Final Trustee of an Insolvent Estate: Estate must have ordinarily resided within the jurisdiction of the Court at any time within 12 months immediately preceding date of lodgement;

Needs the authority of the creditors or the Master - s 73 (1) Insolvency Act. Commissioner of Inland Revenue - Sect 89(2) or 89 quat of the Income Tax Act, 58/1962

must be carrying on business within the jurisdiction of the Court; or

Address, occupation and marital marital status of Applicant. Applicant 4.3.2

must have carried on business within jurisdiction of Court at any time within 12 months preceding date of lodgement.

PERSONAL KNOWLEDGE Avoid hearsay evidence.

Nahrungsmittel GmbH v Otto 1991(4) 414(C); 1993(1) SA 639 (A) If hearsay evidence is used, supporting affidavit must be obtained from person who can give direct evidence thereof.

AIf the Respondent were not found to be ordinarily resident within the jurisdiction of the Court, the Court would more

readily exercise its discretion to refuse to grant a sequestration order on the ground that it would be equitable or convenient for the Respondents' estate to be sequestrated elsewhere.@

In urgent applications, statements of belief may be made provided the Applicant's source or ground for belief is set out. 4.3.3

THE RESPONDENT

4.3.5

LOCUS STANDI AS CREDITOR : A LIQUIDATED CLAIM WHICH HAS ACCRUED

Full names, date of birth and ID number, occupation and business and/or home address should be given [Sect 9(3))].

[Sect 9(1)]

Marital status of debtor and if the debtor is married, description of marital regime and the full name, date of birth and ID number of his spouse must also be given [Sect 9(3)]:

The amount, cause and nature of the claim against the debtor must be given. Applicant must fall within one of the following categories:

In all instances where the parties are married in community of property. an application for the sequestration of the joint estate is to be brought against and served upon both spouses, subject only to the proviso in s 17(4)(b) of the Matrimonial Property Act. See Ratilal v Dos Santos 1995 (4) SA 117 (WLD).

a creditor with a liquidated claim of not less than R100 - it must be a claim sounding in money and not eg. a claim for the transfer of property two or more creditors whose liquidated claims in the aggregate are not less than R200

married in community of property but wife is a public trader : joint estate must be sequestrated, and both spouses are joined in the proceedings. marital status unknown : Applicant must satisfy the Court that despite reasonable steps taken by him he was unable to establish whether the debtor is married in community of property or the name and address of his spouse [Sect 17(4)(b) Act 88/1984] - in this instance both spouses need not to be joined.

joint creditors in respect of one liquidated claim of not less than R100.

Note:

married out of community of property - spouses need not be joined, but it must be clearly stated that the Respondent and his/her spouse are married out of community of property.

∃

The minimum amount required must exist at date when application is lodged with Registrar, when provisional order is granted and when final order is applied for.

∃

proceedings. ings. It is Claim need not be due and payable at date of institution of proceed sufficient if the claim has accrued. [Sect 9(2)] Future rentals which will become due in terms of a lease agreement cannot be considered to be claims which have accrued. The lessor=s lessor s claim for each future month=s month s rental would accrue only when the lessor makes the leased premises available to the lessee on the first day of each month - Sanddune CC v catt 1998(2) sa450(se)

A trust is sequestrated not liquidated. One cites as trust as follows: "Respondent is the trustees for the time being of the WYZ trust..." JURISDICTION

4.3.4

[Sect 149] An averment that the Court has jurisdiction to hear the application, substantiated with facts. Respondent must at date of lodging the Application with Registrar own or be entitled to property within jurisdiction of the Court; 8

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102 be to the advantage of creditors".

∃

∃

∃

"Liquidated" means fixed and ascertained by agreement, judgment or otherwise. A disputed claim is not liquidated.

The words "reason to believe" show that the Applicant does not have to furnish positive proof of advantage to creditors - something less is required.

If the claim is ceded to Applicant he must state that fact and set out the nature of the claim before cession to enable the Court to decide if it was liquidated or not.

Advantage to creditors means advantage to the general body of creditors, not the advantage of one or of all the creditors. This means that there has to be advantage for the concurrent creditors, not merely for the secured of preferent creditors. In order for there to be an advantage to creditors, a pecuniary benefit in the form of a dividend, which is not immaterial, must be anticipated. There must be a reasonable prospect of a not negligible dividend - not necessarily a likelihood, but a prospect which is not too remote.

It is an abuse of process to use sequestration proceedings to enforce payment of the debt which which is disputed bona fide by the debtor on reasonable grounds (the onus being on the debtor to establish such a dispute). See Kalil v Decotex (Pty) Ltd & Another 1988 (1) SA 943 (AD) at 980. ∃

4.3.6

The averment must be supported by facts upon which this belief is based.

The right of creditors to hold an enquiry, interrogate the debtor and investigate his transactions is not enough in itself to constitute advantage to creditors - there must be a reasonable prospect that some pecuniary benefit will result to creditors from the enquiry.

For example where the estate of a surety was sequestrated, see: Louw v WP (KoÖperatief) Bpk 1998(2)sa 418 (sca).

The amount of R 5000,00 used to be the amount furnished to the Master to cover the costs of the sequestration. There was a practice in the former Transvaal (Practice Rule No J20 - quoted in Hillhouse v Stott 1990(4) SA 580 (W)) that no advantage to creditors was regarded as being shown unless it was demonstrated that the debtor possesses assets exceeding R 5000,00 in value. In the Cape there is a practice that there should be free residue of at least R 10 000,00 to show advantage to creditors. These amounts are adjusted from time to time. The Practice Manual (TPD and WLD) determines as follows in par FC2:

SECURITY FOR CLAIM [Sect 9(3)] Nature and value thereof must be disclosed - the fact that the applicant holds security does not deprive him of his right to apply for sequestration of the Respondent's Respondent's estate.

To facilitate calculation of costs and of advantage to creditors, the following simplification will be allowed in every ordinary uncomplicated matter:

Note the definition in sect 2 of security as meaning real security.

4.3.7

DE FACTO INSOLVENCY OR AN ACT OF INSOLVENCY

$

Costs of the application will be assumed to be R3000 or if it is proved that no correspondent is involved, R2000. Proof of limiting costs is permissible, eg by the attorney limiting his fees or the applicant undertaking to claim costs as if no correspondent is involved.

$

Those costs are assumed to increase by:

[Sect 9(1)] R400,00 for a postponement/extension if costs are allowed R600,00 if notice is given to creditors.

De Facto insolvency - i.e. his liabilities exceed his assets, supported by prima facie evidence thereof; or Act of Insolvency - (use wording of subsection) and state facts which give rise to the alleged act of insolvency.

$

Actual insolvency may be established inferentially - Absa Bank Ltd v Rhebokskloof (Pty) Ltd and Others 1993 (4) SA 436 (C) 4.3.8

Fees under Tariff B, schedule II of the Insolvency Act: subject to a minimum of R2500 (Gov. Notice 323, Gazette 16293 of 10 March 1995):

REASON TO TO BELIEVE THAT SEQUESTRATION WILL BE TO ADVANTAGE OF CREDITORS [SECT 10(C)]

1% on cash or money with financial institutions; 3% on immovable property and shares; 10% on movables including collected debts; plus VAT.

EXAMPLES:

Other administration costs:

The affidavit must contain an averment that there is "reason to believe that the sequestration will 8

Costs of administration may for convenience be taken to be:

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104 [Sect 9(4)]

R300 for sheriff's fees; master's fees in terms of Schedule 3; costs of giving security; etcetera. In the case of Nosworthy v Holiman 1993(2) SA 774 ECD, Jones J, referring to the former Transvaal practice rule, said that there is no magic in the figure of R 5000,00 in determining whether there is sufficient free residue so as to confer a benefit on creditors. "An adequate free residue will no doubt change from time to time and from case to case, and in each case the judicial discretion (whether or not to grant the sequestration application) must be exercised in the light of the facts and circumstances proved in the affidavits".

4.4

JOINDER

4.4.1

JOINDER OF SPOUSE MARRIED IN COMMUNITY OF PROPERTY Detkor (Pty)Ltd v Pienaar 1991(3) 406(W) [Full Bench Decision] Ratilal v Dos Santos 1995 (4) SA 117 (W) Effect of Chapters II and III of the Matrimonial Property Act, 1984 - marital power is abolished and the husband is no longer the sole administrator of the joint estate;

In the case of Millman NNO v Masterbond Participation Bond Trust Managers (Pty) Ltd (under Curatorship) and Others 1997 (1) SA 113 (C) it was decided that the liability of a surety and coprincipal debtor is not contingent, unless the principal debt is itself contingent and therefor it follows that the obligations undertaken by the Insolvent as surely and co-principal debtor must be included among his liabilities and therefore taken into account in determining whether there is an advantage to creditors.

If it was not for the proviso to Section 17(4) of the Matrimonial Property Act, failure to cite a wife whose matrimonial regime is governed by Chapters II and III would automatically result in a plea of non-joinder being successfully raised. In order to avoid a plea of non-joinder, one has to satisfy the Court that the Applicant has taken reasonable steps to establish whether Respondent is married in community of property and has been unable to do so; The drastic nature of the changes in terms of the substantive law brought about by Chapters II and III render compliance with the procedural requirements of Section 17(4) of the Act peremptory; ie where a debtor is married in community of property, both spouses have to be joined as Respondents in an application for the sequestration of the joint estate.

The assets of the Respondent have been attached at the instance of one judgement creditor and will be sold in execution shortly. That the Respondent has concealed assets which a Trustee will be able to investigate, find and realize.

Any sequestration application will thus fail where Applicant merely states that marital status of Respondent is unknown to him. It must be clear from the papers that there is not another interested party in the form of a spouse married in community of property.

That although the Respondent in insolvent there are considerable assets in the estate which could be realized and the proceeds distributed to creditors.

It is implicit in the very wording of the proviso to sect 17 (4)(b) of the Matrimonial Property Act, 1984 that, where a sequestration order has been issued against a person who is married in community of property despite non-compliance with the provisions of Sect 17 (4)(b), the order is not per se invalid. - Absa Bank Ltd t/a Trust Bank v Goosen 1998(2)SA 550(W).

The prospect of an immediate dividend as opposed to a long wait for payment. That the Respondent has preferred one creditor or made a disposition without value and therefore a Trustee should investigate the transaction and possibly set it aside.

4.4.2

JOINDER OF MULTIPLE RESPONDENTS IN A SEQUESTRATION APPLICATION It has been held in a number of cases that it is undesirable to join more than one person as respondent in an application for sequestration, even where the persons are jointly and severally indebted to the applicant. See Caltex Oil (SA) (Pty) Ltd v Govender=s Full Distributions 1996 (2) SA 552 (N) at 556 E and 557 (A). Naturally this does not apply where two spouses are married I community of property. In that case both spouses must be joined as respondents in an application for the sequestration of their joint estate.

That the affairs of Respondent be investigated by an impartial trustee with a view to an equitable distribution of residue. Possibility that Insolvent may dispose of assets to prejudice creditors is minimized. assets of Insolvent are liquidated and proceeds made available for distribution. 4.3.9

SECURITY FOR COSTS

4.5

SUPPORTING DOCUMENTS

4.5.1

If Applicant is a legal entity, a Resolution to the effect that the application has been authorized by that legal entity and that it has appointed someone to act on its behalf in such proceedings.

4.5.2.

Master's written consent (where necessary) (vide supra at iii 1).

4.5.3.

Original Practice rule J1 return of service (or copy thereof) if Applicant relies on a nulla bona return.

4.5.4.

Original written notice of inability to pay [Sect 8g] (or certified copy thereof)(if applicable) and if it is hand-written, a typed copy thereof (Practice Rules/TPD & WLD).

4.5.5.

Master's Certificate that security has been founded, need not be attached to the affidavit when it is served. It must, however, be filed before the application is heard. Court v Standard Bank of SA Ltd 1995 (3) SA 123 (A).

4.5.6.

Master's Report [Sect 9(4)] if he wishes to make a report - this is not attached to the affidavit but is filed with the Registrar in the

[Sect 9(3)] A security bond is always lodged - if there is no certificate from the Master filed of record when the application is heard whereby it is certified that security has been lodged, the application is fatally defective. The Master's security certificate does not have to be annexed to the papers when the application is issued; not does it have to be served with the application on Respondent. What matters is that it should accompany the application when it is heard by the Court. See Court v Standard Bank of SA Ltd 1995 (3) SA 123 at 131B - E. Master's certificate re security must be given not more than 10 days before date of signing of Notice of Motion. 4.3.10

THAT A COPY OF THE APPLICATION WILL BE LODGED WITH THE MASTER

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Court file. It must be in the Court file when the application is heard.

4.7.2

Registrar must transmit one original to -

4.6

NOTICE OF MOTION

Master

4.6.1.

Use Form 2(a) (long form) See Rule 6(5)(d)(ii) for wording

Sheriff of every district in which Respondent resides or owns property

4.6.2.

Short Form (Form 2) only to be used in urgent applications; where (in Gauteng and KwaZulu-Natal) applicant relies on nulla bona return [Ratilal v Dos Santos 1995 (4) SA 117 (W)] and (in FS) where there is clear documentary proof of an act of

every Registrar of Deeds

insolvency in terms of Sect 8(c). If return is older than 6 months, service on the Respondent in the usual manner is required.

every office having charge of a register of ships kept at a port of registry in the RSA

4.6.3.

In the Western Cape one may always use the short form (Form 2) of Notice of Motion.

every Sheriff who holds under attachment any of the Respondent's property.

4.6.4.

Notice of Motion (Form 2(a) and Ex parte application (Form 2) to be signed by Attorney and Registrar.

4.7.3

Master must give notice in the Government Gazette of the provisional sequestration.

4.6.5.

Contents of Notice of Motion

4.7.4

Extension of Rule Nisi will be allowed only if an affidavit by attorney has been timeously filed, explaining reasons and need for extension. [Practice Manual TPD and WLD - par FC4]. In Stander vs Stander 1997(3)SA922 (C) it was decided that whenever a Rule Nisi is extended because there was late or defective service thereof on the respondent, or late or defective notice was given to interested parties, it is necessary for the respondent and the interested parties to be given notice of the extension of the return day so that they are aware of the date on which the case will be heard and so that they can decide whether they wish to give reasons on the return day why the order sought by the applicant should be granted or not. In "friendly" sequestrations, the Court may lean towards discharge of the rule rather than confirming it, or granting an extension.

Date and time of hearing

4.7.5

The sequestration order must also reflect the particulars that appear in the heading to the Notice of Motion [Sect 9(3)(d)]

Prayers

4.7.6

A provisional order of sequestration is not appealable - Moch v Nedtravel (Pty) Ltd t/a American Express Travel Service 1996 (3) SA 1 (A). The dismissal of an application for provisional sequestration is likewise not appealable - Gottschalk v Gough 1997(4) SA 562 (C).

4.8

INTERVENTION : MUST PROVE A DIRECT AND SUBSTANTIAL INTEREST IN THE MATTER BEFORE THE COURT

[Rule 6] The heading should also reflect the full name, date of birth and ID number of the Respondent debtor, and if he is married, the full name, date of birth and ID number of his spouse -[Sect 9(3)(c)] - and if the Applicant is unable to do so, he must state the reason why he is unable to do so.

Urgency (if applicable) Provisionally sequestrating estate of Respondent Rule nisi (if applicable)

Fullard v Fullard 1979 (1) SA 368 (T) Storm v Storm and Volkskas Ltd v Storm 1973 (2) 382 (T)

Service 4.8.1

Costs

A creditor may intervene -

Reference to deponent of supporting affidavit

to have the provisional order set aside; or

Address where applicant will accept service [Rule 6(5)(b)] (Long Form)

to apply for a fresh order in his own right and name if applicant fails to proceed.

Last day for service notice of intention to oppose (Long Form)

4.8.2

If applicant does not proceed, the existing provisional order cannot be confirmed at the instance of the intervening creditor - it must be set aside and the intervening creditor must apply afresh and make out its own case for a provisional order. The intervening creditor must furnish security etc as if he had originally been the applicant, but he can rely on facts which appear from the record in the existing proceedings.

4.8.3

A creditor wishing to oppose an application by the sequestrating creditor to discharge a provisional order must show some substantial reason for his opposition.

4.9

URGENT APPLICATIONS

Statement to the effect that replying affidavit must be filed within 15 days of date of service of notice of intention to oppose (Long Form) Respondent must furnish address for service of documents (Long Form) Date of hearing if no notice of intention to oppose is received (Long Form)

4.7

PROVISIONAL ORDER OF SEQUESTRATION

[Rule 6(12)]

[Sect. 17] 4.7.1

4.9.1

Short form may be used (ex parte application). It must however contain a prayer that the Court is requested to deal with the matter by way of urgency, and in most cases it will also be necessary to ask for a rule nisi to be issued, linked to a return day. In the Cape where all sequestrations may be brought using the short form, it is not necessary to include an urgency prayer (unless the matter is being brought on shorter notice than the normal set down before but one.)

Must be served on Respondent by the Sheriff.

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108 Vermeulen v Hubner, case no. 11655/90 (TPD), judgment given on 12 September 1990.

4.9.2.

Service of notice of motion only to be dispensed with where there is a possibility of irreparable loss to applicant, but this must be explained in a supporting affidavit. [Practice Rule F2.2] Practise in Gauteng is that even in those cases, service should still take place albeit short and even informal service. [Practice Rule F2.2]

Craggs v Dedekind 1996 (1) SA 935 (C) Ex Parte Steenkamp 1996 (3) SA 822 (W)

4.9.3.

In the Cape service may be dispensed with where applicant relies on section 8(b) or section 8(g) of the Insolvency Act, or where the court is satisfied that this would be in the interests of the respondent or of creditors. [Court Notice No 15]

4.9.4

Execution creditor's attorney must also be notified of the urgent application and the papers served on him if object of application is to stop a sale in execution. [Gauteng Practice Rule O.5] This is not Cape practice.

4.9.5.

Grounds for urgency and degrees of Urgency: See Luna Meubelvervaardigers 1977 (4) SA 135 (W); Republikeinse Publikasies Bpk 1972 (1) SA 773 (A).

Baartman v Baartman and Another; Van Jaarsveld v Roebuck; Van Aardt v Borrett 1996 (1) SA 935 (C) Van Eck v Kirkwood 1997 (1) SA 289 (SE) Beinash & Co v Nathan (Standard Bank of SA Ltd intervening) 1998(3) SA 540 (W)

4.9.6.

Must be set down for 10:00 or 11:00 or 14:00 on Tuesday to Friday and if not possible, arrange with Registrar a time which will suit judge. [Practice Rule O2.1 and O2.2] In the Cape a matter may in the normal course be set down before 12:00 on the day before but one. Urgent applications may be set down on shorter notice.

4.9.7.

Certificate of Urgency only necessary if matter must immediately be heard on viva voce evidence. [Practice Rule 0.4] (This is not Cape practice)

4.10

Hillhouse v Stott Sworn valuations must be attached giving value of property if sold on a forced sale. Free residue of R8000 is not enough - it will only cover administration costs and there is therefore no good reason to believe that sequestration will be to the advantage of creditors. Some substantial (not negligible) pecuniary benefit will result to creditors, i.e. a substantial dividend must be paid out.

PARTNERSHIPS

Vermeulen v Hubner

[Sect 13]

Compulsory sequestrations are for use by Creditors - a friendly sequestration should actually be a voluntary surrender and should therefore comply with Section 4.

4.10.1. Private Estates of partners can be sequestrated without a partnership sequestration.

Applicant must supply a statement of affairs of Respondent. [Form B, Schedule 1]

4.10.2. If the Partnership Estate however is sequestrated, the separate estates of the Partners must simultaneously be sequestrated. [Sect 13(1)]. All the individual partners must be cited as co-respondents.

Respondent must verify it under oath.

4.10.3. If one of the Partners is a Company, the Court will only sequestrate the estates of the other partners but will not liquidate the Company.

Applicant must obtain a complete list of Respondent's creditors, verified by Respondent under oath.

4.10.4. Test in respect of "benefit for creditors" is whether the sequestration of the partnership estate would be to the advantage of the partnership creditors.

Applicant must notify each creditor per registered post, at least 10 days before the hearing of the application, of the date and place of hearing.

410.5.

Craggs v Dedekind

The estate of a dissolved partnership is also capable of being sequestrated.

4.10.6. A firm by its nature cannot be sequestrated if the Court does not know who the partners are.

Sufficiently detailed evidence must be produced to satisfy the Court that the Applicant indeed has a claim against the Respondent (eg in the case of a loan; a paid cheque, documentation showing a withdrawal from a bank account or a deposit into Respondent's account at the time the loan is alleged to have been made.)

4.10.7. A partnership where there is not a single natural person who is a partner, cannot be sequestrated. 4.10.8. If one partner has already passed away, notice of the proceedings must be served on his executor and on all co-partners.

Sufficient details of the assets of the Respondent and how Applicant arrived at the estimated value thereof, so the Court can determine whether there will be advantage to creditors.

4.10.9. If applicant relies on an act of insolvency it must be one committed by a partner in his capacity as such and not in respect of his own estate.

Must not be flimsy and inconclusive evidence; affidavits must not lack particularity.

4.10.10.If a man or woman married in community of property is a partner, his or her joint estate must be sequestrated simultaneously with the co-partner's estates and the partnership estate.

Court found practice in regard to applications for friendly sequestrations needed to be tightened up and that Court needed to concern itself with the interests of creditors in friendly sequestrations.

4.10.11. A partner may avoid having his private estate sequestrated if he undertakes to pay the debts of the partnership and puts up security for such payment. [Proviso to S 13(1)]

4.11

Ex Parte Steenkamp What is required in regard to the valuation of the movable assets is a valuation as on a forced sale.

FRIENDLY FRIENDLY SEQUESTRATIONS See:

8

With regard to immovable property, liabilities owing on the mortgage bond (including arrear interest) need to be disclosed.

Hillhouse v Stott 1990 (4) 580 (W)

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110 For the rest of the exceptions, see Smith pages 92-100

With regard to insurance policies, regard must be had to s39 of the Insurance Act which protects up to R30 000,00 of the policy monies.

Once a sequestration order has been issued, as soon as any Sheriff of the Court whose duty it is to execute a judgment given against the insolvent becomes aware of the order, the execution shall be stayed (unless the Court orders otherwise - section 20(c)).

Although there is authority that a court's discretion, to refuse a sequestration order where an act of insolvency has been committed, is very narrow, the court still has that discretion where the free residue in the estate appears to be insufficient to pay the costs of sequestration or to provide a dividend for creditors (829B - C). 4.12.2

ON THE PROPERTY OF THE INSOLVENT'S SPOUSE

Van Eck v Kirkwood

See De Villiers NO v delta Cables (Pty) Ltd 1992(1) SA 9 (A) and also Harksen v Lane NO and Others 1998(1) SA 300(CC).

The Court must guard against there being collusion between the applicant and the respondent. The Court should ensure that the Afriendly creditor@ does not obtain an order which cannot be said to be in the interests of creditors and accordingly the allegations made in regard to this issue should be closely scrutinized.

In terms of section 21, the property of the solvent spouse (who is married to the insolvent out of community of property) vests in the insolvent's trustee and the trustee is empowered to deal with such property as if it were the property of the insolvent, subject to the further provisions of section 21.

Beinash v Nathan The trustee must release to the solvent spouse the property referred to in section 21(2), notably property proved to have been acquired by that spouse by a valid title against the creditors of the insolvent.

Whereas a Court may be circumspect in assessing the evidence adduced in support of an application for sequestration where the application is a Afriendly@ sequestration it cannot infer that there is collusion between applicant and respondent without evidence of collusion where the requirements for the application have been satisfied.

4.12

Where the solvent spouse claims as her own property which has vested in the trustee, she/he must apply to the trustee for the release of such property - ie the onus is on him/her to furnish proof to the satisfaction of the trustee that the property is his/hers (see section 21 (2)).

EFFECTS OF SEQUESTRATION

Should the trustee refuse to release any property claimed by the solvent spouse, she/he may apply to Court for an order releasing such property / an order staying the sale of such property / or if property sold already for an order that the proceeds should be paid to him/her (section 21(4)).

4.12.1. ON INSOLVENT'S PROPERTY The insolvent is divested of his estate which vests in the Master and later when a trustee is appointed, in his trustee. It is the trustee's task to realize his assets and distribute the proceeds to his creditors in accordance with the legal order of preference. The insolvent's estate consists of all his property as at the date of sequestration. Not only the property of the insolvent as at the date of sequestration vests in the trustee, but also all property subsequently acquired by or accruing to the insolvent during the sequestration. There are several important exceptions to the rule that all the insolvent's property vests in his trustee:

It is not necessary that the solvent spouse first obtain the trustee's decision in terms of section 21(2) before applying to court under section 21(4): she may apply directly to court under section 21(4) for relief. Hawkins v Cohen 1994(4) SA 23(W). 4.12.3

ON THE INSOLVENT PERSONALLY See section 23 on the rights and obligations of the insolvent during sequestration.

Section 23(9) provides that the insolvent may recover for his own benefit the remuneration for work done or professional services rendered by him after the sequestration of his estate. This right to receive remuneration is, however, subject to the provisions of section 23(5) which provides that the trustee shall be entitled to any monies received by the insolvent as remuneration for employment which in the opinion of the Master is not necessary for the support of the insolvent and those dependent on him.

Section 23(2) provides that the fact that a person entering into a contract is insolvent shall not effect the validity of that contract, provided that: the insolvent does not thereby purport to dispose of property of his insolvent estate, or;

In terms of section 23(7), the insolvent may recover for his own benefit any pension monies to which he may be entitled. (Various other statutory enactments also protect pension monies in the case of insolvency).

the insolvent does not enter into any contract which might adversely affect his estate without the consent, in writing, of his trustee.

In terms of section 23(8) the insolvent may recover for his own benefit any compensation for any loss/damage, whether sustained before or after sequestration, by reason of any personal injury or defamation. The word "recover" is not limited to compensation recovered by means of legal process and the subsection also applies to damages awarded prior to sequestration - Santam Ltd v Norman and Another 1996 (3) SA 502 (C).

An insolvent may during his sequestration follow a profession / engage in an occupation, but he may not without the written consent of his trustee carry on, or be employed in any capacity or have any direct or indirect interest in, the business of a trader who is a general dealer or a manufacturer. The insolvent is entitled to keep as much of his salary or remuneration earned from employment while sequestrated which, in the opinion of the Master, is necessary for the support of the insolvent and his dependents (sections 23(5) and 23(9)).

The wearing apparel and bedding of the insolvent, his household furniture and tools and other essential means of subsistence (or such part thereof as the creditors may determine) are excluded from the estate and the insolvent is allowed to retain such property for his use. (Sect 82[6])

As to the rest of the insolvent's rights, see section 23. Prior to sequestration, an Insolvent had full locus standi. His capacity to litigate affected only to the extent provided for in Sect 23 but those specific circumstances recognized in Sect 23 are not exhaustive. The Insolvency act nowhere specifically deprived an Insolvent of locus standi. In the absence of such provision, an Insolvent retains the general competency to sue and be sued and therefore he is quite entitled to bring an application for mondament van spolie - Marais v Englen Earthworks (Pty) Ltd 1998 (2) SA 450 (ECD). 8

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Once the insolvent has been served with a copy of the final order of sequestration in terms of section 16(1), he is obliged to deliver to the Sheriff all books and records relating to his affairs which have not yet been taken into custody by the Sheriff in terms of section 19(1) (ie when the Sheriff has served the provisional order on him).

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112 4.13.3. The respondent

The insolvent is obliged within 7 days of service on him of the final order to lodge with the Master a statement of his affairs as at the date of the sequestration order, framed in accordance with the prescribed form.

4.13.4. Jurisdiction

The insolvent's spouse must also lodge such a statement of affairs with the Master (section 16(3)).

4.13.5. Locus standi - creditor, amount, cause, nature of claim

Within 14 days from the appointment of a trustee, the insolvent must:

4.13.6. Security for claim 4.13.7. Insolvency

Deliver to the trustee any property belonging to the estate in his possession.

Act of insolvency

inform the trustee of the existence and whereabouts of any property belonging to the estate not disclosed in the statement of affairs or not already in the possession of the trustee. deliver to the trustee books and documents in his possession/under his control relating to his affairs/inform the trustee of the whereabouts of such books if not already in the possession of the trustee. The insolvent must at any time after the sequestration of his estate furnish to his trustee, at the trustee's request, complete and truthful information regarding property in his possession or which he has disposed of/ceased to possess.

De facto insolvency 4.13.8. Advantage to creditors 4.13.9. Security for costs 4.13.10. Copy of papers to the master

The insolvent must attend the first and second meetings of creditors.

4.13.11. Prayers

The insolvent must keep the trustee informed of his residential and postal address.

4.14

FLOW CHART

[Note: For a complete and comprehensive exposition of the insolvent's rights and obligations see Smith p 100 - 107] 4.12.4

Take full instructions from client to apply for this sequestration of the Respondent's estate and give special attention to the the following :

ON CIVIL PROCEEDINGS

Whether the Applicant has locus standi.

Civil proceedings instituted by or against the insolvent are stayed on sequestration until the appointment of a trustee (section 20(1)(b)) with the exception of such proceedings as the insolvent is entitled in terms of section 23 to institute for his own benefit or which may in terms of section 23 be instituted against the insolvent. (See in this regard sections 23(6), 23(8) and 23(10).)

Whether the Court has jurisdiction over the Respondent. What Respondent's Marital Status and Matrimonial Property system is.

If a person suing the insolvent wishes to continue the proceedings he must within three weeks from the first meeting of creditors notify the trustee to that effect and prosecute the proceedings after the expiration of three weeks from the date of the notice (section 75(1)), failing which the proceedings shall lapse (provided that the Court in which the proceedings are pending may permit the proceedings to be continued even though the requisite notice was not given if it finds that there was a reasonable excuse for such failure).

Whether the Applicant holds any security for his claim. Whether there is any advantage to creditors. Whether there is a sufficient free residue to cover the costs of sequestration

The trustee may engage the services of an attorney and Counsel for the institution / defence of any legal proceedings on behalf of the estate, and the costs will be included in the costs of the sequestration of the estate, provided that the trustee has been authorized by the creditors or by the Master (section 73(1)).

Advise client on risks. Take deposit from client of approximately R10 000,00. (Especially if your firm furnishes security on behalf of the Applicant.)

It is customary to have a standard clause in the resolutions passed at the second meeting of the creditors authorizing the trustee to conduct legal proceedings on behalf of the estate.

4.13

Give security [section 9(3)]

CHECK LIST

Draft affidavit for applicant with the aid of the check list.

4.13.1. The applicant

Arrange for attesting of the affidavit.

Company or other legal person

Draft Notice of Motion

Natural person

Uplift certificate by Master that security has been furnished (Certificate to be dated not more than 10 days before date of Notice of Motion).

4.13.2. Personal knowledge

Make adequate copies of application and annexures 8

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(original +4).

Draft Bill of Costs for taxation.

Affix stamps to original (R80)

Ascertain who was appointed as provisional/final trustee.

Arrange for personal service on Respondent - subject to an order authorizing substituted service, personal service is required because the relief claimed will affect the Respondent's status - [Practice Manual (TPD and WLD) par CB4]

Dispatch consent to taxation [Rule 70(4(b)] for his signature. Submit bill of costs for taxation.

Serve on Master Claim costs from Trustee and account to client. File application with Registrar Ascertain that return of service is correct / draft affidavit of service if someone other than the Sheriff served the application on Respondent.

4.15

CAUTIONARY NOTES ON PROCEDURE Be sure to check the Court Practice Notes of your particular division regarding:

Uplift Master's Report and file it with Registrar (if applicable).

manner and timing of service of provisional sequestration

Pay Deputy Sheriff for service (if applicable)

manner and timing of publication of provisional order in newspaper / government gazette.

Give instructions to Counsel and deliver brief.

When you extend the Rule Nisi, you must give notice of the extended return day to the respondent and interested parties. Allow sufficient time for the sheriff to effect service. Stander vs Stander 1997 (3) SA 922 (C).

Enrol matter if no notice of intention to oppose is received. (Long Form) Set the matter down the day before but one (Cape practice). Attend Court when rule nisi issued - provisional order is usually granted for a return day +4 weeks away. Report to client. Uplift brief and pay Counsel. Uplift provisional sequestration order from Registrar. Make copies and arrange for service of provisional sequestration order on Respondent by the Sheriff. Ascertain that return of service for provisional sequestration order is correct and peruse inventory complied by Deputy Sheriff. If the Court ordered notice to creditors by registered post, make sure this is done. Make sure that original provisional sequestration order and original return are in Court file. File an affidavit confirming notice sent to creditors. Annex registered post slips to affidavit. Pay Deputy Sheriff for service. Give instructions to Counsel to appear on return date and deliver brief. Attend Court when provisional order is confirmed. Report to client. Uplift original Order. Uplift Counsel's brief and pay him.

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115 COURT 5 MOTION IN THE HIGH COURT OF SOUTH AFRICA (WITWATERSRAND LOCAL DIVISION) In re: Ex parte application of XYZ (PTY) LTD

116 and SANDTON FURNISHERS

Applicant

and DAVID WRIGHT ID 56012 5074 006

Third Respondent

(3)

Specifying the form of service of the said Orders on all the Respondents.

(4)

Cost of suit.

(5)

Such further or alternative relief as this Honourable Court may deem fit.

First Respondent

and CHRIS LESCH ID 620222 620222 0163 089

Second Respondent

TAKE FURTHER NOTICE that the affidavit of NORMAN COHEN annexed hereto, will be used in support thereof. KINDLY place the matter on the roll for hearing accordingly. DATED at PRETORIA on this

and DAVID WRIGHT and CHRIS LESCH trading in co-partnership as (a)

_______________________________ Attorneys for Applicant WEAVIND & WEAVIND INC Third Floor, Nedbank Building 200 Andries Street PRETORIA Ref: LE ROUX/lvdm

DELMAS FURNITURE MANUFACTURERS and SANDTON FURNISHERS

(b)

day of DECEMBER 1989.

Third Respondent

NOTICE OF MOTION

TAKE NOTICE that application will be made on behalf of the above-mentioned Applicant on the

day of DECEMBER 1989 at 10h00 in

TO: THE REGISTRAR OF THE SUPREME COURT PRETORIA

the forenoon or as soon thereafter as counsel may be heard from an order in the following terms: AND TO: (1)

Granting leave to the Applicant to bring this Application as a matter of urgency, and dispensing with the usual Rules as to notice and service in terms of Rule 6(12) of the Rules of this Honourable Court.

(2)

Provisionally sequestrating the Estates of:DAVID WRIGHT

First Respondent

and CHRIS LESCH

Second Respondent

and the partnership estate of DAVID WRIGHT and CHRIS LESCH trading in co-partnership as DELMAS FURNITURE MANUFACTURERS 8

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AFFIDAVIT 2.

IN THE HIGH COURT OF SOUTH AFRICA

The First Respondent is DAVID WRIGHT a furniture manufacturer, formerly residing at 111 Kilkenny Court, van Zyl Street, Johannesburg and

(WITWATERSRAND LOCAL DIVISION)

carrying on business as such in partnership with the second Respondent as is hereinafter more fully described at 12 Voortrekker street, Sandton, Johannesburg.

In re:

3.

Ex parte Application of

The Second Respondent is CHRIS LESCH a furniture manufacturer, formerly residing at 203 Queensbury Court, 214 Vos Street, Braamfontein, XYZ (PTY) LTD

Applicant

Johannesburg and carrying on business as such in partnership with the First Respondent at 12 Voortrekker Street, Sandton, Johannesburg.

and DAVID WRIGHT

4.

First Respondent

The First and Second Respondents carry on business at the address hereinbefore mentioned under the names or styles of Delmas Furniture

ID 56012 5074 006

Manufacturers and Sandton Furnishers.

and CHRIS LESCH

Second Respondent 5.

ID 620222 0163 089

The First and Second Respondents trading as aforesaid are the Lessees and tenants of the property situated at the place of business which property is

and

owned by the Applicant.

DAVID WRIGHT WRIGHT and CHRIS LESCH trading in co-partnership as

6. (a)

DELMAS FURNITURE MANUFACTURERS

(b)

SANDTON FURNISHERS

The Respondents are indebted to the Applicant in the sum of R20 000.00 (TWENTY THOUSAND RAND) in respect of unpaid rentals for the business premises hereinbefore mentioned and save for the landlord's lien on the contents of the premises the Applicant has no security whatsoever for

and Third Respondent

payment of the amount due to the Applicant by the Respondents. The value of such contents is far less than the aforesaid sum of R20 000.00 and if same is sold and the amount paid to the Applicant the balance of the claim which will then be totally unsecured, will be far in excess of the sum of R400.00 (FOUR HUNDRED RAND).

AFFIDAVIT 7. (a)

The Deponent was informed by one LEONARD GOUWS, the Manager of ABC (PTY) LTD he had visited the residential premises of both Respondents on Saturday 14 December 1989 and found that their respective wives and children had already left for America and that

I, the undersigned,

the said residential premises were no longer occupied by the Respondents.

NORMAN COHEN do hereby make oath and say:

(b)

1.

The said Gouws further informed my Attorney, Mr Peter Good of weavind & Weavind Inc that goods, being vacuum cleaners, polishers, foodmixers and shampoo machines to the value of approximately R5 000.00 (FIVE THOUSAND RAND) had been sold by his company to Respondents trading as Delmas Furniture Manufacturers and Sandton Furnishers during November 1989 and December 1989 and to

The Applicant is represented herein by myself, the Managing Director of the Applicant. I am duly authorized thereto by virtue of a Resolution passed

date have only received the sum of R206,00 (TWO HUNDRED AND SIX RAND). The Respondents are furniture manufactures and

at Johannesburg on the 21st day of December 1981. The facts hereinafter set out are within my personal knowledge and are true and correct to the

as far as I am aware they have never dealt in the goods referred to above.

best of my knowledge and belief. A copy of the empowering Resolution is hereunto annexed marked "A". Applicant is XYZ (Pty) Ltd, a Private Company with limited liability duly incorporated according to the Company Laws of the RSA with its registered address at 105 King Street, Braamfontein, Johannesburg.

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(c)

An Affidavit by the said Gouws is annexed hereto marked Annexure "B" which Applicant humbly prays may be considered as if inserted herein.

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8.

On or about Tuesday, 17th December 1989 the respondents in response to my request to pay either the entire or a substantial portion of the arrear

10. (a)

I was advised, on Thursday 19th December 1989, at approximately 16:00 by a member of the staff of the Respondents that completely-

rentals, promised to pay to me, on the Applicant's behalf, the sum of R4 000,00 (FOUR THOUSAND RAND) but to date hereof, have failed to do

manufactured and partly-manufactured furniture together with furniture manufacturing machinery manufactured machinery was being

so.

removed at nine from the premises in Sandton and was being transferred to 100 Main Street, Jeppe, Johannesburg. I then proceeded to the house of one of the Respondents where I ascertained that Respondent's family had already left for America and that he (that Respondent) was also preparing to leave for America.

11. I verily believe that the Respondents are about to depart from the Republic of South Africa having made preparations so to do as is hereinbefore set out. Accordingly I made application successfully to the Registrar of this Honourable Court on Friday, 20 December 1989, for the issue of a Writ of

(b)

(c)

As a result of the information so conveyed to me I deputed a male member of my staff, Steven Fox, to watch the business premises of the

Arrest of both Respondents which Writ is in the hands of the deputy Sheriff of this Honourable Court but it has not yet been executed as the

Respondents in Sandton, Johannesburg during the night of 19th - 20th December 1989.

Respondents cannot be found.

The said Fox reported to me on Friday morning, 20th December 1989 that at approximately 19:00 on the evening of 19th December 1989

12.

First Respondent who is known to the said Fox, and five (5) males appeared with a Toyota motor car CGH141T and a Volkswagen Kombi

I annex hereto as annexure "D1 - D4" a certificate from the Master of the Supreme Court (Transvaal Provincial Division) dated 23rd December

delivery van and removed furniture together with furniture manufacturing machinery from the Sandton premises.

1989 indicating that sufficient security has been given for the payment of all fees and charges necessary for the prosecution of all sequestration

The said Fox remonstrated with First Respondent, stating that he should not make such a removal and the said Fox was instructed by the

Act No 24 of 1936 (as amended).

proceedings and of all costs of administering the estate until a trustee has been appointed as required by and in terms of Section 9(3) of the Insolvency (d)

First Respondent in vulgar terms not to interfere and to go away. 13. 9. (a)

I annex hereto an Affidavit by J E le Roux, the caretaker of Kilkenny Court, confirming the contents of paragraph 11 hereof. Accordingly, I am

At or about 18:00 on the 19th December 1989 I, together with my Attorney, Mr Peter Good went to the premises situate in 12

unaware of the First and Second Respondents' whereabouts and respectfully seek the directions of this Honourable Court for the purpose of effecting

Voortrekker Street, Sandton, Johannesburg to investigate the position and found that the windows of the premises had been partly, but

service on the respondents of such Orders which this Honourable Court may issue. (marked "E").

deliberately obscured to prevent any investigation from the street. However, I managed to look into the premises through those portions of the windows which had not been completely obscured, and found that certain furniture which usually was stored in great quantities had been practically all removed.

14. I humbly submit that the First and Second Respondents have departed from their respective dwellings with intent by so doing to evade a delay payment of their debts and those of the Third respond and that they are in fact insolvent.

(b)

Thereafter I and my said Attorney, went to 100 Main Street, Jeppe, Johannesburg and found that certain premises formerly occupied by Whill Engineering which were locked, contained furniture similar to that which I had seen at the Sandton premises, stored there together with some furniture manufacturing machinery.

15. The Second Respondent, Lesch, has leased and appears as the registered owner of a Mercedes motor car, HYN476T the Lessor of which vehicle is the TRUST BANK LIMITED. Mr Christiaan Gerhardus van der Walt, the Credit Manager has discovered that the said vehicle is about to be shipped

(c)

Likewise the windows of the premises appeared to have been deliberately but incompletely obscured so as to render difficult or impossible

by the second Respondent from Durban on board the Hellenic Pioneer which is scheduled to sail from Durban on 28 December 1989 despite the

investigation of the inside of the premises from the street.

fact that a substantial sum is still due and owing to the said Trust Bank Ltd. An Affidavit by the said Christiaan Gerhardus van der Walt in support of the allegations set out in this paragraph is hereunto annexed marked "F".

(d)

Immediately outside the premises a large closed truck GBK555T was parked. On both front doors were painted "12 Voortrekker Street, Sandton, Johannesburg - 24-7773". This truck was sold to the Respondents by SAL Timber & Hardware Company (Pty) Ltd also of 100 Church Street, Jeppe, Johannesburg, of latter Company I am also the Managing Director and I have personal knowledge of the said sale.

(e)

16. I annex hereto an Affidavit by Steven Fox, to confirm the contents of Paragraph 8(b), (c) and (d) hereto marked "G".

I annex hereto an affidavit by my attorney Peter Good to confirm the contents of this paragraph hereto marked "C".

17. I humbly submit that because of the conduct of the respondents and particularly the surreptitious transfer of their assets at night from their normal

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business premises in Sandton, to the premises in Jeppe, Johannesburg aforementioned and the existence of the possibility that they have hidden other

COURT 5 AFFIDAVIT

assets at other points of which, at this moment, I am unaware, I respectfully submit that this sequestration of their respective estates is a matter of

IN THE HIGH COURT OF SOUTH AFRICA

urgency as delay can be to the serious prejudice of the Applicant and the general body of creditors. In the event of this Honourable Court ordering

(WITWATERSRAND LOCAL DIVISION)

such sequestration orders to issue it will be to the advantage of creditors inasmuch as a Provisional Trustee can be appointed to take possession of and

In re:

safeguard their assets, and to investigate the possibility of the respondents having made illegal dispositions of their assets to the prejudice of the

Ex parte Application of

creditors.

XYZ (PTY) LTD LTD

Applicant

and WHEREFORE the Applicant humbly prays that it may please this Honourable Court to Grant on Order:DAVID WRIGHT (a)

Provisionally sequestrating the Estates of:DAVID WRIGHT

First Respondent

ID 560121 5074 006 First Respondent

and

and CHRIS LESCH

Second Respondent

CHRIS LESCH

Second Respondent

and the partnership estate of

ID 620222 0163 089

DAVID WRIGHT and CHRIS LESCH

and

trading in co-partnership as

DAVID WRIGHT and CHRIS LESCH trading in co-partnership as

DELMAS FURNITURE MANUFACTURERS and SANDTON FURNISHERS (b)

Specifying the form of service of the said Orders on all the Respondents.

(c)

Cost of suit.

(d)

Such further or alternative relief as this Honourable Court may deem fit.

(a)

DELMAS FURNITURE MANUFACTURERS

(b)

SANDTON FURNISHERS

Third Respondent

and Third Respondent

CONFIRMATORY AFFIDAVIT

I, the undersigned, PETER GOOD I certify that the Deponent has acknowledged that he knows and understands the contents of this Affidavit. Sworn to and signed before me at JOHANNESBURG on this the

do hereby make oath and say:-

day of DECEMBER 1989.

1. COMMISSIONER OF OATHS 8

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I am the attorney of record of the Applicant. The facts set out herein are within my personal knowledge and are true and correct to the best of my knowledge and belief.

EXTRACT FROM THE MINUTES OF A MEETING OF THE BOARD OF DIRECTORS OF XYZ (PROPRIETARY) LTD HELD AT JOHANNESBURG ON THE 21ST DAY OF DECEMBER 1989

2. RESOLVED I have read through the affidavit of Norman Cohen and confirm the contents thereof as far as it relates to me, especially the contents of paragraph 9 thereof. 1.

THAT the Company bring an urgent application to the Supreme Court of South Africa (WLD) for an order for the sequestration of the individual estates of DAVID WRIGHT and CHRIS LESCH and the partnership estate of the said WRIGHT and LESCH trading as DELMAS Furniture Manufacturers and SANDTON FURNISHERS and all and any matters incidental thereto.

2.

I certify that the Deponent has acknowledged that he knows and understands the contents of this Affidavit.

THAT Mr NORMAN COHEN be and is hereby authorized

(a)

to instruct the company's attorneys to make the necessary application.

(b)

To do all such things and sign all such documents on the company's behalf which may be required to give effect to the action set out in Resolution No 1 hereof.

SWORN to and SIGNED before me at JOHANNESBURG on this the

day of DECEMBER 1989.

CERTIFIED A TRUE COPY COMMISSIONER OF OATHS

CHAIRMAN

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125 COURT 5.

126

AFFIDAVIT/2

IN THE HIGH COURT OF SOUTH AFRICA

2.

(WITWATERSRAND LOCAL DIVISION) In re:

I know CHRIS LESCH and DAVID WRIGHT who trade as Sandton Furnishers at 12 Voortrekker street, Sandton, Johannesburg.

Ex parte Application of XYZ (PTY) LTD

Applicant Applicant

and

3. On behalf of my firm I, during November 1989 and December 1989 sold to the Respondent goods to the value of approximately R5 000.00 and as at the date hereof merely R206.00 has been paid on account of their indebtedness to my firm.

DAVID WRIGHT

First Respondent

ID 560121 5074 006

4.

and

On or about Saturday 14 December 1989 being concerned in respect of the large amount owing and knowing that the furniture manufacture trade had closed for its annual holiday, I went to 111 Kilkenny Court, Van Zyl Street, Johannesburg, the residential address of DAVID WRIGHT, which

CHRIS LESCH

Second respondent

address was given to me by the said WRIGHT as his permanent residential address.

ID 620222 0163 089

5.

and

There I was informed by the caretaker, when I arrived at the premises-

DAVID WRIGHT and CHRIS LESCH

(a)

That WRIGHT had sent his wife and children to America and that they would not be returning.

(b)

That he no longer lived there;

(c)

He had sold the furniture in the flat to its present occupant; and

(d)

Had sublet the flat without the owner's authority in breach of the terms of his lease.

trading in co-partnership as (a)

DELMAS FURNITURE MANUFACTURERS

(b)

SANDTON FURNISHERS

and Third respondent

6. I also went to 203 Queensbury Court, 214 Vos street, Braamfontein and there learnt from the caretaker:-

AFFIDAVIT

I, the undersigned,

(a)

that CHRIS LESCH had sent his family to America and that they would not be returning.

(b)

that he no longer lived there. The address herein stated was given to me by Lesch as his permanent address.

LEONARD GOUWS do hereby make oath and say:

7. 1. The last time I saw the Respondents was on Tuesday 10 December 1989 at their business premises at 12 Voortrekker Street, Sandton, Johannesburg. I am the area Manager of ABC (Pty) Ltd, electrical appliance merchants of 46 De Korte Street, Braamfontein, Johannesburg. 8

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128 COURT 5. AFFIDAVIT/3 IN THE HIGH COURT OF SOUTH AFRICA (WITWATERSRAND LOCAL DIVISION)

I CERTIFY that the Deponent has acknowledged that he knows and understands the contents of this affidavit which was sworn to and signed before

In re:

me at Johannesburg on this

Ex parte Application of

day of DECEMBER 1989.

XYZ (PTY) LTD COMMISSIONER OF OATHS

Applicant

and DAVID WRIGHT

First Respondent

ID 560121 5074 006 and CHRIS CHRIS LESCH

Second Respondent

ID 620222 0163 089 and DAVID WRIGHT and CHRIS LESCH trading in co-partnership as (a)

DELMAS FURNITURE MANUFACTURERS

(b)

SANDTON FURNISHERS

and Third respondent

AFFIDAVIT

I, the undersigned, STEVEN FOX do hereby make oath and say: 1. I am an adult male employed by XYZ (Pty) Ltd at 105 King Street, Braamfontein, Johannesburg. 2. 8

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Mr Norman Cohen is in charge of that business and he and others give me orders during each and every day when I work at the said premises in connection with my work. 3.

I CERTIFY that the Deponent has acknowledged that he knows and understands the contents of this affidavit which was sworn to and signed before me at Johannesburg on this

day of DECEMBER 1989.

On Thursday 19 December 1989 I was taken by Mr Cohen to 12 Voortrekker Street, Sandton, Johannesburg and instructed to watch the premises throughout the night and particularly to watch whether anyone called at the premises and whether anything was removed from them. 4. COMMISSIONER OF OATHS At about 19:00 one bearded man and five other males arrived with a Toyota motor car CGH 141 T and a Volkswagen Kombi delivery van with the number of which I did not record. The bearded man, whom I know belongs to that business, opened the premises with keys he had in his possession and then entered it together with the five other males. 5. I spoke to this bearded man and asked him why he was opening the place and explained that my employer said that I should tell him not to remove anything. I also showed him a letterhead which my employer had given me to show where I was employed and that I was authorized to stay and watch the premises. 6. The bearded man read the letter and stated that he would not speak to me and he handed back the letterhead I had shown him and, in vulgar terms, told me to go away. The Kombi was then driven into the premises. 7. I did not go away but remained and watched the premises. After a short while I saw the Kombi van was driven out and that it was loaded with a blue woodworking machine and furniture. 8. The bearded man and the other males then drove off. 9. I made a report to Mr Cohen on the morning of the 20th December 1989. 8

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COURT 5. AFFIDAVIT/4 IN THE HIGH COURT OF SOUTH AFRICA

2.

(WITWATERSRAND LOCAL DIVISION) In re:

Approximately one month ago he sold the contents of the said flat to the present tenant and sublet the flat for the balance of his lease.

Ex parte Application of XYZ (PTY) LTD

Applicant

and

3. He informed me that he and his family were going back to America permanently.

DAVID WRIGHT

First Respondent

4.

ID 560121 5074 006 Since he and his family have left the said flat I have not seen him since, but I have had a number of personal and telephone enquiries, from people who and

claim to be creditors of the said WRIGHT and of his business. Amongst these claimants were employees who stated that he had not paid them their "Holiday Pay".

CHRIS LESCH

Second respondent respondent

ID 620222 0163 089 I CERTIFY that the deponent has acknowledged that he knows and understands the contents of this affidavit which was sworn to and signed before

and

me at Johannesburg on this day of DECEMBER 1989. DAVID WRIGHT and CHRIS LESCH trading in co-partnership as COMMISSIONER OF OATHS (a)

DELMAS FURNITURE MANUFACTURERS

(b)

SANDTON FURNISHERS

and Third Respondent

AFFIDAVIT

I, the undersigned, JOHAN ETTIENNE LE ROUX do hereby make oath and say:

1. I am the caretaker of Kilkenny Court, in which building DAVID WRIGHT was a tenant of Flat No 111 together with his wife and children. 8

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COURT5. AFFIDAVIT/5 IN THE TH E HIGH COURT OF SOUTH AFRICA

2.

(WITWATERSRAND LOCAL DIVISION) In re:

The Bank in its capacity as a financial institution acts as the Lessor in respect of the various motor vehicles taken on lease by members of the public.

Ex parte Application of XYZ (PTY) LTD

Applicant

AND

3. A Mercedes motor car HYN476T was leased by the Bank to the said LESCH and as such at all material times the said vehicle remains the property of the Bank. The period of the lease has not expired and there is a substantial sum owing thereunder, portion of which rentals is in arrear as at the date

DAVID WRIGHT

First Respondent

hereof.

ID 560121 5074 006 4. and From enquiries made by me I have discovered that the Lessee arranged through Frasers International of Durban, a firm of forwarding agents carrying CHRIS LESCH

Second Respondent

ID 620222 0163 089

on business both in Wynberg, Johannesburg and at Durban to have the car shipped on board the "Hellenic Pioneer" a cargo vessel now lying at anchor in the Durban harbour to the Respondent in America. The vessel is due to sail from Durban on 28 December 1989.

and

5.

DAVID WRIGHT and CHRIS LESCH LESCH

The action of the lessee is a flagrant breach of the conditions of the lease.

trading in co-partnership as (a)

DELMAS FURNITURE MANUFACTURERS

()b)

SANDTON FURNISHERS

and Third Respondent

I CERTIFY that the deponent has acknowledged that he knows and understands the contents of this affidavit which was sworn to and signed before me at Johannesburg on this

day of DECEMBER 1989.

AFFIDAVIT COMMISSIONER OF OATHS I, the undersigned, CHRISTIAAN GERHARDUS VAN DER WALT do hereby make oath and say: 1. I am the Credit Manager of Trust Bank Ltd (hereinafter referred to as "the said Bank") of Jorrissen Street, Braamfontein, Johannesburg. The facts hereinafter set out are within my personal knowledge and I am authorised to make this Affidavit on behalf of the said Bank. 8

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136 IN THE HIGH COURT OF SOUTH AFRICA (CAPE OF GOOD HOPE PROVINCIAL DIVISION) CASE NO:

CERTIFICATE CER TIFICATE OF TENDERED SECURITY

In the matter between:

(Insolvency Act, 1936; Companies Act, 1973; Close Corporation Act, 1984)

XXXXXX MORTGAGE NOMINEES (PTY) LTD

Applicant

and In the matter between:

XXXX JOE BLOGGS

XYZ (PTY) LTD

Applicant

and

Respondent

ID No : 65027 0156 083 Date of birth : 65/08/27

DAVID WRIGHT

1st Respondent

Marital Status : Unmarried

ID 560121 5074 006 NOTICE OF MOTION

2nd Respondent

CHRIS LESCH ID 620222 0163 089

BE PLEASE TO TAKE NOTICE that application will be brought on behalf of the above-named applicant on THURSDAY the 11th day of I CERTIFY that sufficient security has been given for the payment of all fees and charges necessary for the prosecution of all sequestration/windingup proceedings in the above matter and of all costs of administering the Estate/Company/Close Corporation until a Provisional Trustee/Trustee/Provisional Liquidator/Liquidator has been appointed, or, if no Provisional Trustee/Trustee/Provisional Liquidator/Liquidator is

MARCH 1996 AT 10:00 or so soon thereafter as Counsel may be heard for an Order in the following terms 1.

Dispensing with the forms and service provided for in the rules of the above Honourable Court and entertaining this matter as one of urgency in terms of rule 6(12).

appointed, of all fees and charges necessary for the discharge of the Estate/Company/Close Corporation form sequestration/winding-up.

2.

That the estate of the Respondent be placed under a provisional order of sequestration in the hands of the Master of the above Honourable Court.

Date stamp

3.

That a rule nisi be issued calling upon Respondent and all persons to show cause on a date to be determined by the above Honourable Court, as to why the estate of Respondent should not be placed under a final order of sequestration.

MASTER OF THE SUPREME COURT

4.

That service of this Order be effected on the Respondent personally by the Sheriff of this Honourable Court.

5.

That the costs of this application be costs in the sequestration.

6.

Such further and/or alternative relief as the above Honourable Court may deem fit in the premises.

TAKE NOTICE FURTHER that the affidavit of Mr WYX attached hereto will be used in support hereof.

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5.

KINDLY PLACE THE MATTER ON THE ROLL ACCORDINGLY.

REHABILITATION [Sections 124 - 130 of the Insolvency Act, 1936]

DATED at CAPE TOWN this 8th day of MARCH 1993

ABC INC

5.1

INTRODUCTION - EFFECTS IN GENERAL OF REHABILITATION

5.1.1

The most important effect of rehabilitating an insolvent person is to put an end to his/her status as an insolvent.

5.1.2

Rehabilitation is a discretionary remedy and the Court may impose conditions in its order rehabilitating the insolvent, for example that he consents to judgment in respect of the balance of the unpaid claims against his estate or repays the contribution paid by creditors towards costs. [See section 127(2)].

5.1.3

Provided the Court does not order a conditional rehabilitation, the rehabilitation of an insolvent:

Applicant's attorney per 10th Floor, 9 Long Street CAPE TOWN

puts an end to the sequestration;

TO:

THE REGISTRAR, SUPREME COURT, CAPE TOWN

AND TO:

THE MASTER, SUPREME COURT, CAPE TOWN

discharges all the debts of the insolvent, which were due, or the cause of which had arisen, before the sequestration (and which did not arise as a result of any fraud on his part); relieves the insolvent of every disability resulting from the sequestration. [See section 129(1)]

Note:

the rehabilitation of an insolvent does not automatically rere-invest him with his estate, save in one instance (section 129(2) read with section 124(3) - where an insolvent is rehabilitated under section 124(3), 124(3), ie. where no claims have been proved against his insolvent estate, the effect of his rehabilitation is to automatically rere-invest him with his estate). 5.1.4

Thus property (excluding surplus money) of the insolvent estate vesting in the trustee and unrealized at the date of rehabilitation remains vested in the trustee for purposes of realization and distribution. If, however, circumstances warrant, the Court in the exercise of its discretion under section 127(2) may make an order for the reinvestment of such property in the insolvent. The insolvent has to make application for an order reinvesting his property in him. Surplus monies available after confirmation of the liquidating and distribution account is paid into the Guardian=s Fund and after rehabilitation it is paid to the Insolvent at his request.

5.2

WHO MAY APPLY FOR REHABILITATION AND TO WHICH COURT?

5.2.1

INSOLVENT: THE FOLLOWING PERSONS MAY APPLY FOR THE REHABILITATION OF AN INSOLVENT the insolvent himself/herself - if a joint estate was sequestrated the spouses may be rehabilitated separately or a joint application can be made. the insolvent's duly authorized agent where the insolvent himself does not reside in SA (but not where the insolvent resides in SA); the widow/widower of an insolvent who was married in community of property to the insolvent;

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the former spouse of an insolvent where they were married in community of property. 5.2.2

Proviso : if application is brought within 4 years from date of sequestration, the Master's recommendation is required;

The Court to which the application for rehabilitation must be made is the Court which made the sequestration order (Smith 296 citing Ex parte Garvie 1924 OPD 108).

5.2.3

Date of sequestration is date date of the provisional order; order

In Gauteng the correct position is to the effect that the proper Court to which an application for rehabilitation should be made is that to which the Master having the custody of the records in the particular estate is attached (Mars citing Ex parte Human 1927 WLD 286; Ex parte Coetzee 1940 TPD 35; Ex parte Fleishman 1941 WLD 235).

Test = Whether the Applicant is a fit and proper person to trade with the public on the same basis as any other honest man - Kruger v The Master 1982(1) SA 574(W).

(In most cases the Master who has custody of the estate records will be from the same area of jurisdiction as the Court which granted the sequestration order.)

5.3

Whether, if he had traded in a negligent manner or so as to deceive others prior to his becoming insolvent he has been subject to his insolvency long enough to ensure that he has received a sufficiently severe lesson as to the necessity of trading honestly. The manner in which the applicant had traded prior to his insolvency should therefore also be considered by the Master in making his recommendation - Ex Parte Anderson 1995 (1) SA 40 (SECLD).

WHEN APPLICATION MAY BE BROUGHT [Sect 124]

5.3.1

AFTER ACCEPTANCE OF A STATUTORY COMPOSITION BY CREDITORS

However, it is not only with the interests of past creditors of the applicant that the Court is concerned. The effect of rehabilitation is to restore the insolvent fully to the marketplace and to the obtaining of credit. The Court is accordingly as concerned with probable future behaviour of the insolvent as it is with his past. The information included in the affidavit should therefore be as such as to suggest to the Court that the insolvent has learnt the lessons of insolvency or that he has a genuine appreciation of the possible hardship which his sequestration may have caused at least to certain of his creditors - Ex Part Le Roux 1996 (2) SA 419 (C).

(Sect 119(7) read with Sect 124(1)) The Master must certify in terms of s119(7) that concurrent creditors (inclusive of creditors who have not proved claims) whose votes amounted to three-quarters in number and value of the votes of all creditors who proved claims, accepted a composition of not less than 50c/Rand of every claim proved and that the payment has been made or security for payment has been furnished to the satisfaction of the Master (Sect 124(1) read with Sect 52(5) nd 120(1)) The full costs of sequestration and administration must have been paid;

In furnishing his recommendation, the Master must make a proper decision, weighing up factors in favour of the insolvent and factors adverse to him. The Master cannot simply leave it to the Court to decide. decide

3 weeks clear notice in the Government Gazette and to the trustee must be given - no notice is given to the Master. Notice to the Trustee is hand-delivered or sent per registered post;

See:

Full particulars of the composition must be given - also state whether there are creditors who did not prove claims and if so their names, addresses and particulars of their claims must be given;

In all of the above cases the insolvent is required to: Give not less than six weeks written notice to the Master and to his trustee of his intention to apply for his rehabilitation. (Six clear weeks)

A non-statutory composition is not a basis for rehabilitation but it could influence the Master to exercise his discretion in terms of Sect 124(2) in favour of the insolvent and to recommend rehabilitation;

Advertise notice of such intention in the Government Gazette not less than six weeks before making the application. (See Form 6 of the Regulations).

No recommendation by the Master is needed if the application is brought in terms of Sect 124(1). 5.3.2

REHABILITATION IN TERMS OF SECTION 124(2)

Ex parte Anderson 1995 (1) SA 46 (SE) Ex parte Porrit 1991 (3) SA 866 (N)

5.3.3

NO CLAIMS PROVED

Section 124(2)(a)

[Sect 124(3)]

After twelve months have elapsed after confirmation by the Master of the first trustee's account in the estate (provided the insolvent does not fall within the provisions of section 124(2)(b) or (c)).

[No recommendation by the Master is needed] An insolvent can apply after 6 months from date of provisional sequestration for his rehabilitation providedprovided-

Section 124(2)(b) No claim has been proved against his estate; After three years have elapsed from such confirmation if the insolvent's estate has been previously sequestrated (provided the insolvent does not fall within the provisions of section 124(2)(c)).

He has not been convicted of an insolvency offence His estate was not previously sequestrated

Section 124(2)(c)

He has given the Master and the Trustee 6 weeks notice in writing and has published in the GG six weeks before making the application, notice of intention to apply for his rehabilitation.

After five years have elapsed from the date of the insolvent's conviction of any fraudulent act in relation to his existing or any previous insolvency or any offence under sections 132-134 of the Insolvency Act. 8

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142 contained in the notice can be condoned if it is a formal defect and if there is no possibility of prejudice to interested parties - Ex Parte Anderson 1995 (1) SA 40 (SECLD) and sec 157(1) of the Insolvency Act. See Ex Part Minnie 1996 (3) SA 97 (C) and also Ex Parte Van Zyl 1997 (2) SA 438 (E).

He may apply even if he was a partner in a partnership and claims were proven against the partnership estate: - Ex parte Fernandez 1965(3) SA 726(O) 5.3.4

AFTER FULL PAYMENT OF ALL PROVED CLAIMS

5.4.6

Late lodging of the bond of security in terms of s125 is a fatal defect which cannot be cured by a postponement of the application. See Ex Parte Elliot 1997 (4) sa 292 (W) and cases cited therein.

5.4.7

Short service to the Master and Trustee can be condoned, so long as the Master has had sufficient time to investigate the matter and prepare his report to the Court in terms of s27(1).

5.4.8

In certain circumstances it is possible to elect to have the sequestration order set aside rather than to apply for rehabilitation. [Sect 54(5)]

5.4.9

Sect 125 requires security for an application for rehabilitation to be furnished to the Registrar of the Court three weeks before the application is made. The late furnishing of such security is a fatal defect and cannot be cured by a postponement of the application - Ex Parte Elliot 1997(4) SA2(W).

5.5

FORM OF APPLICATION

[Section 124(5)] Application can be brought on 3 clear weeks notice in writing to the Master and the Trustee immediately after The confirmation by the master of a distribution plan providing for full payment of all proved claims Full payment of all sequestration costs Payment of all interest on the proved claims No notice in the GG is necessary By Effluxion of Time

Short Form (Form 2) is used and service is also effected on the Master but not the Trustee. If the relief which is applied for will also affect the records of the Registrar of Deeds, the Application must also be served on him.

[Sect 127(A)]

5.6

CONTENTS OF AFFIDAVIT

5.6.1

Name of Applicant, present occupation and address - show locus standi.

5.6.2

Personal knowledge.

5.6.3

Date of sequestration and particulars of Court which granted the order and applicant in that matter.

5.6.4

Date of confirmation by Master of first liquidation account. (If relying on sect 124(2)). If relying on sect 124(5), date of confirmation of plan of distribution providing for full payment of claims.

5.6.5

Reasons for insolvency.

5.6.6

Total amount of assets and liabilities as at date of sequestration.

5.6.7

Total amount of all claims proved against the estate; state which are concurrent secured and preferent claims.

5.6.8

What dividend was paid to creditors; give details of what dividend paid to secured, preferent and concurrent creditors.

5.6.9

Amount of contribution levied (if applicable).

5.6.10

Statement of assets and liabilities and earnings as at date of application for rehabilitation.

5.6.11

Information re what further assets in estate available for realization and estimated value thereof.

5.6.12

Particulars of further assets obtained after sequestration, eg. immovable property obtained with trustee's consent.

5.6.13

Present income and expenditure, including income of spouse.

date of sequestration;

5.6.14

Where there has been a statutory composition, full particulars thereof should be given. (Where relying on sect 124(1)).

date, time and division of Supreme Court where application will be made;

5.6.15

Particulars of previous sequestration (if any) or statement that applicant was not sequestrated before. (If relying on sect 124(2) or 124(3)).

5.6.16

Particulars of criminal prosecutions and offences under the Insolvency Act (if any) or a statement that he has not committed any

An insolvent automatically becomes rehabilitated after 10 years from date of sequestration (= date of provisional sequestration) unless an interested party applies to Court before the expiry of the 10 years for an order preventing the automatic rehabilitation. If the Court grants an order in terms of 2 above, the Registrar of Deeds must enter a caveat against the Insolvent's title deed to his property and against every Bond registered in his name or which belongs to him. [Sect 127A(2) - (4)]. A partnership can never be rehabilitated. [Sect 128]

5.4

GENERAL

5.4.1

The 6 weeks and 3 week periods must be calculated by excluding both the first and last days.

5.4.2

The 4 year period is calculated with reference to the date when the provisional order was granted.

5.4.3

No notice of intention to apply for rehabilitation need be given to creditors, save for the notice in the Government Gazette.

5.4.4

Notice in the Gazette must be by way of Form 6 read with regulation 5 containing the following information: number (at the Masters Office) of insolvent estate; ground for application full name and description of insolvent, including ID, date of birth, and CURRENT place of business/residence and present occupation, and also where and under what name he was trading at the time of his sequestration and also his address, occupation or status at the time of sequestration, especially where the Insolvent no longer resides at the place where he was conducting business when sequestrated - Ex Parte van Zyl 1997 (2) 438 (E).

5.4.5

There is authority to the effect that short service in the Government Gazette cannot be condoned. Errors in the information

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such offences. (If relying on sect 124(2) or 124(3)). 5.9.5

Give notice to trustee (delivery or per registered post) (3 weeks/6 weeks)

A statement that he has completely surrendered his estate and has not granted or promised any benefit to any person or entered into any secret agreement with intent to induce his trustee or any creditor not to oppose the rehabilitation.

5.9.6

Give notice to Master (6 weeks)

5.6.18

An allegation that notice was published timeously in the Government Gazette. (Annex tearsheet)

5.9.7

File security bond for R500,00 (stamped 25c) with Registrar (at least 3 weeks before date of hearing).

5.6.19

An allegation that the Master was duly notified of this application. (Annex copy of written notice to the Master and his acknowledged of receipt)

5.9.8

Do full search at Master's Office to satisfy yourself that applicant qualifies for rehabilitation and to obtain sufficient information necessary to finalize. Give special attention to the following:

5.6.20

An allegation that the trustee was duly notified of this application. (Annex copy of written notice)

When the first liquidation and distribution account was confirmed.

5.6.21

An allegation that security for the application was lodged with the Registrar of the Court for Rehabilitation. (Sect 125)

Whether the final liquidation and distribution account has been confirmed.

5.6.22

An allegation that a Master's report will be laid before the Court. (sect 127(1))

On what date the final liquidation and distribution account was confirmed.

5.7

PRAYERS [See also XIII and XIV infra]

How many secured and preferent claims were proved against the insolvent estate in total.

5.7.1

That applicant be rehabilitated.

How much in respect of secured and preferent was paid out of the estate.

5.7.2

A declaratory order vesting in applicant of the immovable property obtained after date of sequestration.

What the shortfall was on the secured and preferent claims.

5.7.3

That the Register of Deeds be authorised to register any actions of the applicant with regard to his immovable property without the assistance of his trustee.

How many concurrent claims were proved against the insolvent estate in total.

5.8

LIST OF SUPPORTING DOCUMENTS / ANNEXURES

5.8.1

Page of Government Gazette in which notice appeared.

5.8.2

Master's acknowledgement of receipt of written notice.

5.8.3

Trustee's acknowledgement of receipt of written notice or copy of registered letter plus registered slip verified by affidavit of posting.

5.8.4

If applicant relies on Section 124(1) a Master's certificate with regard to the statutory composition.

5.8.5

Certificate of security for R500,00 at the Registrar of the Court. [Sect 125 - security to be furnished at least 3 weeks before application is heard].

5.8.6

5.9

5.6.17

5.9.1

How much was paid out in respect of proved concurrent claims. What the shortfall was on concurrent claim. Whether a contribution was levied against creditors that had proved a claim. 5.9.9

Draft Affidavit for applicant utilizing the check list.

5.9.10

Arrange for Attesting of affidavit.

5.9.11

Draft Notice of Motion.

5.9.12

Obtain tear sheet of Notice in Government Gazette.

Master=s recommendation (if applicable) (Sect 124(2)).

5.9.13

Make copies of papers and annexures, affix stamps on original (R80).

PROCEDURE

5.9.14

Serve on Master.

5.9.15

Issue at Registrar's office and serve on Master.

5.9.16

Check that Trustee reports to the Master timeously.

5.9.17

Obtain Master's Report and file with Registrar.

5.9.18

Brief Counsel.

5.9.19

Attend Court.

5.9.20

Report to client.

5.9.21

Uplift Brief.

Take full instructions from client to apply for rehabilitation and give special attention to the following: what his marital regime is; whether the Court has jurisdiction; the time lapsed since sequestration.

5.9.2

Arrange for deposit by client of approximately R5000,00

5.9.3

Complete Form 6 (Notice of intention to apply for rehabilitation)

5.9.4

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5.9.22

Pay Counsel.

5.9.23

Uplift rehabilitation order.

5.9.24

Account to client.

5.10

MASTER'S REPORT

5.10.1

Usually refers to trustee's report to him. Some divisions have a practice that the trustee=s report should also be filed at Court with the Master=s report.

5.10.2

Must report to the Court on all relevant facts known to him as well as any unfavourable remarks appearing in the trustee's report to him.

5.10.3

If contribution levied, he usually recommends rehabilitation provided that insolvent pays contribution to trustee.

5.10.4

If application is made before the 4-year period has elapsed, the Master's recommendation is necessary.

5.10.5

See Anderson's case 1995 (1) SA 46 (SE) and Porrit's case 1991 (3) SA 866 (N) regarding Master's recommendation.

5.11

POWERS OF COURT

5.11.1

The Court always has a discretion which must be exercised judicially.

5.11.2

Application can be granted, refused, postponed, or granted under certain conditions, eg. Sect 127(4).

5.11.3

Declaratory order that immovable property obtained by applicant after sequestration vests in him.

5.12

EFFECT OF REHABILITATION

Written notice must also be given to the trustee and the Master providing them with all the aforegoing particulars.

5.12.1

It ends the insolvent's sequestration [Sect 129(1)(a)] and the insolvent is once again allowed to trade with the public without the assistance of his trustee.

The founding affidavit should show in detail how the property was acquired. If it was purchased, then whence the money was obtained must be disclosed - Ex parte Potgieter 1967(2) SA 310(T).

5.12.2

He is discharged from liability for all debts due or which arose before sequestration, except those who arose out of fraud on his part [Sect 129(1)(b)]. This also includes foreign debts, see North American Bank Ltd (In liquidation) v Granit 1998(3) SA 557(W).

5.12.3

Any surplus in the estate after all creditors have been paid, must be repaid to the insolvent at his request[Sect. 116(1)].

5.12.4

It relieves him of every disability resulting from his sequestration, eg. he can once again serve as a director of a Company [Sect 129(1)(c)].

5.12.5

It has no effect on the liability of a Surety [Sect 129(3)(d)].

Deal with the aforesaid particulars in your founding affidavit.

5.13

GENERAL (DECLARATORY ORDERS)

Where you are asking for immovable property to be reinstated, include a prayer in notice of motion asking that the Court direct the trustee to transfer the property back to the insolvent / applicant.

[When to ask for a declaratory order as stated in VII 2 and 3 supra]

Where the immovable property automatically re-invests in the insolvent, include a prayer asking that the Registrar of Deeds be directed to endorse the title deeds to the effect that the property is restored to the applicant.

If his property vests in his trustee no declaratory order is necessary when he rehabilitates in terms of Sect 124(3) [Vide Sect 129(2)] - otherwise a declaratory order will always be necessary and if it is not obtained, such property will remain vested in the trustee, notwithstanding his rehabilitation. Thus, for example, if the insolvent received an inheritance during his insolvency which would vest in the trustee, he has to apply for the reinvestment of the balance thereof in himself on his rehabilitation. See Ex parte Grobbelaar 1977 (4) SA 584 (O). Sect 58(2) of the Deeds Registries Act 47 of 1937 provides that where immovable property vested in the trustee and now automatically re-invests in the Insolvent (vide Sect 129(2), Sect 120(2)); then the Insolvent can deal (transfer, mortgage etc) with such immovable property only after his title deed has been endorsed by the Registrar of Deeds to the effect that such immovable property is restored to him - no formal transfer of property is however necessary. In terms of Sect 58(1) of the aforesaid Act, if the Insolvent's immovable property vested in his trustee but it does not in terms of the Insolvency Act automatically reinvest in him, the trustee must formally transfer such immovable property to him. The Insolvent may perform on act of registration in respect of his immovable property only after such transfer has taken place.

5.14

PROCEDURE TO BE FOLLOWED WHERE APPLICATION IS TO BE MADE FOR A DECLARATORY ORDER IN TERMS OF XIII

5.14.1

PROPERTY WHICH DID NOT VEST IN THE THE TRUSTEE [DECLARATORY ORDER ONLY NECESSARY TO OBVIATE UNCERTAINTY] Form 6 (notice in the GG) should contain a footnote giving a description of the property and mention how it was acquired and from what financial resources. It must also be stated that it is the intention of the Applicant to apply for a declaratory order in respect of ownership.

5.14.2

PROPERTY WHICH VESTED IN THE TRUSTEE [SEEKING AN ORDER REINVESTING THE INSOLVENT WITH HIS PROPERTY] The same requirements as to notice as set out in the preceding paragraph (1-3) are applicable. The notice should also specifically state that the Master, the trustee and the creditors are requested to waive their rights in relation to the property - Ex parte Oliver 1984(2) SA 545 (C) at 554.

Basic Principle = All property acquired by the Insolvent during his sequestration - i.e. the period up to his rehabilitation - shall belong to his estate and therefore it shall vest in his trustee - Sect 23(1). Property which does not vest in his trustee(eg. Sect 23(5), (7) and (9) - and also inclusive of property acquired by the insolvent with monies which are his - is not affected by his rehabilitation and no declaratory order is needed in relation to such property unless it is necessary to obviate uncertainty.

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5.15

INSOLVENCY INTERDICTS

5.15.1

When a sequestration order is issued, a caveat is entered in respect of the Insolvent and his spouse, against:the transfer of their immovable property; the cancellation or cession of every Bond registered in their name or belonging to them [Sect 17(3)(a)].

5.15.2

The aforesaid caveat expires 10 years after the date of the sequestration order [= provisional order] [Sect 17(3)(b)].

5.15.3. After the expiry of a caveat, the Insolvent can perform any act of registration in respect of that property in spite of the fact that such property formed part of his insolvent estate [Sect 25(3)] -no declaratory order is therefore necessary. 5.15.4. A caveat can also be registered in terms of Sect 18B or 127A.

5 .16

CHECK LIST

5.16.1

Applicant

5.16.2

Personal knowledge

5.16.3

Details of insolvency

5.16.4

Confirmation of the first liquidation account

5.16.5

Reasons for insolvency

5.16.6

Total assets and liabilities as at date of sequestration

5.16.7

Total claims proved

5.16.8

What dividend was paid?

5.16.9

Contribution levied?

5.16.10 Assets, liabilities and earnings as at date of application 5.16.11 Income and expenses 5.16.12 Statutory composition? Particulars of 5.16.13 Previous sequestration? Particulars of 5.16.14 Details of criminal prosecutions, if any 5.16.15 Complete surrender of estate - no benefit promised to anyone 5.16.16 Proof of notice - Government Gazette, Master, Trustee 5.16.17 Security for the application duly lodged.

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6.

190

COMPOSITIONS

Trustee need not attach his report.

[Sections 119 - 123]

General meeting is convened by trustee in the same manner as stated above.

6.1

WHEN

6.3

MEETING OF CREDITORS

6.1.1

COMMON LAW COMPOSITION

6.3.1

Creditors who have lodged claims, must first be permitted to prove them before offer is considered.

6.3.2

The Master presides at the meeting.

6.3.3

If offer provides for security, the nature thereof must be fully specified.

A Common Law compromise can be entered into at any time whether before sequestration or after a provisional order has been granted. To be effective it must be accepted by all creditors.

6.3.4

If security consists of a surety bond/guarantee, every surety must be named.

If entered into before sequestration, the debtor's assets remain vested in him.

6.3.5

The offer should include a term providing for the payment of the costs of sequestration.

Usually the arrangement makes provision for monthly payments to a person appointed to administer the composition scheme.

6.3.6

A partnership cannot enter into a composition because sequestration results in the dissolution of the partnership.

6.4

MAJORITIES

6.4.1

Offer must be accepted by at least 75% (in value and number) of all proved concurrent creditors. (See Sect 120(1))

A Common Law composition entered into after a provisional order of sequestration has been granted, is usually conditional upon the provisional order being discharged. The duties of the provisional trustee must be ascertained from the terms of the compromise agreement. 6.1.2

6.4.2

Payment in terms of offer must have been made or security for payment given.

COMPOSITION UNDER INSOLVENCY ACT

6.4.3

Insolvent then entitled to Master's certificate stating that offer has been accepted.

[Between Insolvent and his concurrent creditors] (Sect 119(7) read with Sect 52(5) and Sect 120(1))

6.4.4

When Master issues certificate to the effect that the composition provides for payment of a dividend of at least 50c/Rand, the insolvent can apply for rehabilitation on 3 weeks notice.

6.4.5

Secured creditors can vote only in respect of the unsecured balances of their claims [Section 52(5)].

6.4.6

A creditor who has been paid in full has no vote.

A written offer of composition can be made at any time after the first meeting of creditors [Section 119(1)]. Acceptance of the offer is in the nature of a statutory novation. It discharges the debts of the unsecured creditors and substitutes therefore rights which are determinable under the provisions of the composition.

6.2

PROCEDURE

6.5

EFFECTS

6.2.1

TRUSTEE FEELS CONCURRENT CREDITORS WILL ACCEPT OFFER

6.5.1

The offer, if accepted, binds all concurrent creditors, proved or unproved - [Ilic v Parginos 1985(1) SA 795(A) at 804]. The rights and obligations of the parties are now determined by the provisions of the composition.

6.5.2

The claim of a secured or preferent creditor remains unaffected unless he has waived his preference in writing [Section 120(1)].

6.5.3

If it is a condition that property should be restored to insolvent, the acceptance of the offer revests the property in the insolvent.

6.5.4

A composition does not affect the liability of a surety for the insolvent.

6.5.5

A composition has the affect of res judicata and bars proceedings on the original cause of action.

6.5.6

A composition is in the nature of a statutory novation.

6.5.7

A composition is not binding on the creditors of the solvent spouse, whose separate assets revest in her [Section 122].

After the first meeting of the creditors, insolvent submits written offer of composition to trustees. The trustee deliver or send per registered post to every proved creditor a copy of the offer plus his own report thereon. Simultaneously convene and give notice of a meeting for the purpose of considering the offer. Date of meeting between 14 and 28 days after despatch of notice to creditors. Notice of meeting to be published in Government Gazette and in one or more newspapers circulating in the district where insolvent resides [Sect 41 and 40(3)]. 6.2.2

TRUSTEE FEELS CONCURRENT CREDITORS WILL NOT ACCEPT OFFER Trustee informs insolvent that offer is unacceptable. Insolvent may appeal to Master. Master, after considering trustee's report, may direct trustee to forward offer to creditors.

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7.

192

LIQUIDATION OF COMPANIES Chapter XIV (Sections 337-426 of the Companies Act, 61/1973)

note:

7.1

INTRODUCTION

7.1.1

Companies may be liquidated by the Court for a variety of reasons (see s344 of the Companies Act).

7.1.2

In this course we are concerned with those grounds for liquidation which involve insolvency (see s 344(f) and s 344(h) of the Companies Act).

7.1.3

It is important for you to distinguish between ACTUAL INSOLVENCY and COMMERCIAL INSOLVENCY.

7.1.4

Whereas in sequestration applications you had to establish actual insolvency (unless you could establish an act of insolvency), in liquidation applications you merely have to establish commercial insolvency.

7.1.5

Commercial insolvency means an inability to pay debts as and when they become due in the ordinary course of business.

7.2

METHODS

the passing of a special resolution to wind a company up, is a separate substantive ground for winding up by the court which may not involve insolvency by a member=s / shareholder=s resolution (ordinary as opposed to special) see Henochsberg=s commentary on the Companies Act at p718. by the directors in terms of the Articles, if the Articles specifically authorizes it; See however Ex Parte Tangent Sheeting (Pty) Ltd 1993(3) SA 488 (W) where it was decided that the directors are ordinarily empowered to apply for the liquidation of the company. This case appears to take a practical view of the law and will probably be followed for a full exposition see Henochsberg Commentary on the Companies Act at page 717. the creditor(s) (including contingent or prospective creditors); [s 346(1)(b)]

[Sect 343] 7.2.1

Compulsory Liquidation by Court

7.2.2

Voluntary Liquidation

the member(s) [s 346(1)(c)] (see also sect 103(3)) provided such member who has been registered as such for at least 6 months prior to the date of application and only upon the limited grounds set out in Sect 346(2)

note:

a creditor's voluntary winding-up; a members' voluntary winding-up;

7.3

A member member cannot apply for liquidation on the basis of inability to pay debts

WINDINGINDING-UP BY THE COURT [Sect 344-348]

jointly by any or all of the parties above; [s 346(1)(d)] 7.3.1

JURISDICTION a provisional judicial manager on the discharge of a provisional judicial management order; [s 346(1)(f)] Only the High Court (Local and Provincial Division) is competent to entertain an application for liquidation:

7.3.2

where registered office is situated; or

a final judicial manager (if he is of the opinion that the company will not become a successful concern) on 14 days notice per registered post to all members and creditors [Sect 433(l)];

where main place of business is [Sect 12(1)].

the Master - only in the case of a voluntary liquidation; [s 346(1)(e)]

Main place of business means "head office" or principal place of business.

the Minister in the case of fraud (Sect 262 read with Sect 258).

THE APPLICANT - LOCUS STANDI

Where the Company itself applies, the position in KwaZulu Natal is that creditors must be given notice of such application (albeit in an informal manner, eg. per registered post) and the papers must be available for inspection at the attorneys' offices - Ex parte Three Sisters (Pty) Ltd 1986(1)) SA 592(D) at 593.

[Sect 346] The Application can be made by -

7.3.3

CIRCUMSTANCES IN WHICH COMPANY MAY BE LIQUIDATED BY COURT

the Company [s 346(1)(a)]

[Sect 344(a) and (h)]

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requirements for special resolution [Sect 199]

Any process issued on a judgment in favour of a creditor of the company is returned by the Sheriff with an endorsement that he has not found any disposable property or that any property found did not upon the sale satisfy such process (ie. a nulla bona return) (section 345(1)(B);

registration thereof [Sect 200] It is proved to the satisfaction of the Court that the company is unable to pay its debts (section 345(1)(c)). lapsing thereof [Sect 201] In determining for the purposes of section 345(1) whether a company is unable to pay its debt, the Court shall also taken into account the contingent or prospective liabilities of the company (section 345(2)). These include, for example, liabilities on suretyships.

Commencement of Business before Certificate to Commence Business [Sec 172] has been issued. [s 344(b)] Company failed to commence business within one year from incorporation or has suspended its business for one whole year. [s 344(c)]

For section 345(1) to operate, the debt has to be due and payable. The debt must not be disputed by company bona fide on reasonable grounds. See Kalil v Decotex 1988 (1) SA 943 (A) and Van Zyl NO v Look Good Clothing CC

In the case of a public company, the number of members has been reduced to below 7. [s 344(d)]

1996 (3) SA 523 (SECLD).

75% of issued share capital of company has been lost or has become useless for the business of the company. [s 344(e)]

There is some doubt as to whether it suffices to post the 345(1)(a) letter by registered mail. The more cautious approach is to deliver the letter by hand. If you use registered post, you must prove not only posting but delivery.

If an external company has been dissolved in its country of incorporation, or has ceased to carry on business, or is carrying on business only for purposes of winding-up its affairs. [s 344(g)] See ward v Smit and others : In Re Gurr v Zambia Airways Corp Ltd 1998(3) SA 175 (SCA)

The letter has to go to the registered office of the company. If it goes to the wrong address by mistake, the deeming provision in 345(1)(a) cannot be relied upon. See Van Zyl v Look Good Clothing 1996 (3) SA 523 (SECLD). The conclusion of law that a respondent is deemed unable to pay its debts following on its receipt of a 345(1)(a) letter is one which may be Aassailed@ by respondent. See Ter Beek v United Resources CC and Another 1997 (3) SA 315 (CPD).

up, eg. its substratum has disappeared, eg. the realization of If it is just and equitable that company should be wound up its object has become impossible; or in the case of a deadlock in a `domestic' company. [s 344(h)]. An applicant who relies upon the just and equitable provision to obtain a winding-up order must not himself have been wrongfully responsible for the situation which has arisen - Emphy and Another v Pacer Properties (Pty) Ltd 1979 (3) SA 363 (D) at 368H.

What is required of section 345(1)(b) to operate, is similar to the requirements of section 8(b) of the Insolvency Act. The meaning of disposable property is the same, ie. disposable embraces both movable and immovable property.

Company is unable to pay its debts as meant in Sect 345. [s 344(f)] Section 345(1)(c) enables the Court to liquidate if it is proved to the satisfaction of the Court that the company cannot pay its debts. On a consideration of all the affidavits before the Court the Applicant has to establish a case for the liquidation on a balance of probabilities. See Van Zyl's case supra.

NOTES:

The company's inability to pay its debts may be proved by adducing any facts from which one can infer that the company is unable to pay its debts, eg

Only the circumstances mentioned in 3.2, 3.3, 3.4, 3.5, and 3.7, are available to members who apply for the liquidation of the company company -Sect 346(2) A member cannot rely on s 344(f) (inability to pay debt). debt).

failure to pay, on demand, a debt which is due; a number of creditors have sued the company for payment of monies due to them; the company has written a letter asking for time to pay or stating that it is unable to pay;

The amount of a creditor's claim is only relevant where he relies on Sect 345(1)(a), in which case it must be r100.00 or more. Otherwise it can be any amount.

assets of the company are being attached; a negotiable instrument of the company has been dishonoured; a balance sheet which shows that the company is in fact insolvent (liabilities exceed assets).

7.3.4

WHEN IS THE COMPANY COMPANY DEEMED (=A REBUTTABLE PRESUMPTION) UNABLE TO PAY ITS DEBTS [SECT 344(F) READ WITH SECT 345] Section 344(f) must be read with section 345(1) which provides that a company will be deemed to be unable to pay its debts in the following circumstances:

Note:

A creditor who has a claim of not less than R100,00 which is then due, has served on the company, by leaving at its registered office, a demand requiring the company to pay the sum and the company has for three weeks thereafter neglected to pay the sum (or to secure for it to the satisfaction of the creditor) (section 345(1)(a));

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196 Court should have regard to their wishes. The general rule that an applicant in motion proceedings has to make out his case in his founding affidavit and may not introduce new matter in his replying affidavit (see Shepherd v Mitchell Cotts Seafreight (SA) (Pty) Ltd 1984 (3) SA 202 (T) at 205(E)) also applies to Insolvency and Liquidation matters.

Commercial insolvency refers to the situation where the the company's assets may exceed its liabilities on paper, but it is unable to pay its debts as and when they fall due. It is sufficient to establish commercial insolvency for the purposes of liquidating a company or close corporation (whereas in the case of a sequestration one has to prove actual insolvency if one is not able to establish an act of insolvency). "The concept of commercial insolvency as a ground for winding-up of a company is eminently practical and commercially sensible. The primary question which a court is called upon to answer in deciding whether or not a company carrying on business should be wound-up as commercially insolvent is whether or not it has liquid assets or readily available assets available to meet its liabilities as they fall due to be met in the ordinary course of business and thereafter to be in a position to carry on normal trading - in other words, can the company meet current demands on it and remain buoyant? It matters not that the company's assets, fairly valued, far exceed its liabilities.: once the court finds out that it cannot do this, it follows that it is entitled to, and should, hold that the company is unable to pay its debts within the meaning of section 345(1)(c) as read with section 344(f) of the Companies Act, 61 of 1973 and is accordingly liable to be wound-up." (per Berman J, Absa Bank Ltd v Rhebokskloof (pty) Ltd & Others 1993 (4)

See the case of Ter Beek v United Resources CC and Another 1997 (3) SA 315 (CPD) on the effect of a counterclaim on an application for liquidation: can be a defence to ward off the liquidation provided: that it is not a case of the applicant seeking to enforce a disputed debt by liquidation proceedings, and the respondent has the onus to show why the court should not exercise its discretion to grant a winding up order. A party challenging an application for the winding-up of a company as an abuse of the process of the Court (on the grounds that the applicant=s claim against the company is disputed) must show: (a) that the claim is disputed, (b) that it is bona fide disputed and (c) that the grounds for disputing the claim are reasonable. It does not have to be established, even on the probabilities, that the company would, a matter of fact succeed in any action which the applicant might bring to enforce the disputed claim. The court need merely be satisfied that he grounds upon which the claim is disputed are not unreasonable - Hülse - Reutter v Heg Consulting Enterprises (Pty) Ltd 1998(2) SA208(C). 7.3.5

CONTENTS OF AFFIDAVIT AFFIDA VIT

SA at 436 - 440 F - H)

Description of applicant [Sect 346]: Marital status of Applicant to be given. If Applicant is a creditor-company, resolution to be attached.

Note:

Personal knowledge of allegations in founding affidavit. The Respondent :

There is no requirement to prove advantage to creditors in a liquidation application. application . Section 347 provides that the Court may not refuse to grant a windingwinding-up order on the ground ONLY that the assets of the company are totally mortgaged or that the company has no assets. Caltex oil (sa)(pty) ltd v govender=s govender s fuel distributors 1996 (2) sa sa 552 (n) at 557 bb- c

name and registration number of company share capital - authorized and issued (not essential) main business nature of company registered office/main place of business

Liquidation is a discretionary remedy (section 344 - "a company may be wound-up by the Court ....."). The quantum of proof for the granting of a final winding-up order is Aa clear balance of probabilities@ (per Margo J in Wackrill v Sandton International Removals (Pty) Ltd and Others 1984 (1) SA 282 (W) at 286A).

Jurisdiction (Should appear from description of Respondent)

Locus standi: if creditor, describe amount, cause and nature of claim. If company itself, deal with the resolution authorizing the proceedings and refer to the articles.

The Court has a discretion whether or not to grant a liquidation order even where the Applicant has established that the company is unable to pay its debts as described in section 345. In Rosenbach & Co (Pty) Ltd v Singh's Bazaars (Pty) Ltd 1962 (4) SA 593 (D), Caney J held (at 597) that:

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Basis of application [Sect 344 read with sect 345]:

"If the company is in fact solvent, in the sense of its assets exceeding its liabilities, this may or may not, depending on the circumstances, lead to a refusal of a winding-up order; the circumstances particularly to be taken into consideration against the making of an order are such as to show that there are liquid assets or readily realizable assets available out of which, or the proceeds of which, the company is in fact able to pay its debts."

if inability to pay debts, why ? - facts must be given to support the conclusion in law that the Company is unable to pay its debts;

Even where there are realizable assets available, however, the Court's discretion is very limited where there is a creditor whose debt the company cannot pay and the application is not opposed by other creditors, since an unpaid creditor who cannot obtain payment and who brings his claim within the Act is, as against the company, entitled ex debito justitiae to a winding-up order; he is not bound to give the company time. But if creditors oppose the application, the

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bare allegation not sufficient, must be properly proved;

Security for costs to be furnished with the Master's office [s 346(3)]

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Intention to serve on Master [s 346(4)] If service of application takes place at company's principal place of business, the correctness of this fact must be confirmed in a supporting affidavit by someone who can say that he has personal knowledge thereof.

Advantage to creditors - not necessary to allege/prove - if however you can prove an advantage, you should do so because it influences the Court's discretion in your favour. 7.3.7

FORM OF APPLICATION

If a provisional order is insisted upon by the creditor, adequate reasons therefore must be given in the supporting affidavit. The mere prospect of a composition in terms of section 311 of the Companies Act, 1973 is not by itself a good reason because that can also be achieved even if the company is not in provisional liquidation. [Practice Manual TPD & WLD - par FC3.2]

Notice of Motion [Form 2(a)]. (Cape practice - Form 2) Urgent application [Form 2] (Service must still take place, even if it is informal)

note:

The Practice Manual (par FC 3.1) of the TPD and WLD determines as follows:

The notice of motion should seek final liquidation. The court will decide whether there nevertheless should first be provisional liquidation bearing in mind (a) that the Companies Act does not require final liquidation to be preceded by a state of provisional liquidation (nor that a rule nisi be issued); (b) that there is no need to prove advantage to creditors and therefore usually no room for opposition by other creditors because advantage to creditors is lacking. There may, however, be concern (more particularly in the case of "family" companies or "partnership" companies), that a shareholder is seeking to gain his way against the wishes of other shareholders who may be unaware of his attempt to liquidate the company. An applicant should therefore set out to prove absence of reasons for such concern in such cases where a company requests its own winding up.

The practice in the cape division is almost always to apply for a provisional order first. Prayers: a final order can immediately be issued and therefore the applicant should seek such order the court can then on its own decide whether a provisional order should in stead be granted;

Neither an application by a company for its own winding up, nor for its own provisional winding up need be served on itself - Practice Manual (TPD and WLD) par CB2.

Sometimes a provisional order of winding up is granted so as to give creditors and other interested parties an opportunity to object on the return day of the rule nisi.

In the CPD the usual practice is to seek a provisional order of liquidation and a rule nisi. 7.3.6

ANNEXURES TO AFFIDAVIT Generally cannot have joinder of more than one respondent in a liquidation application. See Caltex Oil (SA) (Pty) Ltd v Govender's Fuel Distributors 1996 (2) SA 552 (N) and cases cited at 556 A-E. You may in special circumstances be able to join more than one Respondent in a liquidation application where there is a complete identity of interests between Respondents - but it is wiser simply to bring separate applications and then ask to consolidate them if necessary.

If applicant is a legal entity - resolution authorizing deponent to bring application. CM22 showing Respondent's registered address i.e. if the return of service does not state that the place of service is the registered office of the company. Photocopy of nulla bona return, if relied on (must not be older than 6 months otherwise the application should be served on the Company and it must be shown that the judgment debt has not as yet been paid).

7.3.8.

PROCEDURE See Flow Chart

Financial statements of Respondent or other documentary proof of inability to pay, if relied on. Special resolution or ordinary shareholders= resolution by the members of Respondent to apply for its liquidation, if relied on.

7.3.9.

POWERS OF COURT [Sect 347]

If directors are applying, extract from Articles which indicate they have power to do so. (Or Director=s resolution alone if you are going to rely on the Tangent Sheeting case.)

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Court always has a discretion and is not obliged to liquidate company

Letter of appointment of (provisional) judicial manager, should he be the applicant.

Grant provisional/final order. The standard of proof required for a final order is proof on a balance of probabilities. Ter Beek supra at 339 B.

Letter of demand and proof of service thereof (if applicable).

Dismiss application

Certificate to commence business, if applicant relies on Sect 344(b).

Adjourn application (conditionally or unconditionally) eg. to ascertain wishes of creditors/members.

If applicant is a member of the Respondent, proof that he complies with Sect 346(2).

Refer matter for hearing of evidence.

Certificate by Master as to security for costs (not more than 10 days before date of application = date when Notice of Motion is signed and filed with the Registrar)

Make any other order it deems fit.

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200 7.3.12

Any other provided for in Section 347(3)(4).

CONSEQUENCES CONSEQUENCES OF LIQUIDATION [Sect 341(2) and 348]

As to approach the Court where faced with a dispute of fact on the affidavits, see Reynolds v Mecklenburgh (Pty) Ltd 1996 (1) SA 75 (W).

Transfer of shares after commencement of winding-up is void.

NOTE:

Disposition of property after commencement of winding-up is void. All civil proceedings against company are suspended as from date of Court Order until appointment of a final liquidator [Sect 359(1)(a)]

The practice in the TPD and WLD is that in the event of a provisional order being made and the Court additionally requiring that other creditors be informed, delivery of a copy copy of the order by telefax will in the absence of a different direction by the Court, be acceptable compliance [Practice Manual, par FC 3.3] 7.3.10

Any attachment/execution put in force against company after commencement of winding-up is void [Sect 359(1)(b)]. Directors cease to be in charge of the company after the company has been liquidated; however they are still entitled to oppose the granting of a final order after a provisional order has been made - Absa Bank Ltd v Rhebokskloof (Pty) Ltd and Others 1993 (4) SA 436 (C).

COMMENCEMENT OF LIQUIDATION

The property of a Company/CC upon its winding-up is to be deemed to be in the custody and under the control of the Master until a provisional liquidator is appointed and has assumed office (section 363(1)) and therefore a liquidator is entitled - where property of the Company/CC was attached and sold in execution before winding-up but which property has not yet been transferred to the purchase thereof - to repudiate the judicial sale of the property in the interest of the body of creditors - Schoerie NO v Syfrets Bank Ltd and Others 1997(1) SA 764 (D & C).

[Sect 348] Date of presentation to Court of the Application = Date of filing of Notice of Motion with the Registrar together with proog of compliance with section 364 (4). Date of commencement of winding-up = date of presentation of application to Court as defined above First National Bank Ltd v EU Civils (Pty) Ltd 1996 (1) SA 924 8 at 933 H.

NOTE: NOTE:

The MV Nantai Princess: Nantai Line (Co) Ltd and Another v Cargo Laden on the MV Nantai Princess and other Vessels and Others 1997 (2) SA 580 (D).

Within 4 weeks after appointment of a liquidator, any person wishing to continue with legal proceedings already initiated against the company must give 3 weeks notice in writing to the liquidator of intention to continue with such legal proceedings against, failing which such proceedings will be considered to be abandoned [Sect 359].

Filing of application with the Registrar has the same effect as a provisional order provided that the order is eventually granted [See Sect 341(2) read with 348]. 7.3.11

URGENT APPLICATIONS [Luna Meubelvervaardigers 1977(4) SA 135(W) is strictly applied] May be presented Ex Parte [Form 2].

wound-up do The liquidators or provisional liquidators of a company which is being wound not require the consent of the Court to oppose an application which has been brought against the Company - Turnover Holdings (Pty) Ltd v Saphi (Pty) Ltd 1997 (1) SA 263 (T).

Service or at least informal notice to the company must still take place. Utmost good faith must be observed. All material facts must be disclosed. Service not required only if it appears to the Court's satisfaction from supporting affidavit that service will probably frustrate the purpose of the relief sought. If application is urgent in order to stop a sale in execution, service must be effected on execution creditor (or his attorney). Provisional order only will be granted.

7.4

VOLUNTARY LIQUIDATION

7.4.1

MEMBER'S VOLUNTARY WINDINGWINDING-UP Procedure

See also Practice Manual TPD and WLD - par FB.

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202

Effective only if registered in terms of Section 200: and if Publication of Voluntary winding-up in the Government Gazette, within the aforesaid 28 days Prior to registration, security has been furnished to Master for payment of the debts of the company within 12 months after commencement of winding-up, or

Give effect to Sect 357(3) - see 1.8 supra.

the Master has dispensed with security because -

NOTE:

the directors declared under oath that the company has no debts; the auditor of the company certified that the company has no debts.

winding-up and a creditors' Principal difference between a members' voluntary winding windingwinding-up is that, in the former, the liquidator exercises his powers subject to directions of the company in general meeting, whereas in the latter latter he does so subject to the directions of the creditors [Sect 386(3)(b) and (c)].

Within 28 days after the special resolution has been registered, a certified copy thereof must be lodged with the Master plus (if a further resolution was passed appointing a liquidator) a certified copy thereof [Sect 356(2)(a)]. In order for the Master to value the adequacy of the security, the company's last balance sheet must be provided. Notice of voluntary winding-up must be published in the Government Gazette within 28 days after special resolution has been registered. A copy of the special resolution must, within 14 days after registration thereof be transmitted by the company to :

7.5

CLOSE CORPORATIONS [Sect 66 - 81, The Close Corporations Act, 1988)

7.5.1

LIQUIDATION BY COURT

the Sheriff of the province where its registered office is;

[Sect 68]

the Sheriff of every province in which it appears that the company owns property;

Grounds

every Registrar of Deeds who maintains a register which shows that the company owns property;

Members who hold more than one half of votes, sign a written resolution to this effect - the meeting must have been called for that purpose (68(a)).

every Sheriff who holds property of the company under attachment. [Sect. 357(3)]. CC has not commenced business within one year of its registration or has suspended its business for one year. [s 68(b)]

Effective Effective Date

7.4.2

[Sect 352]

CC is unable to pay its debts. [s 68(c)]

Date of Registration of the special resolution.

Just and equitable [s 68(d)], eg internal disputes make it impossible to carry on business ie a Adeadlock@ situation exists between members;

CREDITORS' VOLUNTARY WINDINGWINDING-UP [Sect 351 and Sect 363]

it is impossible for CC to achieve its main object;

Procedure

those in control are guilty of gross misconduct.

Members must adopt a special resolution stating that it is a creditors' winding-up. The special resolution must be registered in terms of Section 200.

Note:

A statement of the company's affairs verified under oath by the directors must serve before the Meeting where the special resolution is to be adopted [CM100].

windingAn applicant who relies upon the just and equitable provision to obtain a winding up order must not himself have been wrongfully responsible for the deadlock

Two certified copies thereof to be lodged with Master, within 28 days after the resolution has been registered Special resolution to be lodged with Master, within the aforesaid 28 days 8

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situation which has arisen - De Franca v Exhaust Pro CC (De Franca intervening) intervening) 1997 (3) SA 878 at 897 BB -C.

Not only on the limited grounds referred to in Sect 346(2) of the Companies Act, ie a member of a close corporation may rely on the inability of the close corporation to pay its debts.

Inability to pay debts [Sect 69]

Jurisdiction Jurisdiction A CC is deemed (=a rebuttable presumption) to be unable to pay its debts, if [Sect 7] Failure to pay/secure or compound its debt within 21 days after service of letter of demand [s 69(1)(a)].

Only the High Court of Namibia has jurisdiction.

Nulla bona return in respect of disposable property [s 69(1)(b)].

Registered office or main place of business must be within Court's jurisdiction. Procedure

Proof to the satisfaction of the Court of inability to pay debts i.e. commercial insolvency or its liabilities exceed its assets [s 69(1)(c)].

Process same as in the liquidation of a company.

NOTE:

When you choose whether to bring the application in the High Court, consider the cost implications carefully.

The creditor's claim must be for at least R200, which is due and payable, where the creditor relies on s 69(1)(a).

The decision in Rynders v Bankorp Ltd 1995 (2) SA 494 is to the effect that an application for liquidation of a close corporation in the Magistrate's Court cannot be brought ex parte and the procedure in Rule 55 (1) (with notice of 10 days to the Respondent) has to be followed. [This decision is not relevant to Namibia as the Magistrates’ Court does not have jurisdiction to hear applications for Liquidation.

The deemed inability referred to in Section 69 may be rebutted by the CC - Ter Beek v United Resourced CC and Another 1997 (3) SA 315 (C) at 331F.

General The Court=s discretion in regard to the winding-up of a CC operates even in those instances where the application for winding-up is based on a deemed inability on the part of the CC to pay its debts.

Nature of Proceedings Proceedings

The practice under our common law which permits the suspension of judgment on an admitted liquid claim in convention pending finalization of an illiquid claim in reconvention, also applies to winding-up proceedings - Tar Beek v United Resources CC and Another 1997 (3) SA 315 (C) at 333C - 334C, subject to the qualifications that:

Motion proceedings are specifically prescribed for the winding-up of close corporations (see, Ter Beek v United Resources CC and Another 1997 (3) SA 315 (C) at 328 I) and therefore it must subject to viva voce evidence in appropriate circumstances, be decided on the papers.

the applicant should not be using liquidation proceedings to enforce a debt which is the subject of a bona fide dispute

Applicant

The Respondent bears the onus to show the Court why it should suspend judgment on the main claim pending finalisation of the counterclaim and not grant a liquidation order immediately.

[Sect 66] [Sect 346 excluding 346(2) of the Companies Act applies]

7.5.2

VOLUNTARY LIQUIDATION

[See Liquidation of Companies: "The Applicant", supra]

[Sect 67] Member's or Creditor's Voluntary Liquidation

NOTE:

All the members must attend a meeting called for this purpose and sign a resolution that the corporation be wound-up voluntarily by members or creditors, as the case may be.

he e is a A member of a close corporation is entitled to apply for liquidation even if h member for a period of less than 6 months; and 8

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Resolution takes effect once it has been registered (in duplicate) with the Registrar within 28 days after date of passing of resolution. Failing registration within 90 days of the passing of the resolution, it lapses.

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All other provisions of the Companies Act referred to above, apply.

7.6

Brief Counsel and deliver brief.

FLOW CHART

Attend Court. Report to client.

Take full instructions from client to apply for the liquidation of the Respondent giving special attention to the following: Whether the applicant has locus standi

Uplift brief.

Whether the Court has jurisdiction over the Respondent

Pay Counsel.

What the Applicant's matrimonial property system is

Uplift provisional liquidation order at Registrar (if applicable). (If company is applicant, no service is necessary although publication may still be necessary).

Basis for application Arrange for service of provisional liquidation order as prescribed in the order itself (publication in GG and daily newspapers and service at registered office).

Take deposit from client of approximately R5000,00

Check that return of service of provisional liquidation order is correct.

Do search in respect of Respondent if all particulars are not available eg. registered address and obtain proof of registered office from Registrar's Office (CM22). Draft affidavit for applicant.

Obtain Government Gazette + newspaper and return of service and draft affidavit that there has been compliance with provisional order.

Arrange for attesting of affidavit.

Pay Deputy Sheriff

Supporting Affidavit to be drafted if service is to take place at principal place of business: - someone who can verify under oath the whereabouts of same.

Check that original provisional liquidation order and affidavit with tear sheets and return of service are in Court file

Draft Notice of Motion.

Brief Counsel to appear on return day An extension of a return day will only be allowed if an affidavit has been timeously filed explaining the fairness of an extension - Practice Manual TPD and WLD par FC 4.1 and 4.2.

Prepare draft Provisional Winding-up order (Practice Manual : Form ZT) (if applicable)

Attend Court

Lodge security [Sect 346(3)]

Uplift Final Court order

Uplift certificate by Master that security has been given. Ensure that all annexures have been obtained and are attached to the affidavit.

Report to client Uplift brief

Complete cover for papers.

Pay Counsel

Make adequate number of copies of application.

Draft bill of costs for taxation

Affix stamps to the original (R80)

Ascertain who was appointed liquidator

Have application issued and filed with Registrar

Despatch consent to taxation [Rule 70(4)(b)].

Arrange for service on Respondent by Deputy Sheriff (not necessary if company or CC is applicant or if reliance is placed on nulla bona return which is not more than six months old).

Submit bill of costs for taxation

Serve on Master

Claim costs from Liquidator and account to client.

Ascertain that return of service is correct. Pay Deputy Sheriff. Uplift and lodge Master's report (if any) in Court file [Sect 346(4)(b). 8

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208 IN THE HIGH COURT OF SOUTH AFRICA (CAPE OF GOOD HOPE PROVINCIAL DIVISION)

46

PRACTICE MANUAL

Z7 CASE NO:

STANDARD ORDER -

(T) PROVISIONAL PROVISIONAL WINDINGWINDING-UP: COMPANY and CLOSE CORPORATION

In the matter between JOE BLOGGS

Applicant

and IT IS ORDERED: 1.

DEF (PTY) LTD

Respondent

That the abovementioned Respondent* Company# is hereby placed under provisional winding-up. * #

respondent/applicant company/close corporation

2.

That all persons who have a legitimate interest are called upon to put forward their reasons why this court should not order the final day of 19 at 10:00. winding up of the Respondent* Company# on the

3.

That a copy of this order be forthwith served on the Respondent* at its registered office and be published once in the Government Gazette (##... and in a daily newspaper which circulates through the Witwatersrand)

NOTICE OF MOTION

BE PLEASED TO TAKE NOTICE that the above-named Applicant intends to make application to the above Honourable Court on MONDAY the 12TH day of OCTOBER 1996 AT 10:00 or so soon thereafter as Counsel may be heard for an Order in the following terms:-

##

optional: The alternative is a manual choice to insert e.g. the name of a newspaper.

When required by the court add: ("4. That a copy of this order be forthwith forwarded to each known creditor by prepaid registered post or electronically receipted by telefax transmission.")

(U)

1.

Dispensing with the forms and service provided for in the Rules of the above Honourable Court and entertaining this matter as one of urgency in terms of Rule 6(12).

FINAL WINDINGWINDING-UP: COMPANY 2.

That the Respondent be placed under a provisional order of liquidation in the hands of the Master of

IT IS ORDERED:

the above Honourable Court.

that the above-named Respondent* Company# be and is hereby placed under final winding-up.

3.

That a rule nisi be issued calling upon Respondent and all persons interested to show cause, if any, on a date to be determined by the above Honourable Court, as to why Respondent should not be placed under a final order of liquidation;

4.

That service of this Order be effected by:

4.1

the Sheriff at the registered office of the Respondent.

4.2

one publication in each of The Cape Times and Die Burger newspapers. -2-

5.

That the costs of this application be costs in the liquidation.

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Such further and/or alternative relief as the above Honourable Court may deem fit in the premises.

TAKE FURTHER NOTICE that the affidavit of

attached hereto will be used in support hereof.

KINDLY PLACE THE MATTER ON THE ROLL ACCORDINGLY.

DATED AT CAPE TOWN this

day of OCTOBER 1996.

Applicant's attorneys per: 6th Floor, 2 Long Street CAPE TOWN TO

:

THE REGISTRAR HIGH COURT CAPE TOWN

AND TO

:

THE MASTER HIGH COURT CAPE TOWN

AND TO

: Registered Office C/O Aiken & Peat Southern Life Place 21 Riebeeck Street CAPE TOWN

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8.

232

JUDICIAL MANAGEMENT

main business

Chapter 15 of the Companies Act, 1973 Sections 427 - 440

nature of company

8.1

INTRODUCTION

registered office/principal place of business

8.1.1

Judicial Management differs principally from winding-up because winding-up intends to bring about the dissolution of the company, whilst Judicial Management intends to save the company.

8.5.4

Jurisdiction

8.5.5

Basis of application [Sect 427] : facts showing that there has been mismanagement:

8.1.2

The process of Judicial Management is intended to be a means for affording a Company time to surmount its problems where it has suffered a temporary setback.

degree of mismanagement

8.2

APPLICANT

nature of mismanagement

[Sect 427(2)]

management levels where mismanagement occurred

Any person entitled to apply for liquidation, can apply for Judicial Management (See Liquidation II2 par).

if you rely on any other cause, full particulars thereof, eg temporary illiquidity, liquidity, financial difficulties because of strikes or other labour disputes etc

8 .3

JURISDICTION

8.5.6

Proof that there is a reasonable probability that the company can become a successful concern, can pay its debts and meet its obligations.

8.5.7

That it is just and equitable in the interests of the shareholders and creditors that a judicial management order be granted.

8.5.8

Prayers

8.6

FORM OF APPLICATION AND PROCEDURE

The position is the same as with an application for liquidation. (See Liquidation - II1)

8.4

GROUNDS FOR JUDICIAL MANAGEMENT [Sect 427(1)]

8.4.1

By reason of mismanagement (or for any other cause eg. war, strikes, labour unrest, etc.) the Company must be unable to pay its debts or meet its obligations (eg. to construct a building or manufacture and supply something); and

The position is the same as with an application for liquidation (See Liquidation - par II.6 and par II.7))

8.7

FORM OF COURT ORDER

is prevented from becoming a successful concern. 8.4.2

[Sect 428]

Reasonable probability must exist at the time when the provisional order is sought that if the company is placed under judicial management The Company will be able to pay all of its debts and meet all its obligations within a reasonable time; and

8.7.1

A provisional judicial management order is usually granted with a return day.

8.7.2

See Form Z.Y.

8.7.3

Provisional order must be served on the company at its registered office and published in the Government Gazette and a local newspaper.

8.7.4

The Registrar of the Supreme Court forwards a copy of the order to the Master and the Registrar of Companies [Sect 14]

8.8

RETURN DAY AND POWERS OF COURT

will become a successful concern, i.e. it will be able effectively to carry on its operations in accordance with its main object and yield a return to its shareholders. 8.4.3

It is just and equitable to grant a judicial management order - this is to be determined with reference to the members and creditors of the Company in all the circumstances of the case.

8.5

CONTENTS OF AFFIDAVIT

8.5.1

Locus standi of applicant [Sect 346]

8.8.1

The return day will not be later than 60 days after date of provisional order.

8.5.2

Personal knowledge

8.8.2

On the return day the Court considers:

8.5.3

The Respondent: name and registration number

[Sect 432]

the opinion and wishes of creditors and members [Sect 431(3)] provisional judicial manager's report [Sect 430(c)]

share capital - authorised and issued 8

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234 Prepare Draft Order (ZY)

Master's report [Sect 346(4)(b) read with Sect 427(2)(3)] Complete cover for pages. Registrar of Companies' report [Sect 14] Make adequate number of copies of application the number of creditors who did not prove claims and the amounts and nature of their claims Affix stamps on original (R80) 8.8.3

In terms of Sect 432(2) the Court is empowered to make any one of the following orders: Have application issued and filed with Registrar a final judicial management order Arrange for service on Respondent discharge the provisional order Serve on Master extend the return day Ascertain that return of service is correct. liquidate the company Pay Deputy Sheriff

8.9

DUTIES OF THE JUDICIAL MANAGER Uplift Master's Report [Sect 427(2)] and file in Court file See sec 433(1) Brief Counsel

8 .10

CONSEQUENCES OF JUDICIAL MANAGEMENT

8.10.1

Company is granted a moratorium

8.10.2

Control by Directors is replaced with control by Judicial Manager

8.11

FLOW CHART

Attend Court Report to client Uplift Brief from Counsel Pay Counsel Take full instructions from client to apply for the judicial management of the Respondent and give special attention to the following:

Uplift provisional judicial management order from Registrar

whether he has locus standi

Arrange for service of provisional judicial management order as stated in the order and publish in government Gazette and daily newspaper.

whether the Court has jurisdiction over the Respondent Ascertain that return of service of provisional order is correct. what the Applicant's matrimonial property system is. Obtain Government Gazette and newspaper and draft affidavit that there has been compliance with the provisional order.

basis for application.

8

Take deposit from client of approximately R5000,00

Pay Deputy Sheriff

Do company search in respect of Respondent if all particulars are not available, eg. registered address and obtain copy of CM22.

Ensure that original provisional judicial management order and original return, affidavit and tear sheets are in the Court file.

Draft Affidavit for applicant with the aid of the check lists.

Attend Sect 429 meeting on behalf of client (if applicable).

Arrange for attestation of the affidavit. Supporting affidavit if service to take place at principal place of business

Ensure that: Chairman's report [Sect 431(3)];

Draft Notice of Motion

Master's report [Sect 432(2)(d)];

Ensure that all annexures have been obtained and are attached to affidavit.

Judicial Manager's report [Sect 430(c)]

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236 44

Registrar of Companies report [Sect 432(2)(e)]

PRACTICE MANUAL

Z6

are in the Court file Brief Counsel to appear on the return day

(Y) JUDICIAL MANAGEMENT IT IS ORDERED:

Attend Court

1.

Uplift final order

2. 3. 4. 5.

Report to client Uplift Counsel's Brief Pay Counsel Prepare Bill of Costs for taxation

6.

Ascertain name and address of Judicial Manager

7.

Despatch consent to taxation [Rule 70(4)(b)] Submit Bill of costs for taxation

8.

Claim costs from Judicial Manager and account to client.

9. 10.

That the Respondent Company be, and is hereby placed provisionally under Judicial Management in terms of the Companies Act, 61 of 1973. That while this Order is in force the Company be under the management, subject to the supervision of the Court, of a provisional Judicial Manager or managers appointed by the Master. That as from this date any other person or persons vested with the management of the Company's affairs be divested thereof. That the provisional Judicial Manager or Managers discharge the duties prescribed by section 430 of Act no 61 of 1973. That the provisional Judicial Manager or Managers appointed by the Master be empowered without the authority of the Shareholders but subject to the authority of Creditors and the Master to borrow money with or without security on behalf of the said Company for the purpose of paying essential running expenditure in and about the business of the said Company including salaries, wages and rental for business premises required by the said Company including salaries, wages, rental for business premises required by the said Company and to pledge the credit of the said Company for any goods or services required. That while the Company is under judicial management all actions, proceedings, the execution of all writs, summonses and other processes against the Company be stayed and be not proceeded with without the leave of this Court being had and obtained. That the rate of remuneration of the provisional Judicial Manager or Managers be fixed by the Master in accordance with the services rendered and disbursements incurred, or should the Master to request the said rate of remuneration shall be fixed by the Court after the Master has reported thereon. That a rule nisi do hereby issue calling upon all persons concerned to appear and to show cause, if any, to this Court at 10h00, on the day of 19 . 8.1 why a final Judicial Management Order should not be granted; 8.2 why the following directions should not be included in the said final Order 8.2.1 that the management of the Company shall vest, subject to the supervision of the Court, in the final Judicial Manager or Managers; 8.2.2 that the provisional Judicial Manager or Managers shall forthwith hand over all matters and account for his or their administration of the property, business and affairs of the Company to the final Judicial Manager or Managers; 8.2.3 that the provisional Judicial Manager or Managers may be discharged from their duties, but that he or they remain obliged to account to the final judicial Manager or Managers as aforesaid, and to the Master; 8.2.4 that the provisions of paragraphs 5.6 and 7 hereof, should apply mutatis mutandis; 8.2.5 that the final Judicial Manager or Managers discharge the duties prescribed by section 433 of Act No 61 of 1973; 8.3 and why the costs of this application should not be costs in the Judicial Management. That this Order be published forthwith in each of the Government Gazette and a Johannesburg (daily newspaper appointed by the Court). That service of this Order be effected upon the Respondent Company at its registered office.

BY THE COURT

REGISTRAR

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COURT6 The only other shareholder and Director of the Respondent is one Z .......... GEREGTELIKE BESTUUR VAN MAATSKAPPY - mosieaansoek met hierdie beëdigde verklaring aangeheg. 5. IN THE HIGH COURT OF SOUTH AFRICA (TRANSVAAL PROVINCIAL PROVINCIAL DIVISION)

CASE NO

In the matter between:

The said Z ..... is today the South African Light Heavy-weight professional boxing champion who fights under the name of W ..... and is hereinafter referred to as W..... A number of years ago, when W ..... became a professional boxer, Applicant became his manager and trainer and the said association has existed ever since.

X. ..........

Applicant 6.

and Early in 1983 Applicant and the said W ..... decided to buy the shares of the Respondent as they were aware that it was a good and flourishing Y. ..........

Respondent

business. 7.

AFFIDAVIT Accordingly they purchased all the shares in the respondent in equal shares and on the 7th of March 1983, they became the two sole Directors of the Respondent and are today the only Directors therein. I, the undersigned, 8. X. .......... Applicant and the said W ..... were given to believe by the previous directors and shareholders of the Respondent, that the Manager of the Respondent, one V ....., was a very competent person. Because of this assurance and because of Applicant's and the said W....'s numerous commitments

make oath and say:

in boxing activities in South Africa and overseas, they left the day to day running of the Respondent to the said V ..... whom they then believed to be a 1.

competent manager. 9.

Applicant is X. .......... (name) .........., a Director of Companies and a boxing manager and trainer of .......... (address) .......... Transvaal. 2.

Applicant and the said W ..... intended to build up the Respondent as an investment and have never drawn salaries and/or Director's fees from the Respondent. In fact, despite having put money into the Respondent, they have not drawn a penny from the Respondent, although Respondent has

The Respondent is Y .......... (name) .........., a company duly incorporated with limited liability according to the Company Law of the Republic of South

shown a net profit of approximately R5 000.00 per annum since they acquired their interest as aforesaid. The said net profits were put back into the

Africa having its registered offices at 94 Struben Street, Pretoria, and there carries on business as a garage, which sells motor cars, does repairs and

Respondent and were appropriated to the Appropriation Account.

panel beating. 10. 3. On 30th June 1985, the Appropriation Account of the Respondent was the sum of R10 000,00 to which Appropriation Account was added the net Applicant holds 50% of the shares in the respondent and is also a Director of the Respondent. Applicant is further a creditor of the Respondent in

profits of the Respondent for the financial year ending 30th June 1985.

the sum of R10 000,00 for money lent and advanced and for which applicant holds no security whatsoever. The said amount is due and payable by 11.

the Respondent. 4.

Applicant annexes hereto annexures "A", "B" and "C", statement of account, profit and loss account and balance sheet of the Respondent as at 30

239

240

June 1985. The said documents have been prepared by the Respondent's auditor, one O ....., and they were prepared on the 4th February 1986.

respondent, its Directors and the said V ....., and the amount of the repair work done was in the sum of over R5 000,00. V ..... arranged with the client that the latter would pay off the amount at the rate of R100,00 per month. No security was asked for or given and no

12.

enquiries were made as to the client's ability to pay. In fact, although the work was done in about February 1986, the client had paid approximately R150,00 and no attempt whatsoever has been made to collect the said money.

During 1985 the boxing commitments of Applicant and the said W ..... were extremely heavy and Applicant and the said W ..... were out of South Africa on a number of occasions and for considerable periods. While in South Africa their boxing programme was likewise heavy and they were fully

(f)

occupied with it.

The said V ..... having ordered goods recklessly on credit and which goods were mainly used for the repair work set out above, made no attempt to liquidate the amount owing to the said creditors.

13.

(g)

Furthermore the Respondent was obliged to pay wages to skilled workmen, whose services were used for the repairs done for the large amounts to persons who obtained credit from V ....., although the said V ..... was well aware that the Respondent would have to pay them

When Applicant and the said W ..... took over the business of the Respondent, they informed the manager, the said V ....., that he was not to give

their salaries fell due and not when the debtors paid their accounts.

credit to customers except to old and trusted clients of the Respondent and that all other transactions should be conducted on a cash basis. At that stage Applicant and the said W ..... did not know any of the customers of Respondent personally. Further the said V ..... was instructed not to

(h)

purchase large amounts of spare parts and business requirements on credit, and as far as possible to purchase such requirements on a cash basis. During

The said V ..... was very grossly negligent in the management of the affairs of the Respondent and Applicant takes that he allowed the telephone account to be in arrear until it reached the amount of approximately R5 000,00.

or about November 1985, Applicant became aware that the said V ..... had given large amounts of credit to Respondent's clients. At that stage annexures "A", "B" and "C" hereto had not been drawn and completed but Applicant became aware of the large amounts of credit given and that no

16.

security was held for this credit. Applicant humbly refers this Honourable Court to annexure "C" hereto from which will appear that on the 30th June 1985, Sundry Debtors amounted to a figure of R100 000,00 whereas Sundry creditors amounted to R70 000,00.

Applicant, when he discovered the true position at the end of 1986, in consultation with the said V ....., curtailed credit, except in the case of a few trusted clients and immediately commenced collecting from debtors. Applicant has now reduced the amounts outstanding by debtors to the sum of

14.

approximately R50 000,00. Applicant with the short time at his disposal, has not been able to obtain the exact figures herefor.

Applicant and the said W ..... thereupon investigated the management of the Respondent by the said V ..... and as a result thereof dismissed him in

17.

January 1986. In January, 1986, the said W ..... and Applicant installed U ..... as Manager of Respondent, instructing him to carry on business of Respondent on a 15.

cash basis except for old and trusted clients. The said U ..... has done so and despite curtailment of credit, the turnover of Respondent is large although slightly less than it was when V was giving the indiscriminate credit. The monies Respondent then obtained were used to pay the running

Applicant humbly avers that the affairs of the Respondent were seriously mismanaged by the said V ..... in the following respects:-

expenses of the Respondent and in repayment of the respondent's creditors' accounts. Applicant makes mention that the Respondent was not placed under obligation to pay the salary of the said U ..... Any remuneration he received was of a private nature between the Directors personally and the

(a)

He had recklessly and indiscriminately granted credit to a large number of persons without obtaining any security for the repair work to

said U.

motor vehicles, or investigating whether credit ought to have been given to them at all, and such activities were contrary to the direct and explicit instructions given by Applicant and the said W ..... to him.

18.

(b)

In order to effect repairs the said V ..... bought vast amounts of new and second-hand spares on credit.

For reason of prior boxing contracts Applicant and the said W ..... proceeded overseas to Berlin at the end of January 1987. The said W ..... has two

(c)

The said V ..... failed almost entirely to collect amounts outstanding from the said debtors despite the increase in the number and amount of

Germany Applicant received a cable to return to South Africa immediately because of the Respondent's position, and Applicant did so immediately,

their obligations to the respondent.

arriving in Pretoria on the evening of the 24th March 1987.

fights in Germany during the period of February and March 1987 and, as scheduled, a fight in London, England on the 25th April 1987. While in

(d)

He in fact made no attempt to collect monies owing to the Respondent despite the fact that many of the said debts were long outstanding

19.

and overdue. The said W ..... was unable to come by reason of his boxing contract. (e)

Applicant makes mention for instance that V ..... repaired a motor car involved in an accident on credit. The said client was not known to

241

20.

242

(h)

The turnover at present is sufficient to pay for requirements of Respondent in cash and pay its running expenses and pay off a certain amount of creditors monthly.

Applicant has now discovered that the creditors who have now started pressing the Respondent for payment of their accounts, are not prepared to wait any longer. The collection of Respondent's debts and the cash turnover profits are not sufficient to meet the creditor's immediate claims and pay all

(i)

debts.

In terms of Respondent's agreement with the Vacuum Oil Company of South Africa Limited, the latter is obliged to make available to Respondent a grant of approximately R30 000,00 shortly which would alleviate Respondent's position greatly. Should Respondent be liquidated or sales in execution take place, the said grant will not take place.

21. 23. Applicant, on the 25th March 1987, discovered that a number of creditors had taken judgment against the Respondent and two Sales in execution have been advertised, one for 1st April 1987 and the other for 10th April 1987. Applicant humbly avers that the creditors who have not sued

Applicant has not been able in this short time at his disposal since his return to Pretoria from Germany on the 24th March 1987 to obtain a Balance

Respondent will do so immediately by reason of the fact that the other creditors have now sued Respondent. Applicant has ascertained that the claims

Sheet from Respondent's auditor. Applicant humbly avers that the position is approximately the same as set out in annexures "A", "B" and "C"

of Respondent's creditors at the moment total the sum of approximately R30 000,00. Applicant draws the attention of the Honourable Court to the

hereto, except that the debtors have been reduced to the sum of approximately R50 000,00 and creditor's accounts to the sum of R30 000,00.

fact that since he curtailed credit and started collecting debts, the amounts of creditors have been reduced by approximately R40 000,00. Over and

24.

above this the running expenses of Respondent since the beginning of this year have been paid on a cash basis. Applicant makes mention to this Honourable Court of the fact that the said W... fully approves any action taken by Applicant. 22. 25. Applicant humbly avers that it is just and equitable that the Respondent be placed under judicial management and for the following reasons: Applicant humbly avers that the matter is now one of urgency as a creditor on the 25th March 1987, threatened to apply forthwith and by urgent (a)

The Respondent has always had, a large turnover and a great volume of trade is available to Respondent.

(b)

The Respondent's assets exceed its liabilities, although Applicant is not able to say with certainty what amount of the sundry debtors

application to this Honourable Court to liquidate Respondent. Applicant humbly avers that if this were done irreparable harm would be done to Respondent due to aforegoing reasons.

remaining is a bad debt. Applicant humbly avers that such amounts will be small although it will take time and litigation to collect all the

26.

debts. Applicant humbly avers that Mr T.., an auditor and accountant of Pretoria, is a fit and proper person to be appointed Judicial Manager of Respondent (c)

A respite will enable most of the debtors of the Respondent to be recovered and creditors to be paid in full.

and the said T. is willing and able to act as Judicial Manager should this Honourable Court so appoint him, as will more fully appear from his affidavit hereto annexed, marked "D".

(d)

The Respondent has always has a large goodwill and flourishing trade which, despite the curtailment of credit, has not noticeably decreased at all.

(e)

27.

Should liquidation order be granted against the Respondent, the Respondent will lose this goodwill to a very large extent which Applicant

Applicant hereto annexed annexures "D" and "E" respectively, affidavits by the aforesaid S and U, to which Applicant humbly refers this Honourable

humbly avers not only attaches to Respondent as a successful garage as such, but also the fact that Applicant and especially the said W. are

Court.

associated with Respondent. 28. (f)

The Respondent has always been run at a profit since its incorporation and that the present difficulties are due entirely to the fact that the said V... has mismanaged Respondent as aforesaid.

Applicant has provided security to the satisfaction of the Master of this Honourable Court as is required by law, as will more fully appear from the Certificate by the Master hereto annexed marked "G".

(g)

A sale in execution would automatically cripple Respondent's running efficiency and all creditors would thereupon sue for the amounts outstanding and sell Respondent's assets piecemeal in execution. Applicant humbly avers that on a sale in execution the assets of Respondent would be sold for below their actual value which is generally the position in sales in execution.

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29.

9.

COMPROMISE Section 311 of the Companies Act, 1973

Applicant humbly avers that in the premises of the aforegoing, the Respondent will pull through its difficulties and all its creditors will be paid in full and it will become a flourishing business should an Order of Judicial Management be granted.

9.1

PURPOSE

WHEREFORE Applicant prays that it may please this Honourable Court to grant an order:-

9.1.1

The Section 311 procedure exists for a company to negotiate and reach a binding agreement with its members or creditors with a view to modifying their claims in the common interest of all parties concerned.

(a)

Placing the Respondent under Judicial Management;

9.1.2

Section 311 therefore creates the machinery which enables a company to negotiate with the members of a group of shareholders and/or creditors collectively and then to bind all the members of that group to the agreements reached by the majority of members of that group.

(b)

appointing T.. as Judicial Manager; 9.1.3

The main object of Section 311 is to rearrange the company's liabilities by compromise.

(c)

that the costs of this application be costs in the Judicial Management;

9.2

UNDER WHAT CIRCUMSTANCES

(d)

any other or alternative relief.

9.2.1

The application of Section 311 is not limited to companies which are insolvent - Ex Parte Payne Bros Ltd 1945 NPD8.

9.2.2

A compromise contemplated by Section 311 is of the widest character and the only limitations are that the scheme cannot authorise something contrary to the law or ultra vires the company.

9.2.3

The compromise is made between -

SIGNED this

day of

19 at PRETORIA.

the company and its creditors (as a whole) or any class of them; the company and its members or any class of them; or I certify that the Deponent acknowledged that he understands the contents of the declaration and the Deponent uttered the following words "I swear that the contents of this declaration is true, so help me God" before me at PRETORIA on this

day of

the company and any combination of creditors and members or any class of them.

19.. 9.2.4

A person who is not party to a compromise is not bound even if the Court's order sanctioning the compromise purports to include - Barclays National Bank Ltd v. H J de Vos Boerdery Ondernemings (Edms) Bpk 1980 (4)

9.3

WHO MAY APPLY?

9.3.1

"Compromise" means an agreement between the persons referred to in par II3 above which terminates a dispute about -

COMMISSIONER OF OATHS

the rights of the parties which are to be compromised; some difficulty in enforcing such rights. 9.3.2

When a compromise is proposed, any of the following persons can approach the Court for an order to convene a meeting of the creditors (or class of creditors) or members (or class of members) to consider the proposal. the company itself; any creditor of the company; any member of the company; the liquidator of a company being wound up, which includes the provisional liquidator; the (provisional) judicial manager of a company under judicial management.

9.3.3

The application is made Ex Parte. 8

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9.4

PROCEDURE

It is convened in the name of the chairman appointed in the court order.

9.4.1

THE APPLICATION TO SUMMON

Notice of the meeting must be accompanied by the explanatory statement in terms of Section 312 explaining the effect of the compromise.

Contents of affidavit The scheme of compromise to be considered must be attached to the notice. Locus standi of applicant A proxy form must be sent with the notice. Personal knowledge A copy of the court order must be served on every person affected by the order - service can be effected informally.

Formal details of company in order to establish jurisdiction: -

date of registration

-

registered address

-

place of business

NOTE:

See also Practice Manual TPD and WLD, par FE

Sufficient detail of the meetings to be summoned to enable Court to give directions as to the manner of convening, the method of holding and conducting the meetings and the person to be appointed to act as chairman.

Conduct of meetings All relevant facts relating to the proposed scheme including its effect and consequences. The meeting is conducted in accordance with the directions in the court order. The circumstances under which the scheme has arisen must be stated. The procedure at meetings of creditors is not governed by insolvency law. An indication as to the classes of creditors/members to be summoned to the meeting. The compromise must be agreed to by Prayers S

a majority in number representing 75% in value of the creditors/class of creditors; or

S

a majority representing 75% of the votes exercisable by the members/class of members.

Prayers See TPD Practice Manual (extract attached). [Form ZX]

The respective majorities referred to in 3 are those of creditors and members who are present in person or by proxy and who vote at the meeting.

Documents to be attached

The Chairman

The written proposal with all its terms The explanatory statement in terms of Section 312 (optional)

He should comply strictly with the terms of the court order.

If the company is in liquidation, the liquidator's report on the business merits of the proposal.

He should qualify himself in order to furnish to the meeting all relevant information to be considered.

If the company is under judicial management, a report by the judicial manager as to the business merits of the proposal.

He should conduct the meeting fairly and afford each person present the opportunity to ask questions and state his position. He should comply with the order of court to file and report on a certain date to report the result of the meeting.

9.4.2.

In his report he should indicate S details of attendances

MEETINGS MEETINGS Convening the meeting The meeting is summoned in accordance with the directions in the court order. 8

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S

details of proceedings at the meeting

S

the views of those in favour and against the compromise and the main reasons therefor

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248 Ex Parte Natal Coal Exploration Co Ltd 1985 (4) SA 279 (W)

S

all rulings made and all directions given by him. Ex Parte Suiderland Development Corporation 1986 (2) SA 442 (C)

Registration of Court Order sanctioning the Scheme Ex Parte NBSA Centre Ltd 1987 (2) SA 783 (T) The application to court to sanction the scheme is Ex Parte and brought by the same person who applied under par III2 above.

Ex Parte Kaplan Kaplan : In re Robin Consolidated Industries Ltd 1987 (3) SA 413 (W)

The court shall sanction the compromise if -

Ex Parte Millman : In re MultiMulti-Bou (Pty) Ltd 1987 (4) SA 405 (C) [Followed Ex Parte Kaplan] Kaplan]

S

all statutory formalities have been complied with; and

Ex Parte Strydom : In re Central Plumbing Works (Natal) (Pty) Ltd 1988 (1) SA 616 (D) [Ex [Ex Parte Kaplan not followed]

S

it is fair and reasonable to the members/creditors concerned.

Sackstein v Boltstone (Free State) (Pty) Ltd 1988 (4) 556 (0) Ex Parte Lebowa Development Corporation Ltd 1989 (3) SA 71 (T)

The court order duly takes effect once a certified copy thereof has been registered by the Registrar of Companies - Section 311(6)(a).

Cooper v A&G Fashions (Pty) Ltd : Ex Parte Millman NO 1991 (4) 204 (K)

A copy of the court order must be annexed to every copy of the memorandum of the company.

449 (W) Ex Parte MielieMielie-Kip Ltd 1991 (3) 449

Proving of claims by creditors

De Villiers and Others NNO v Electronic Media Network (Pty) Ltd 1991 (2) 180 (W)

In practice, a Receiver is appointed and creditors prove their claims with him within a specified period after the sanctioning of the scheme.

Ex Parte De Villiers NO : In re MSL Publications (Pty) Ltd (in liquidation) 1990 (4) 59 (W) Ex Parte Garlick Ltd 1990 (4) 324 (K)

If they fail to do so and they received notice of the offer and the meeting, they are deemed to have abandoned their claims.

Morris NO v Airomatic (Pty) Ltd t/a t/a Barlows Airconditioning Co 1990 (4) 376 (A)

The scheme must state that the Receiver must pay any creditor who was not given notice.

Pressma Services (Pty) Ltd v Schuttlen & Another 1990 (2) 411 (K) Incorporated General Insurances Ltd v Cement Distributors (South Africa) 1990 (1) 132 (A)

Discharge of Liquidation or Judicial Management Order

Mercian Investments (Pty) Ltd v Johannesburg City Council 1990 (1) 560 (W)

If in terms of the compromise the liquidator/judicial management is to be set aside, the Court's order sanctioning the compromise cannot itself operate to set aside the winding-up/judicial management.

Singer NO v MJ Greeff Electrical Contractors (Pty) Ltd 1990 (1) 530 (W) The Court must set aside the liquidation/judicial management in proceedings brought under Section 354(1).

Namex (Edms) Bpk v Kommissaris van Binnelands Inkomste 1994 (2) SA 265 (A)

Section 311(4) provides that if the compromise provides for the discharge of a winding-up order the liquidator must lodge 2 reports with the Master, viz

9.5

S

a report in terms of Section 400(2) relating to offences committed under the Act by the company, directors or officers of the company.

S

a report stating whether any directors/officers should be held personally liable for the debts of the company.

AUTHORITIES TO BE CONSULTED Ex Parte Federale Nywerhede Bpk 1975 (1) SA 826 (W) : In re Hellenic & General Trust Ltd [1975] 3 All ER 382(Ch) Ex Parte Venter : In re Rapid Mining Supplies (Pty) Ltd 1976 (3) SA 267 (0) Ex Parte Satbel Satbel (Edms) Bpk : In re Meyer v Satbel (Edms) Bpk 1984 (4) SA 347 (W)

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PRACTICE MANUAL

Z9

STANDARD ORDER

3.2

(X)

3.3

SECTION 311 - COMPROMISE

The proposed statement in terms of section 312 must be attached to the application. To limit costs, the facts therein which require proof must be repeated in the affidavit only by way of an appropriate reference to the statement as is meant in Ex part De Villiers 1993 (1) SA 493 (A) at508H-I. The statement must not amount to an abbreviated repetition of the terms of the compromise but must explain its impact in terms of which are readily understandable by a layman. The statement may be compiled by an accountant, liquidator or other person with adequate knowledge of the facts and must state the name of its author.

IT IS ORDERED: ORDERED: 1.

4.

The court must be informed about the extent to which parties who are entitled to vote are not from the Pretoria area (if the application is heard in Pretoria) or from the Witwatersrand (if it is brought in Johannesburg). If the court is not so informed it will incline to require publication in a newspaper with national circulation in its dominant language and in another official language in either a national newspaper which is in circulation in the province wherein the company carried on business.

5.

The chairperson must forthwith

That meetings in terms of section 311(1) of the Companies Act, 1973, ("the Act") of: 1.1 1.2

secured creditors; (mention each further class of creditors who have to meet)

of (... Ltd) ("the Company"), be held on (12 November 1998) at (e.g. 10h00, 10h15, and 10h30 respectively) at (address) for the purpose of considering by way of casting votes, the acceptance, with or without modification, of the offer of compromise made by (insert name of offeror), which is an annexure to the application.

5.1 5.2

2.

That (insert name) or when he is unavailable (name) is appointed as chairperson, holding offices for all relevant purposes at (insert address) (herein called "the official offices"), 2.1 2.2 2.3 2.4

3.

(a) (b) (c) (d) (e)

with power to adjoin a meeting if it is advisable; with power to require a claim or a right attaching to a claim to be confirmed under oath or affirmation; with the duty to comply with part FE of the Practice Manual; with the duty to report on the said meetings to this Court on (e.g.31 December 1999) at 10h00.

That the said meetings shall be summoned by the chairperson forthwith publishing a copy of this order in: (a) (b)

an official Gazette and in (as determined by the Court)

4.

A proxy which a creditor wishes to use must be filed at the official offices at least 24 hours before the meeting. It must be in the prescribed form of which a copy can be obtained free of charge at the official offices.

5.

That a copy of the offer of compromise, a statement of the values of assets of the company, a list of its creditors and of the statement in terms of section 312 of the Act, (a) (b)

6.

If reason arises for regarding one or more creditors as a class of creditors which possibly should, in the order authorising the convening of the meetings, have been recognised as a further class of creditors, the votes of any creditor who may be in that class shall be cast, counted and reported on separately.

7.

The chairperson must report to the court on 7.1 7.2 7.3

may be inspected by a creditor free of charge during business hours at the official offices. will upon written request to the chairperson be provided to a creditor free of charge.

7.4 7.5 7.6

That to entitle him to vote on any other basis than the information about the amount of the claim and the extent of its preference or security stated to the creditor by the chairperson, he must lodge a proof of claim in a form which complies with section 366(1)(a) of the Act with the chairperson at the official offices at least 24 hours before the meeting. If an affidavit proves the amount and nature of the claim and adequate reasons for lateness, the chairperson may until the casting of votes begins, condone late compliance if he is convinced that late attention to the claim will not cause undue delay.

K.

a copy of the court order. a copy of the offer of compromise; a copy of the statement in terms of sections 312(1) and (2) of the Act; a form which can be used as proxy. a statement showing: (1) the amount for which the creditor is reflected in the company's records as a creditor of the company and the extent to which he is reflected as a preferent or secured creditor; (2) the company's assets and the values thereof; (3) the aggregate amounts due to (a) secured, (b) preferent and (c) concurrent creditors; (4) the amount which directors claim to be owing to them; the validity of those claims; and what security is held therefor;

6.

That a copy of the chairperson's report to the court will for four days from the Tuesday preceding the aforesaid date for reporting to the court, be available at the official offices for inspection by any creditor.

7.

cause the order to be published in an official gazette and such newspapers as the court directs, on a date which is at least two weeks prior to the date of the meeting; and send the following by prepaid registered post to each creditor of the company:

7.7 7.8

the grounds, if any, for concluding that one or more creditors constitute such an additional class of creditors; the number of creditors who attended in person; the number of creditors who were represented by proxies and which thereof was represented by the chairperson in terms of proxies; the amount of the claims of those creditors; which proxies were rejected; each resolution taken at any meeting with particulars of the number of votes cast in favour and against each resolution and the number of abstentions, stating the number of votes cast by the chairperson by virtue of proxies; each ruling of the chairperson at a meeting; the salient qualities of every other offer of compromise which was open for consideration at a meeting.

COMPANIES ACT APPLICATIONS

SECTION 311 2.

It must be proved that the proposed chairperson is not a professional advisor of and has no direct or indirect interest in the offeror, in the company or in a holding company or a subsidiary of any of them.

3. 8

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"meetings" means the meetings (or any adjourned meetings) of creditors to be convened by an order of Court for the purpose of considering the arrangement;

2.15

"order" means the order of Court sanctioning the arrangement;

2.16

"proposer" means Joe Soap, the person who provided the capital sum to the company in order to effect a composition with its creditors;

2.17

"receiver" means Joe Doe referred to in 2.6, or any person/s who will be appointed to act as receiver/s for the creditors under the arrangement;

2.18

"review" means an application to Court in which the applicant merely proves his rejected or partially rejected claim, or any security or preference, as a fact, whereupon the Court may order the receiver to act in accordance with such proved facts;

2.19

"sanction" means sanction of the arrangement by the Court in terms of Section 311 of the Act;

2.20

any reference in the arrangement to the singular shall include the plural and vice versa.

Annexure Annexure Y

ANNEXURE Y - EXAMPLE OF COMPROMISE AN ARRANGEMENT BETWEEN XYZ (PROPRIETARY) LIMITED (IN LIQUIDATION) AND ITS CREDITORS, IN TERMS OF SECTION 311 OF THE COMPANIES ACT NO.61 OF 1973, AS AMENDED, WHICH HAS BEEN PROPOSED BY JOE SOAP. INTRODUCTION INTRODUCTION 1. 1.1

This document is signed by the proposer (who thereby binds himself to all its terms and conditions insofar as they affect him) and the receiver (who thereby binds himself to perform the duties imposed upon him). The proposer intends to acquire all the shares in the company and to provide it with sufficient additional capital to enable it to effect a composition with its creditors, which will restore it to solvency after this composition. The provisional liquidator will be appointed as receiver in order to manage the distribution of these funds.

1.2

DEFINITIONS 2.

Unless inconsistent with or otherwise indicated by the context:

8

2.1

"assets" means all the assets of the company as at the fixed date;

2.2

"Act" means the Companies Act No. 61 of 1973, as amended;

2.3

"acquittance" means a document executed by a creditor in terms of which that creditor advises the receiver that he will not look to the company or the receiver for payment of any dividend or other benefit under the arrangement, to the extent of the amount stated in the acquittance;

2.4

"arrangement" means the arrangement contained herein in terms of Section 311 of the Act, between the company and its creditors and, for purposes of interpretation includes the synopsis of the arrangement;

2.5

"capital sum" means the sum of R..... (.............. Rand) to be provided by the proposer to the company, and to be paid by the receiver on behalf of the company to creditors, which sum shall be utilised as additional capital of the company, for this purpose;

2.6

"chairman" means Joe Doe of Joe Doe & Co. (Proprietary) Limited, 1 First Road, Johannesburg, 2000 or any other person who may be appointed by the Court to this office;

2.7

"company" means XYZ (Proprietary) Limited (in Liquidation), a company having a share capital, duly incorporated in accordance with the company laws of the Republic of South Africa;

2.8

"Court" means the Division of the Supreme Court of South Africa;

2.9

"effective date" means the date of sanction;

2.10

"final date" means the date on which the order is registered by the Registrar of Companies, in terms of the Act;

2.11 2.12

"fixed date" means the date on which the company was placed under Provisional Liquidation; "Insolvency Act" means the Insolvency Act, No. 24 of1936, as amended;

2.13

"liquidator" means the provisional or final liquidator of the company, as the case may be;

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45 PRACTICE MANUAL

payment of the capital sum shall, prior to the commencement of the first meetings, be secured to the chairman's satisfaction, by way of a banker's or other guarantee approved of by the chairman and the receiver.

Annexure Y 4.1.2

CONDITIONS PRECEDENT 3.

This arrangement is subject to the conditions precedent that 3.1

3.1.1

3.1.2 3.1.3 3.1.4

3.2

4.2

prior to the commencement of the first of the meetings, but subject to the arrival of the final date the liquidator cancels, with effect from sanction, all agreements to which the company is a party as the proposer may in writing request the liquidator to cancel, provided the liquidator may lawfully cancel such agreements, and any claim arising from such cancellation shall rank as a concurrent claim for purposes of the arrangement, subject however, to any secured or preferent rights which the other contracting party may have against the company under such agreements; written agreements to the satisfaction of the proposer are entered into providing for the acquisition by and transfer to the proposer of the entire issued share capital of the company; written arrangements to the satisfaction of the proposer are entered into relating to the occupation by the company of such leased premises as the proposer in his sole discretion may deem fit; written arrangements to the satisfaction of the proposer are entered into providing for the proposer to take possession of the assets and the business of the company and to use and conduct the same pending sanction, upon such terms and conditions as may be agreed upon in writing between the proposer and liquidator;

3.2.3

3.2.4

(a) (b)

(c)

Proof of claims claims for purposes

6. on the fixed date and on the final date the company will be the lawful owner and in possession of the assets;

3.4

the company, on the date of sanction, is discharged from liquidation;

3.5

the capitalisation envisaged in 1.3 has been accomplished to the satisfaction of the court.

5.1

Creditors who are reflected in the books of account of the company as creditors, shall be regarded by the receiver as creditors for the amounts for which they so appear to be creditors, and as secured or preferent creditors to the extent that such security or preference is reflected in the books of account and records of the company, unless the receiver in writing, by registered mail, advises any particular creditor that he rejects such claim or security or preference, in which event that creditor shall be required to prove his claim in terms of the provisions of 6 and 7 within a period of 60 (sixty) days after receipt of such written advice.

5.2

Creditors who allege that they are creditors for amounts which differ from that appearing in the books of account of the company, are required to lodge their claims in accordance with the provisions of 6 and 7.

Creditors with claims rejected or not reflected in the books of account and records of the company 6.1

3.6

6.2

It is specifically recorded that the conditions set forth in 33.6.1 3.6.2 3.6.3 3.6.4

6.3

are imposed for the benefit of the proposer alone; shall, at the option of the proposer, be separate, divisible and distinct from one another; must all be fully complied with unless waived in terms of 3.6.4; and may at any stage be waived or abandoned in whole or in part by the proposer on written notice to that effect addressed to the chairman or to the receiver. 7.

SUBSTANCE OF ARRANGEMENT

7.1 Payment and securing of capital sum 4.1.1

8

For the purposes of the arrangement, payment of the capital sum shall be made by the company to the receiver after the final date, upon demand by the receiver to the company, and, pending such demand,

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Creditors envisaged in 6 must lodge their claims with the receiver at ............, within a period of 60 (sixty) days after the final date, provided that any creditor who has lodged his claim with the liquidator, or has proved his claim during the winding-up of the company, shall not be obliged to relodge such claim for proof. Claims shall be proved to the satisfaction of the receiver if he were the presiding officer at a meeting for the proof of claims within the meaning of Section 44 of the Insolvency Act, as read with Section 366 of the Act, supported by affidavits which are to contain such information and are to be accompanied by such supporting documents as are required for proving claims in accordance with the aforegoing statutory provisions. The receiver's decision shall be subject to review by the Court upon the application of any party affected thereby, provided that any such review of proceedings shall be brought within 30 (thirty) days of receipt of advice of that decision in writing from the receiver, acting in that capacity. Should the affected party fail to make such an application, he shall be deemed to have waived his right to dispute such decision and shall thereafter be debarred from bringing any such review proceedings.

Secured creditors with claims or security rejected or not reflected in the books of account and records of the company

4. 4.1

the secured portion of the claims of all secured creditors in full to the extent of the value of such security any balance not so ranking constituting concurrent claims ranking for participation in the distribution to concurrent creditors in terms of the arrangement; thereafter the preferent portion of the claims of all preferent creditors in full to the extent and in the order of preference as set out in the Insolvency Act, any balance not so ranking for participation in the distribution to concurrent creditors in terms of the arrangement; and thereafter the balance remaining, towards the claims of concurrent creditors.

ADMINISTRATIVE PROVISIONS

the written resignations of all the company's directors; the written resignations of the auditors, secretary and public officer of the company, of required by the proposer; a copy of the resolution of the directors of the company, certified by the chairman of the meetings at which the resolution is passed, consenting to the transfer of the entire issued share capital of the company to the proposer's nominee and appointing the proposer's nominees as directors of the company; share certificates and share transfer forms, duly signed in blank as to the transferee, in respect of the entire issued share capital of the company, all such documents to be surrendered to the proposer forthwith after the final date;

3.3

Application of the capital sum and other moneys Subject to the terms and conditions contained in the arrangement, the receiver shall, on behalf of the company, pay the capital sum and all interest envisaged in 4.1.2, to creditors in full settlement of their claims in the following manner -

the following documents are delivered to the chairman prior to the commencement of the meetings, to be held in trust by the chairman pending sanction, all such documents to be expressed to be effective from the effective date 3.2.1 3.2.2

If the capital sum of any part thereof is paid to the chairman or the receiver at any date prior to the date of payment of dividends in terms thereof, such amount shall be invested in an interest bearing account with a registered commercial bank approved of by the liquidator, in the name of the chairman or the receiver and be applied by him together with the capital sum in the manner and for the purposes set out in the arrangement.

8

Each secured creditor, if obliged to prove his secured claim in terms of 6, is obliged, when proving his claim, to place a value on his security, and the receiver shall (subject to his rights in terms of 6) admit as the secured portion of the claim of such creditor, the lesser of the amount of that claim and an amount equal to the value placed on such security by the creditor, or in the event that such value is unacceptable to the receiver, a value agreed upon in writing between the receiver and the proposer on the one hand, and the secured creditor on the other hand, provided that if there is a Law Society of South Africa - Practical Legal Training

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7.2

7.3

8.

256

dispute in regard to the value to be placed on the security, such dispute shall be referred to an independent person agreed to between the receiver, the proposer and the secured creditor or, failing agreement, one nominated by the President for the time being of the Law Society of the ........ This person shall determine the dispute and assess the value, summarily, as an expert and his decision shall be final. The receiver shall, in admitting the secured portion of the claim in terms of 7.1 make provision in his determination thereof for the continued accrual of interest in favour of the relevant secured creditor until the date upon which payment is made to such secured creditor or any guarantee for such payment becomes payable, whichever is the earlier, provided that the secured portion of the claim, including such interest shall not exceed the value of the security as determined in 7.1. The applicable rate of the interest shall be in accordance with the agreement in terms of which security was provided and in the absence of any such agreement, shall be at the statutory rate applicable at the time to the calculation of mora interest. The proposer shall be entitled, by notice given in writing to the receiver, to require a secured claim to be satisfied by the award to such creditor of his security at the value determined in terms of 7.1 and by the delivery of the security so claimed to the creditor concerned, who shall furnish an acquittance in respect of the secured portion of his claim. In this event, the capital sum shall be reduced by the amount of the value of the security which is delivered to the secured creditor.

under the arrangement prior to the receipt of the late claim of the creditor, the amount by which the dividend paid to the overpaid creditor exceeds the amount which should have been paid to him had the claim of the late creditor been proved timeously. 9.5

10.

Duties and powers of the receiver 10.1

8.2

If obliged to prove his claim in terms of 6, a creditor may prove a conditional claim in terms of 6. If the condition to which any claim is subject has been fulfilled before the final distribution under the arrangement, the receiver shall admit the claim as if it had been unconditional. If a dividend has been awarded on a conditional claim, the receiver shall deposit the amount of that dividend in a special account together with a registered commercial bank and shall pay over the dividend, together with any interest earned thereon, to the creditor when the condition has been fulfilled. If the condition is not fulfilled, then the dividend plus the interest thereon, shall be distributed amongst the other concurrent creditors on a pro rata basis unless the arrangements provides for a specified dividend to concurrent creditors and such dividend has been paid to them. If, in the opinion of the receiver, the costs of making the distribution will be disproportionate to the value of the portions which creditors will receive, then the receiver shall refund to the company the dividend, plus accrued interest.

10.2

10.3

10.3.2 10.3.3

Late proof of claims 9.1

Creditors whose claims are not recorded in the books of account of the company as envisaged in 6, and creditors otherwise obliged to prove their claims as provided for in this clause 5, and who have received proper notice of the (a) (b) (c) (d)

9.2

9.3

9.4 8

10.5

submission of the arrangement; and terms of the arrangement; and meetings; and sanction of the arrangement by the Court, and who have been furnished,together with a notification of the sanction, with a copy of the text of clause 5 to 9 and who fail to submit their claims within the period stipulated in 6.1, shall be deemed to have abandoned their claims free of consideration.

10.8

A creditor, other than a creditor as envisaged in 9.1, ("the late creditor") not having been given proper notice of the -

10.9

(a) (b) (c) (d)

10.6

10.10

10.7

submission of the arrangement; or terms of the arrangement; or meetings; or sanction of the arrangement by the Court, and not having had his attention specifically directed to the contents of clauses 5 to 9, shall be entitled to prove his claim in the proper manner stipulated in 6, within 60 (sixty) days after receiving proper notice of the matters referred to in 9.2(a) to 9.2(d) inclusive, failing which he shall be deemed to have abandoned his claim.

If the claim of the creditor is proved after the distribution by the receiver of the capital sum, or if the moneys he will have on hand for distribution are not sufficient to pay the late creditor, the company shall pay to such creditor the dividend, if any, to which he would have been entitled had he proved a claim timeously.

10.11 10.12

11.

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take all steps necessary to enforce due compliance by the company and the proposer of any obligations imposed upon or assumed by the company and/or the proposer in terms of the arrangement; institute any proceedings against any person which may be required to give effect to this arrangement; defend any proceedings brought against him arising out of this arrangement;

if the arrangement is accepted by the requisite majority of creditors as provided for in Section 311 of the Act, and sanctioned by the Court consequent thereupon, as soon as practicably possible after sanction cause a copy of the order to be published once in two official languages one of which must be in English or Afrikaans in a newspaper circulating where substantial numbers of creditors carry on business; be entitled to dispute any claim, or the validity of any preference or security claimed by any creditor or the valuation placed by any secured creditor on any security; be entitled in his discretion to compromise and/or otherwise determine by agreement the amount of any claim proved or to be proved in terms of 5; be entitled to engage the services of legal and other professional advisors in connection with any matter concerning his functions and duties, to dispense with taxation of and to agree the amount of the reasonable fees and charges of such legal and other professional advisors and to pay the remuneration and disbursements of the person so engaged; have the right and option, in addition to any other rights available to him in terms hereof or in law, upon the written instructions in this regard of the proposer, to take over any security as provided for in 7 mutatis mutandis; at all times have access to all books, records, documentation and trading figures of the company as he may reasonably and properly require for the execution of his duties as receiver in terms of the arrangement; in his discretion, be entitled to settle any disputes with the proposer with regard to the assets, or the implementation of the arrangement; be entitled to pay a claim as and when he deems fit, notwithstanding that all claims against the company have not yet been proved or that the liquidation and distribution account referred to in 11 has not yet been finalised; be entitled and obliged to accept acquittances from creditors up to the amount which would have been awarded and paid by him to such creditor as a dividend on his claim in terms hereof. In that event the capital sum shall be reduced by the amount of such acquittance, but not exceeding the dividend which would otherwise have been due on such creditor's claims and, if the capital sum is paid to the receiver prior to the calculation of the reduction, the amount of the reduction shall be refunded to the company when calculated.

Liquidation and distribution Account

The company shall have the right to recover from any creditor ("the overpaid creditor") who has received any payment Law Society of South Africa - Practical Legal Training

all known creditors that the arrangement has been sanctioned, and in particular draw their attention to the provisions of 5 to 9 of the arrangement and their rights and obligations thereunder; 10.2 all creditors reflected in the books of account of the company that they are regarded by him as being creditors for purposes of participating in the distribution in terms of the arrangement, and for the amounts for which they so appear to be creditors in the books of account of the company, stating such amount; and 10.1.3 all creditors envisaged in 10.1.2 that their claims for purposes of participating in the distribution in terms of the arrangement will be deemed to be as advised to them in terms if 10.1.2, unless creditors establish some other claim or a claim for some other amount, in the manner envisaged in 6 and 7; provided he is satisfied that the claim of any particular creditor, as it appears in the books of account of the company, is incorrect of for any other reason rejectable by him, advise such creditor in writing of the fact that he rejects such claim, and that such creditor thereupon is obliged to prove its claim in terms of the provisions pf 5.2, 6 and 7; have the right, to the exclusion of the creditors to 10.3.1

10.4 9.

The receiver shall, after the final date forthwith notify 10.1

Conditional claims 8.1

A certificate under the hand of the receiver as to the amount so refundable by any overpaid shall be prima facie proof thereof in any proceedings instituted against any overpaid creditor for recovery thereof.

11.1 8

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and distribution account (Athe account@) as if he were the liquidator under a winding-up order. 11.2

Such account shall inter alia reflect the name of each and every creditor whose claim has been duly proved or admitted, the amount of the claim and the amount of the dividend to be awarded to such creditor under the account.

11.3

Notice by registered post shall be given by the receiver to the proposer and to all known creditors of the company that the account is lying for inspection for a period of not less than 14 (fourteen) days calculated from the third business day succeeding that upon which the notice is despatched, but the failure if the receiver to give such notice shall in no way entitle any person to initiate a late objection nor shall such failure invalidate such account or any distribution made pursuant thereto.

11.4

Any person objecting to the account shall be obliged to lodge notice of his objectory (stating the full grounds thereof) with the receiver before the expiry of the said period of 14 (fourteen) days referred to in 11.3, failing which the account shall be deemed to be accepted by all interested parties. The receiver shall rule on any objection so lodged and shall give the creditor written notice of his ruling, which notice shall be delivered by registered post.

11.5

Any objector referred to in 11.4, or any other person, aggrieved by any ruling of the receiver, shall be entitled to institute review proceedings in the Court within 14 (fourteen) days of the receipt by the creditor concerned of the notice referred to in 11.4. Failing institution of review proceedings as aforesaid the right of objection shall lapse and the objector shall be deemed to have accepted the account.

11.6

Notwithstanding any provisions to the contrary contained in 11.1 to 11.5 inclusive above, the receiver shall be entitled to prepare a liquidation and distribution account in respect of payment of dividends in terms of the arrangement to secured and preferent creditors, despite finality not yet having been reached regarding the nature and extent of the claims of concurrent creditors or the identity of all concurrent creditors, subject to the receiver having made under proper provision for the payment of any dividend due to any creditor whose claim has not yet been admitted.

1. _________________________ For: ________________________ PROPOSED RECEIVER 2. _________________________

12.

Domicilium and Notices 12.1

The company chooses domicilium citandi et executandi at ........ all processes arising out of or in connection with the arrangement may validly be delivered to or served upon it.

12.2

Each creditor is hereby deemed to have chosen domicilum citandi et executandi for all purposes arising out of or in connection with the arrangement at the address stated by that creditor in his proof of claim form or as reflected in the books of account and records of the company.

12.3

Notices despatched by the chairman or the receiver in accordance with the arrangement shall12.3.1

be deemed to have been received by the addressee reflected on such notices on the fifth business day after despatch thereof by pre-paid registered post to the addressee=s domicilum citandi;

12.3.2

be presumed to have been received by the addressee reflected on such notices on the fifth business day after despatch thereof by pre-paid registered post to the addressee=s last recorded address with the company.

SIGNED at ____________________on_______________________19______ AS WITNESSES : 1. _________________________ For : _______________________ JOE SOAP, PROPOSER PROPOSER 2. _________________________ SIGNED at ____________________on________________________19______ AS WITNESSES : 8

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10.

MEETINGS OF CREDITORS AND PROOF OF CLAIMS

10.1

INTRODUCTION

260

if the creditor has realised the security (see Section 83) he must attach to the affidavit a statement of the proceeds of the realisation and of the facts on which he relies for his preference (Section 83(5) and (10)).

Meetings of creditors serve to give creditors the opportunity to prove their claims, elect a trustee and to give instructions to the trustee on the winding-up of the estate.

If the claim is for payment of the purchase price of goods sold and delivered on an open account, the affidavit must be supported by a statement showing the monthly total and giving a brief description of the purchases and payments for the full period of trading or for a period of 12 months immediately prior to date of sequestration, whichever is the lesser (Section 44(6)).

First meeting (Section 40(1)) - the purpose is to give creditors the opportunity to prove their claims against the estate and to elect a trustee.

If the claim is based on a document (eg mortgage bond) the document or a copy thereof must be attached to the affidavit.

Second meeting (Section 40(3)(a)) - the purpose is to enable creditors to prove claims, to receive the trustee's report and to give the trustee instructions on the winding-up of the estate.

The claim form, affidavit and annexures must be delivered to the office of the presiding officer not later than 24 hours before the advertised time of the meeting (Section 44(4)).

Special meetings - the purpose is to give creditors the opportunity to prove claims (Section 42(1)) or to interrogate the insolvent, provided however that the Master's consent has been obtained (Section 42(2)).

It is not necessary for the creditor to attend a meeting in order to prove his claim but it is prudent to do so in order to deal with objections or other queries.

General meetings - convened by the trustee for the purpose of obtaining instructions from creditors in connection with any matter relevant to the administration of the estate (Section 41).

A creditor who submits a claim, may be called to submit to interrogation under oath in regard to his claim (Section 44(7)). If he is not present he may be summoned to appear (Section 44(8)) and if he fails to do so his claim may be rejected.

A creditor can only share in the distribution of the proceeds of the insolvent estate, if he proves a claim against the insolvent estate.

A claim must be proved to the satisfaction of the presiding officer but prima facie proof is sufficient.

The general rule is that a creditor is entitled to prove his claim at any time before the final distribution of the estate (Section 44(1)). If a claim is not proved within three months after conclusion of the section meeting of creditors, the creditor can prove his claim only if he obtains leave from the Master or the Court and payment of such amount as the Master/Court may direct in order to cover the costs occasioned by the late proof of claim.

If a claim is rejected, the creditor is not debarred from proving it at a subsequent meeting or from establishing his claim by an action at law (Section 44(3)).

Take note:

In terms of Section 104(1) a late claim may still be proved after date of submission of the Liquidation and Distribution account by the trustee to the Master but before confirmation thereof by the Master provided however that the Master is satisfied that the creditor has a reasonable excuse for the delay in proving his claim.

10.2

however that litigation instituted against the insolvent insolvent before sequestration lapses three weeks after date of the first meeting unless the claimant has given notice within that period to the trustee/Master that he intends to continue with his after fter date of such notice litigation and if he in fact does continue within three weeks a and prosecutes that litigation with reasonable expedition (Section 75).

PROCEDURE FOR PROOF OF CLAIMS The procedure laid down by the Act is applicable to both liquidated and unliquidated claims. A claim is proved by way of an affidavit which substantially complies with Forms C or D in the First Schedule to the Act (Section 44(4)).

The admission of a claim may still be disputed by the trustee but then he bears the onus of disproving the claim (Section 45(3)).

Form D is used for the proof of a claim based on a promissory note or other bill of exchange and Form C is used for the proof of any other claim.

If the presiding officer disallows a claim, the creditor can institute an action against the trustee in order to compel him to allow the claim against the estate but this should be done before confirmation of the liquidation and distribution account (Section 75(2)).

The affidavit is made by the creditor or by any person "fully cognisant" of the claim.

In terms of Section 78(3) the trustee is entitled, if so authorised by creditors, to compromise or admit a disputed claim, provided it has been tendered for proof.

The affidavit must set forth the following information : the facts on which his knowledge of the claim is based;

In terms of Section 151 any person who is aggrieved by the decision of the Master/presiding officer may have it reviewed.

the nature and particulars of the claim;

A creditor may include in his claim arrear interest up to date of sequestration, provided interest was payable by agreement or as a result of the insolvent being in mora (Section 50(1)).

whether the claim was acquired by cession after sequestration proceedings commenced; the nature and particulars of the security held by the creditor and the value thereof; 8

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Debts which are owing before date of sequestration but only become payable thereafter may be proved for the full amount of the debt as if it were payable on date of sequestration, but such debt which is payable after sequestration is to be reduced by 8% of the amount of the claim (interest included, if applicable) and reckoned from date of sequestration to the due date of the debt (Section 50(2)).

11.

IMPEACHABLE TRANSACTIONS

11.1

DISPOSITIONS IN TERMS OF THE INSOLVENCY ACT A disposition is defined in section 2 of the Insolvency Act as -

Conditional claims are proved in the ordinary way (Section 48). If the condition will be fulfilled within a year of sequestration, all dividends awarded on the claim are paid to the Master who will only pay the creditor if the condition is fulfilled. If the condition is not fulfilled the Master must pay the dividends to the trustee for distribution among the other creditors (Section 48(a)).

disposition means any transfer of abandonment of rights to property and includes a sale, lease, mortgage, pledge, delivery, payment, release, compromise, donation or any contract therefor, but does not include a disposition in compliance with an order of court. '2

If the condition will not be fulfilled within a year of sequestration, the creditor may be required to put a written valuation on the claim together with his reasons for the valuation and the presiding officer must then either admit the claim or reject it.

Simply stated, a disposition is an act whereby an insolvent has parted with an asset in his estate.

If the conditional claim is unliquidated, the creditor is obliged to wait for the condition to be fulfilled before he can prove his claim against the estate.

The definition is very wide, but not exhaustive. See Langeberg Ko-op Beperk vs Inverdoorn Farming and Trading Company Limited 1965(2) 589 (A) where suretyship was held to be a contract for the payment of money, but there was also a contract for mortgage.

A secured creditor who states in his claim form that he relies for the satisfaction of his claim solely on the proceeds of his security, shall not be liable for a contribution to the costs of sequestration which are payable from the free residue (Section 89(2)).

In that same case it was said that the words "any contract therefor" relates to all the words in the definition and not to donation only - at page 602.

A secured creditor who relies solely on his security for the satisfaction of his claim, is however not entitled to a concurrent claim - Eastern Free State Cape Co-Operative Ltd v The Master & Others 1997(3) SA899(E).

A disposition may take the form of a contract which creates rights and obligations and it may also take the form of an alienation of property. See Estate Jager vs Whittaker and Another 1944 A.D. 246 and 250/1. "Court" here includes a magistrate's court - in terms of the definition in section 2 - which has jurisdiction in the matter in question. '2 In Standard Finance Corporation Limited vs Greenstein 1964(3) 573 (A) a disposition was held not to be confined to a disposition to a creditor, but includes also a disposition to a third party which has the effect of benefitting a creditor, eg a contract between the insolvent and a party indebted to him in terms of which the latter party is required to pay the amount of the debt to a creditor of the insolvent. The types of disposition laid down by the act are (a) (b) (c) (d) (e)

Section 26 - Dispositions without value Section 27 - Antenuptial contracts Section 29 - Voidable preferences Section 30 - Undue preferences Section 31 - Collusive dealings

Section 32 deals with proceedings to set aside improper dispositions. Section 33 deals with certain rights which are not affected by improper dispositions. In terms of the Companies Act 1973 the provisions of sections 26, 29, 30, 31, 32 and 33 are made applicable to companies in the course of being wound up, by section 340(2); to companies under judicial management, by section 436(1)(ii).

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In the Langeberg case 1965(2) 589 (A) at p 612 Holmes J.A. put it thus :

It is one of the anomalies of our Company Law that while it is clear law that a concursus of creditors is not created by a judicial management order against a company the provisions of the sections relating to dispositions nonetheless apply to such a company by virtue of section 436(1)(ii) of the Companies Act. In terms of the Close Corporations Act, 1984 the provisions of Section 340 of the Companies Act, 1973 is made applicable to Close Corporations. ' 66(1) 11.2

DISPOSITIOS WITHOUT VALUE - SECT 26: Section 26 provides 26(1)

2.2

2.3

THE REMAIIG IMPLICATIOS OF THE SECTIO ARE DISCUSSED BELOW.

3

EXCEPTIOS TO SECT 26 (a)

' 26

(a)

more than two years before the sequestration and it is proved that immediately after the disposition his liabilities exceeded his assets; or

(b)

within two years of the sequestration and the person claiming under the disposition or benefitted thereby is unable to prove that, immediately after the disposition was made, the assets of the insolvent exceeded his liabilities.

(b)

was made by way of a suretyship, guarantee or indemnity; and

(b)

has not been set aside the beneficiary may compete with the creditors for an amount not exceeding the amount by which the value of the insolvent's assets exceeded his liabilities immediately before the making of that disposition.

WHAT IS MEAT BY "VALUE" I SECTIO 26?

4.1

Section 29(1) provides that every disposition made by a debtor (whether solvent/insolvent) within six months of his sequestration (or six months of his death if his estate is sequestrated) which has the effect (even if it was not made directly to that creditor) of preferring one creditor above another may be set aside if immediately after the making of the disposition his liabilities actually exceeded his assets, unless the person benefitted thereby proves that such disposition was made in the ordinary course of business and it was not intended thereby to prefer one creditor above another.

4.2

Section 29(3) provides that if the disposition is made by virtue of a power of attorney granted by the insolvent, an disposition under section 29 (or section 30) shall be deemed to have been made at the time the property is transferred, delivered or mortgaged. ' 29.3

4.3

In considering what constitutes "in the ordinary course of business" it was laid down in -

In Rex vs Abrahamson 1920 A.D. 283, Solomon J.A. said at page 286 -

4.4

"Value is .... the price which the property will command in the market ... otherwise a disposition to a creditor could not be set aside if assets of large value are sold for entirely inadequate consideration or for merely trifling consideration".

The words "disposition not made for value" mean, in their ordinary signification, a disposition for which no benefit or value has been received or provided as quid pro quo - per Watermeyer C.J. in Jager's Estate vs Whittaker and Another 1944 A.D. 246. 8

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Hendriks N.O. vs Swanepoel 1962(4) 338 (A) that "the test postulated by the Legislature is an objective one which relates to 'business done in the ordinary course of business'. In the application of this test there can only be one standard applicable to any transaction and that is whether the transaction would normally be entered into between solvent business men - regard is had, not only to the terms of the disposition, but also the circumstances in which it was made and also to the customs which apply in that field of business.

In Blooms Trustee vs Fourie 1921 T.P.D. 599 at 601, de Waal J. said -

To qualify as "value" the reciprocal benefit need not be a monetary or tangible one, but it must be adequate. Section 26 could apply where no value has been given or where inadequate value has been given in the sense that what was given was either illusory or nominal. It would not however, apply merely because what was given was less than the true value of the asset. Nor would it apply only when there is a total absence of value - Terblanche NO vs Baxtrans CC 1998(3) SA 912(C).

The settlement of a life insurance policy may be protected under Section 39-44 of the Insurance Act, 1943 (see p25 above)

VOIDABLE PREFERECES - SECT 29

' 26

(See Lipschitz vs SDDC)

Section 27 - Immediate benefits under an Antenuptial Contract

4

A disposition set aside under 26(1) or which was uncompleted by the insolvent shall not give rise to any claim in competition with the creditors of his estate provided that if the disposition was uncompleted and which (a)

' 27

In terms of this section no bona fide immediate benefit (ie one completed by a transfer, delivery, payment, cession, pledge or special mortgage within three months of the marriage) under a duly registered antenuptial contract by a man to his wife or to any child to be born of the marriage, shall be set aside as a disposition without value unless his estate is sequestrated within two years of the registration of the antenuptial contract.

Every disposition of property not made for value may be set aside if made by an insolvent -

Provided that if it is proved that his liabilities, at any time after the making of the disposition, exceeded his assets by less than the value of the property disposed of, the disposition may only be set aside to the extent of such excess. 26(2)

"For value to have been received some benefit must actually have accrued or at least have been likely to accrue in the future".

"It is unnecessary to give any definition of what is meant by disposing of goods other than in the ordinary course of business. Concrete examples of such disposal would be if the insolvent had given the property away to his friends or had sold it at a substantial loss when there was no need for him to do so." 4.5

Both the making and receiving of the disposition must be lawful to satisfy the "ordinary-course-of-business" test.

4.6

The test whether a transaction falls within "the ordinary-course-of-business" is an objective one.

4.7

Section 32 prescribes the order which the Court can make pursuant to the successful invocation of Section 29 and Section 32(3) does not allow for interest to be claimed - Van Zyl and Others NNO vs Turner and Another NNO 1998(2) SA 236 (C).

5.

UDUE PREFERECES - SECT 30 8

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266 they would cause an ordinary businessman no surprise; and

Section 30 provides -

5.1

they were honestly done.

5.2

5.3

30(1)

A debtor makes a disposition when his liabilities actually exceed his assets, with the intention to prefer one of his creditor above another, and his estate is at any time thereafter sequestrated, the court may set aside the disposition.

30(2)

For the purposes of sections 29 and 30 a surety, and a person in a position by law analogous to that of a surety, shall be deemed to be a creditor of the debtor concerned.

5.7

A disposition of a debtor's property is not confined to a disposition to a creditor, but a disposition to a third party which has the effect of preferring one creditor above another is a disposition to that creditor. Standard Investment Corporation of S.A. Limited vs Greenstein 1964(3) 573 (A)

The determination of the value of assets and the extent of liabilities was considered in Venter vs Volkskas Limited 1973(3) 175(T), where it was said that the person "seeking to set aside the disposition must show that the liabilities fairly estimated exceeded the assets fairly valued, and this is to be determined objectively".

5.8

In the context of Section 30 "intention to prefer" means the "primary object" or the "dominant motive" to prefer and in the absence of evidence to the contrary, the inference is justified that an insolvent's dominant motive or primary object was in accordance with the consequences of his actions.

One method of proving the amount of the insolvent's liabilities at the relevant date was laid down in - Ensor N.O. vs New Mayfair Hotel 1968(4) 462(N) where it was held that this can be validly established by reference to the proofs of debt filed in the estate.

6

COLLUSIVE DEALIGS - SECT 31 Section 31 provides -

This will apply to the situation where disposition is made shortly prior to insolvency, but it will not be completely applicable in the case where the disposition is made, say, more than two years prior to the sequestration.

6.1

31(1)

The Court may after sequestration set aside any transaction entered into by the debtor before sequestration whereby, in collusion with another, he disposed of his property in a manner which had the effect of prejudicing his creditors or preferring one of his creditors above another.

31(2)

Any party to a collusive transaction shall be liable to make good any loss to the estate, and shall pay by way of penalty such sum as the Court may adjudge but not exceeding the amount by which he could have benefitted by such dealings if it had not been set aside; and if he is a creditor he shall also forfeit his claim against the estate.

An "intention to prefer" is tested subjectively and will exist when the debtor intends to disturb what would be the proper distribution of assets on insolvency. This must be the main object.

5.4

"No question of undue preference can arise until the debtor contemplates sequestration but it has been said that a debtor contemplates sequestration at any rate when he realized, when making the disposition, that it was substantially inevitable".

Collusion is a conniving together between the debtor and some other person with the intention of defrauding the creditors of the debtor.

6.2 Per Ramsbottom J in Pretorius N.O. vs Stock Owners Co-operative Company Limited 1959(4) 462 (A) at 472. The debtor had died a few weeks after the making of the disposition and his deceased estate was then sequestrated. Ramsbottom J.A. laid down the following propositions: A question of intention involves a subjective assessment of the debtor's action in having made the disposition. In the absence of direct evidence it must, generally speaking, be proved that the debtor contemplated sequestration before the inference can be drawn.

' 31

See Gert de Jager (Edms) Beperk vs Jones N.O. and McHardy N.O. 1964(3) 325 (A). 6.3

The provision that a person who has been party to a disposition hit by the section shall make good the loss to the estate is peremptory and the section confers no discretion on the court.

6.4

To establish collusion the trustee must prove that the debtor and the other person knew that -

It is not sufficient that the circumstances show that the debtor should have realised that the effect of his action would be to prefer one creditor above another ... they must show that he in fact intended it to have that effect.

the debtor was insolvent; and the disposition would have the result of prejudicing creditors or of preferring one above another.

An intention to prefer is a question of fact which can be established either by direct evidence or by inference from the circumstances under which the disposition was made. Where a debtor pays a creditor "out of his turn" under great pressure or to avoid a criminal prosecution or for some other reason which negatives that the intention to prefer was the main object, the inference should not be drawn.

7

REMEDIES - SECT 32

7.1

Section 32 provides that proceedings to set aside any disposition under the act, or for the recovery of compensation, or a penalty under section 31, may be taken by the trustee.

When, however, it is shown that the debtor contemplates insolvency and no other reason for making the payment appears from the evidence, there is no reason why the inference should not be drawn.

The trustee cannot cede or delegate this obligation and it is only he who is entitled to bring such proceedings. See South African Board of Executors & Trust Company Limited vs Gluckman 1967(1) 534 (A).

The question is not "ought the insolvent to have contemplated it" but "did he contemplate it".

5.5

The receiver under a compromise has no power to set aside an improper disposition nor does he have any power to act under section 32.

Goosen vs Goosen 1 Buch. A.C. 414 It is to be noted, however, that otherwise impeachable transactions will in all likelihood not be set aside if -

5.6

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268 197 (N).

But if the trustee fails to take proceedings these may be taken by a creditor in the name of the trustee upon his indemnifying the trustees against all costs thereof - section 32(1). ' 32(1)

7.2

7.3 32(2)

Any creditor proceeding in terms of section 32(1) can only sue in the name of the trustee - see Gluckman's case (supra).

7.4

When the court sets aside a disposition it shall (in terms of section 32(3) declare the trustee entitled -

8.4

What must be shown is that the liabilities, fairly estimated, exceeded the assets, fairly valued, and this must be determined objectively. See Venter vs Volkskas Limited 1973(3) S.A. 175(T).

8.5

The way in which the intention to prefer is established has been dealt with in the discussion on section 30 above.

8.6

The trustee must prove -

'

' 32(3)

to recover the property alienated; or

that there was a disposition;

in default of such property, to recover the value thereof at the date of the disposition or at the date on which the disposition is set aside, whichever is the higher.

within the relevant period; to a creditor (or a third party) in such a way that the creditor would benefit from the disposition;

7.5

The effect of an order under section 32 is to set aside the transaction with retrospective effect so that it has become a nullity.

7.6

In the case of a collusive transaction it is peremptory for the court to order forfeiture of the property and the imposition of the penalty.

that the debtor had the intention to prefer that creditor;

In terms of section 104(3) any creditor who has instituted proceedings to set aside any disposition or dealing with property or for the recovery of damages or a penalty in terms of section 32(1) is entitled to recover his costs and claim in full from any property recovered from such proceedings before the claims of any creditors who were not party to such proceedings are paid or allowed to participate in the proceeds of such property.

7.7

that the disposition had the effect of preferring, i.e. the proper distribution envisaged by the act has been disturbed; that immediately after the making of the disposition the debtor's liabilities exceeded his assets. Once the trustee has established these requirements the disposition may be set aside and the onus has passed to the creditor concerned who must then, in his turn, prove -

8.7

A trustee or creditor (as the case may be) is entitled to apply to court for an interdict restraining the person benefitted from parting with the property disposed of pending the determination of the proceedings to set aside the disposition or for an attachment of the property pending such determination.

7.8

that the disposition was made in the ordinary course; and that it was not intended thereby to prefer the creditor. See Michaelow N.O. vs Premier Milling Company limited 1960(2) S.A. 59 (W) at 65;

See Hawkins' Trustee vs Corio Saw & Planning Mills and Others 1923 W.L.D. 125. that he parted with property or security; 8

OUS OF PROOF AD DIFFICULTIES OF PROOF:

8.1

The test is whether the estate has been impoverished by the disposition, i.e. value could have been furnished to the estate by a third party.

in return for the disposition; and that he acted in good faith.

See

See Barclays National Bank Limited vs Umbogintwini Land & Investment Co Limited (in liquidation) & Another 1985(4) 407(D) ' 33

Estate Wege vs Strauss 1932 A.D. 76 at 84. Goode, Durrant & Murray Limited vs Hewitt and Cornell 1962(2) S.A. 286 (E) at 291. Langeberg Ko-operasie Beperk vs Inverdoorn Farming & Trading Company Limited 1965(2) S.A. 597 (A) at 604. Standard Finance Corporation of South Africa Limited (in liquidation) 1964(3) S.A. 573 (A).

The question was : Were the overdraft facilities granted by the bank to the principal debtor, Sandy's Supermarket in good faith or in consideration only for the original overdraft and loan transaction between the bank and Sandy's. The bank's raising of this defence was disallowed.

Section 26 - Dispositions not for value

8.2

See also Swanees Boerdery (Edms) Bpk (in liquidation) vs Trust Bank of Africa Limited 1986(2) 850 (A). Under section 26(1)(a), if the disposition was made more than two years before the sequestration, the onus is on the trustee to prove that the liabilities of the insolvent exceeded his assets immediately after the disposition was made. ' 26(1)(1)

The test of what is in the ordinary course of business is objective, i.e. "it must be one which would not to the ordinary man of business appear anomalous or unbusinesslike or surprising".

8.8

Under section 26(1), if the disposition was made within two years of the sequestration, the onus is on the person benefitted to prove that immediately after the disposition was made the assets of the insolvent exceeded his liabilities. The method of proving the amount of an insolvent's liabilities at the relevant date in an action to set aside a voidable preference or undue disposition was considered in Ensor N.O. vs New Mayfair Hotel 1968(4) S.A. 462 (N), where it was held that this can be validly established by reference to the proof of debts filed. See also Nicholls and Whitelaw N.N.O. vs Akoo 1948(1) S.A.

8.3

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See also Malherbe's Trustee vs Dinner and Others 1922 O.P.D. 18 at 22. 8.9

In the case of collusive dealings, the onus is on the person seeking to set aside the collusive disposition, and that onus is discharged on a balance of probabilities.

9.

DISPOSITIOS I TERMS OF THE COMMO LAW 8

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In terms of the common law, the Actio Pauliana may be use to set aside the disposition if the following can be proved. the disposition must have reduced the assets of the debtor The receiver of the property should not have received his own property the debtor must have had the intention to defraud his creditors. If the debtor received value in return, the Actio Pauliana will only succeed if the receiver had knowledge of the debtor=s intention to defraud his creditors. the prejudice must have been caused by the debtor=s fraud.

PRACTICAL EXCERCISES

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INSOLVENCY EXERCISES EXERCISES

EXERCISE ONE

Number

Subject

One

Sequestration

Two

Sequestration

Three

1.

Your client is Desmond John Riley who trades as Riley's Printworks, a business which conducts commercial printing. He has had great difficulty in collecting a trade debt owed to him by one Richard Alan Thompson, a graphic designer who earlier this year hired your client to perform the printing work for one of his large contracts.

2.

The agreed price for the printing work was R100 000,00, the price being payable 30 days from presentation of invoice. Although Thompson was very happy with the printing work, he has not paid the bill. Despite numerous telephone calls and a letter of demand, the bill remained unpaid for over four months. As a result, client instructed an attorney specialising in debt collections to issue summons against Thompson.

3.

Default judgment for R100 000,00 plus costs was duly obtained against Thompson in the Magistrate's Court. A writ of execution was issued and served on Thompson personally at his place of business. The following is an extract from the return of service given by the Sheriff of the Magistrate's Court:

Liquidation

Four

Liquidation

Five

Liquidation

Six

Rehabilitation

Seven

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Rehabilitation

Eight

Voluntary Surrender

Nine

Impeachable Impeachable Transactions

Ten

Effects of insolvency on commercial transactions

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(a)

I served the writ of execution personally on the Defendant;

(b)

I demanded payment of R100 000,00 from Defendant, whereupon he replied that he had no money wherewith to pay the judgment debt of R100 000,00;

(c)

I then requested the Defendant to point out to me or to advise me of any disposable assets of any nature wheresoever situate wherewith the judgment debt could be satisfied. In response the Defendant pointed out office furniture and equipment on the premises which I inventoried and valued at R20 000,00.

4.

Following the receipt of this return, the collections firm referred your client to you for specialist advice on how to proceed.

5.

On investigation of Thompson's financial position you have been able to ascertain the following facts:

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5.1

Thompson is the registered owner of a Porsche motor vehicle which an expert Porsche dealer advises is worth in the region of R150 000,00.

5.2

The Porsche has been attached at the instance of another of Thompson's creditors, namely Boland Bank, to whom Thompson is indebted in an amount of R150 000,00. (Your candidate attorney perused the court file in respect of this judgment debt and found out that the debt arose in respect of a credit agreement under which Thompson had bought another sports car financed by Boland Bank. Thompson had been unable to keep up with the monthly instalments and the bank had repossessed and sold the car, which had been damaged in the interim. This debt of R150 000,00 represents the difference between the balance owing under the instalment sale and the amount realised by Boland Bank on the sale of the motor vehicle.)

5.3

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respectively by miscellaneous creditors (including American Express and Standard Bank Mastercard for credit card debts). 5.4

6.

Thompson is the registered owner of a seaside holiday house at Kleinmond in the Western Cape. Although there is a mortgage bond of R200 000,00 registered over this property, you have instructed an estate agent (who works in Kleinmond and is familiar with the property) to value the property. She advises you that the property should sell for about R350 000,00 and she is prepared to give you a written evaluation to this effect.

EXERCISE TWO 1.

You act for ABC Bank Ltd. Mr Joe Bloggs is indebted to your client in an amount of R500 000,00 in respect of monies loaned and advanced to him by your client on an overdraft facility. Your client has no security for this loan.

2.

Joe Bloggs is currently conducting a property development in respect of a large stand of residential land which he owns and which he is in the process of subdividing with a view to selling off the individual erven. The process of subdivision involves considerable costs since services such as sanitation and sewerage have to be installed before the sub-division can be completed. Only once the sub-division is complete can the individual plots be sold.

3.

Joe Bloggs purchased the land with the assistance of a loan from the XYZ Bank Ltd which has security for its loan in the form of a mortgage bond for R2 million over the land.

4.

Your client became concerned at the fact that Joe Bloggs had recently been borrowing heavily on his unsecured overdraft facility, and it had been some time since he last deposited funds into his current account. As a result of this situation, it addressed a letter to Joe Bloggs calling upon him to settle his overdraft in full within two weeks.

5.

Joe Bloggs responded with a letter to ABC Bank containing the following information:

The sheriff who attached the Porsche at the instance of Boland Bank has advertised a sale in execution which is scheduled to take place one week from now.

WHAT IS THE APPROPRIATE REMEDY IN THE CIRCUMSTANCES? DRAFT THE NECESSARY AFFIDAVIT IN SUPPORT OF THE APPLICATION FOR THE RELIEF WHICH YOU SEEK.

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5.1

He set out details of the property development and advised that he expected to make a total nett profit of R2,5 million on the sale of all the individual erven.

5.2

He disclosed that XYZ Bank held a first mortgage bond over the land.

5.3

He indicated that he had run out of funds in respect of the costs of the sub-division and required bridging finance to enable him to complete the sub-division and commence selling the individual erven.

5.4

He stated that since XYZ Bank was not prepared to grant him the bridging finance, he was requesting ABC Bank to loan him bridging finance of an additional R500 000,00, in return for which ABC Bank could register a second mortgage bond over the land for R1 million as security.

5.5

In the event that ABC Bank was not willing to grant the bridging finance, he requested a period of grace within which to find another financial institution which would be prepared to do this deal and take over his overdraft with ABC Bank.

6.

An added cause of concern to your client is the fact that three months ago Joe Bloggs sold his Camps Bay townhouse to another one of his creditors, Sly Smith, for a purchase price of R300 000,00 whereas similar townhouses in the area are currently selling for between R800 000,00 and R900 000,00. Transfer of the townhouse was passed to Sly Smith one month ago.

7.

Your client asks you for advice on how it should protect its interests in the circumstances.

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EXERCISE THREE

DRAFT THE AFFIDAVIT IN SUPPORT OF THE RELIEF WHICH YOU SEEK 1.

You are consulted by James Brown, the Managing Director of ABC Shoes (Pty) Ltd ("ABC"), a company which manufactures shoes. ABC has been unable to collect a trade debt owed to it by Shoes Unlimited, a company which conducts business as a retailer of shoes and which has a number of branches in town.

2.

The debt concerned is for an amount of R150 000,00, being the agreed contract price in respect of a large order of shoes which ABC delivered to Shoes Unlimited six months ago. Payment was due within 30 days of presentation of invoice.

3.

Shoes Unlimited has at no time complained about the quality of the merchandise supplied to it, or in any other way indicated that it disputed its liability to ABC for the goods. On the contrary, on more than one occasion when the credit controller of ABC, Ms Penny Pincher, spoke to the book-keeper of Shoes Unlimited regarding the outstanding amount, she received assurances that payment would be made "shortly".

4.

Since payment was not forthcoming, one month ago James Brown instructed the legal adviser of ABC to address a letter of demand to Shoes Unlimited. The legal adviser delivered the letter of demand, in terms of which he demanded that payment of the R150 000,00 be made within three weeks, to the registered office of Shoes Unlimited, being the offices of its accountants, Gray Suits Inc. He made sure that he obtained a signed acknowledgment of receipt of the letter from the receptionist at Gray Suits Inc. After one month there is still no response from Shoes Unlimited.

5.

James Brown is concerned about the financial strength of Shoes Unlimited. He shows you the latest print out from a credit information company which reflects that three default judgments have recently been taken against Shoes unlimited for amounts of R40 000,00; R12 000,00 and R5 000,00.

6.

Furthermore, James Brown has heard rumours in the market place that Shoes Unlimited is not performing very well. He has also heard from one of his staff, Mr Joe Soap, that Mrs Jill Soap, who used to work as a saleslady for Shoes Unlimited, has recently been retrenched along with five other employees, because the retail outlet in which she used to work has been closed.

7.

ABC has no security for its claim against Shoes Unlimited apart from the personal suretyship for R100 000,00 obtained from Mr U N Lucky (the sole director and shareholder of Shoes Unlimited) when the two companies first commenced doing business together.

WHAT WOULD YOU ADVISE ABC TO DO TO PROTECT ITS INTERESTS? DRAFT THE NECESSARY PAPERS

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278 increases in the members' salaries (at the insistence of Rogue).

EXERCISE FOUR 1.

You are consulted by Simon Smith, one of the members of Chemclean CC, a Close Corporation which conducts business as a bulk supplier of laundry and kitchen detergents and other cleaning agents to hotels, restaurants, hospitals and the like.

2.

The CC has three members with the following percentage members' interests: Simon Smith Jack Jones Rodney Rogue

3.

-

35% 35% -

4.2

The turnover of the CC has dropped dramatically.

4.3

The CC has begun to run at a loss.

4.4

The CC has developed a severe cash flow problem and its current liabilities presently exceed its current assets by some R150 000,00.

5.

The accounting officer has advised that some of these changes in the financial situation of the CC might be attributable to fraud and theft on the part of Rogue.

6.

Smith tells you that Jones is in agreement with him that Rogue must be expelled from the business and sued for any loss which he has caused to the CC. They are both reluctant, however, to spend large sums of money on protracted litigation against Rogue while the finances of the CC (which is their sole source of income) are in such a bad state. They are also concerned that Rogue may have already done irreparable harm to the reputation and goodwill of the business.

30%

Smith tells you that he and Jones started this business six years ago and that things were running smoothly and profitably until Rodney Rogue persuaded them three years ago to let him buy into the business. For the first two years of Rogue's involvement things went well and the CC did even better than it had in previous years as Rogue was a good salesman and had managed to obtain several large new contracts for the CC. During the last year, however, Rogue had become an unbearable business partner. Smith's chief complaints about Rogue are the following:

ADVISE SMITH AND JONES OF THEIR OPTIONS IN THE CIRCUMSTANCES.

3.1

IN PARTICULAR, CONSIDER:

Rogue fails to adhere to the provisions in the association agreement regarding members' meetings and the taking of decisions. He often misses members' meetings and enters into contracts which bind the CC without obtaining the consent of the other members, as he is supposed to in terms of the association agreement. Certain of the entities with which he concluded contracts have complained that the CC has not delivered on undertakings and guarantees made by Rogue, and one of these companies has advised that because of Rogue's negligence and dishonesty, it intends taking its business elsewhere, with the result that the CC will sustain a loss of profit of R50 000,00.

3.2

Smith suspects, but is not as yet in a position to prove, that Rogue has been falsifying his sales records or failing to record sales and stealing money due to the CC in respect of sales. (Smith tells you that further investigation will be required in this regard.)

3.3

Rogue has recently assisted his nephew to set up a business in direct competition with that of the CC. Although Rogue's nephew, who has formed another Close Corporation called Side Swipe CC in which to conduct the business, appears to be conducting the operation on his own, Smith has proof that Rogue has personally negotiated two large contracts worth R300 000,00 per annum on behalf of Side Swipe.

-

WHAT ACTION SHOULD BE TAKEN AGAINST ROGUE ?

-

WHO SHOULD TAKE ACTION AGAINST ROGUE (AND FUND SUCH ACTION)?

-

HOW SHOULD SMITH AND JONES CONTINUE THEIR BUSINESS OPERATIONS?

Smith is also aware that Rogue's nephew has no experience and no contacts in this field, whereas Rogue is an old hand who had formed plenty of contacts during his three years of involvement in the business of the CC. Smith suspects that Rogue is the real beneficial member of Side Swipe CC and that he is merely using his nephew to front for him. 4.

The latest financial statements produced by the CC's accounting officer for the last year show that: 4.1 8

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EXERCISE FIVE 1.

You are consulted by Bart Simpson, one of the members of Coolair CC, a Close Corporation which has as its principal business the sale, repair and servicing of air conditioners.

2.

The only members of the CC are Bart and his wife Susan, each of whom owns 50% of the members' interest in the CC.

3.

Simpson tells you that: 3.1

4.

Simpson tells you that the bank is not prepared to grant greater overdraft facilities to the CC and is putting pressure on the CC to reduce its existing overdraft. Simpson himself is not in a position, or inclined, to inject further funds into the CC.

5.

Of concern to Simpson is the fact that the salaries and wages of the CC's staff are due in four day's time and the CC does not have the funds to pay them.

ADVISE SIMPSON OF THE APPROPRIATE COURSE OF ACTION IN THE CIRCUMSTANCES AND DRAFT THE NECESSARY AFFIDAVIT.

The business of the CC has been performing poorly for some time, and he no longer believes, as he once did, that the CC can "trade out of the bad patch".

3.2

When the profitability of the CC first began to decline about two years ago, Simpson loaned capital of R120 000,00 to the CC in an attempt to make the CC more financially viable.

3.3

He is concerned at the fact that he has signed surety in favour of the bank for the CC's overdraft.

3.4

The most recent management accounts of the CC show that the financial position of the CC is presently as follows:

CONSIDER CAREFULLY WHO YOUR APPLICANT SHOULD BE AND IN WHICH COURT YOU SHOULD BRING THE APPLICATION.

ASSETS

Office furniture & equipment R 10 000,00 Plant & machinery R 30 000,00 Motor vehicle R 20 000,00 Stock R 40 000,00 Debtors R 20 000,00 R120 000,00

LIABILITIES Loan from member Bank overdraft Receiver of revenue - VAT Landlord - rental Sundry trade creditors Bankfin - vehicle HP Salaries & wages

8

R120 000,00 R 25 000,00 R 5 000,00 R 5 000,00 R 10 000,00 R 5 000,00 R 10,000,00 R180 000,00

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EXERCISE SIX

DRAFT THE NECESSARY AFFIDAVIT IN SUPPORT OF JONES'S APPLICATION FOR HIS REHABILITATION.

1.

Your client is David Thomas Jones, whose estate was finally sequestrated on 1 November 1991. He has not been convicted of any offences relating to his insolvency and his estate was never sequestrated prior to 1991.

2.

The Master of the Supreme Court confirmed the first and final liquidation and distribution account in Jones's estate on 1 December 1992.

3.

Jones is married out of community of property to Angela Jones. They have two children, age 10 and 7.

4.

Jones resides in Milnerton. He is employed as a school teacher at Rondebosch Boys Junior School. He earns a gross salary of R6 000,00 per month, of which he takes home R 4 750,00 per month. His wife has a half day job from which she earns a nett salary of R 1000,00 per month. The family's monthly income is thus R 5 750,00. Their expenditure is as follows: Bond repayment R 2000,00 Electricity R 250,00 Telephone R 100,00 School fees R 500,00 Motor vehicle HP R 750,00 Petrol R 150,00 Clothing and sundries R 500,00 Food and household R 1500,00 R 5750,00

5.

Jones's has no liabilities since the bond and the motor vehicle HP are in his wife's name. He has no assets apart from cash savings of R 7 000,00 which he has managed to put away from the proceeds of his 13th cheque for the last four years.

6.

As at the date of the sequestration of his estate, the total liabilities in Jones's estate amounted to R 225 000,00 whereas his total assets were worth R155 000,00. The total amount of claims proved against his estate was R225 000. Of these claims the one secured creditor, namely Nedbank, which had a mortgage bond over his house, was paid its secured claim of R85 000,00 in full. The concurrent creditors, being Absa Bank with a claim of R135 000,00 and Standard Bank Mastercard with a claim of R 5 000,00, each received a dividend of 50 cents in the rand.

7.

The cause of Jones's insolvency was that he signed a suretyship in favour of Absa Bank in respect of his brother's business overdraft. His brother had suddenly taken ill with cancer in 1990, had been unable to continue with the business, and had died insolvent in 1991. Absa Bank had then called upon Jones in terms of the suretyship to effect payment of the balance of his late brother's debt and had sequestrated him because he could not do so.

8.

Jones informs you that Absa Bank received a payment of R65 000,00 out of his late brother's estate.

9.

Jones wishes to be rehabilitated as he intends to apply for a post as headmaster of a junior school in a country town and he fears that his prospects of success will be impeded if he is insolvent at the time of making the application. 8

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EXERCISE SEVEN EXERCISE EIGHT 1.

You are consulted by Anton Anreith, an architect, who tells you the following tale of woe: he was a partner in a successful firm of architects called Cornerstone until the partnership and its three partners were sequestrated six months ago. The reason for the sequestration was that one of the partners, Rodney Rogue, had been defrauding both the partnership and one of its large clients which then took urgent action against the partnership, resulting in the automatic sequestration of the individual estates of the partners.

Your client is Mr Red Bordeaux, a Stellenbosch wine farmer. He tells you that he is facing financial ruin because his entire Cabernet Sauvignon crop has been wiped out for the last two successive years due to an epidemic of phylloxera in his vineyards. (Phylloxera is an insect which attack vines.) He says he ha no option but to surrender his estate and take up a job as a wine maker on someone else=s farm.

2.

Anreith has not been convicted of any offence relating to his insolvency and his estate has never previously been sequestrated.

3.

Since Anreith had no financial problems and no outstanding liabilities of his own (ie individual as opposed to partnership debts), no claims have been proved against his estate.

4.

He contributed R350 000,00 of his own money from savings and investments towards the debts of the partnership, and the partnership estate has now been finally wound up. Anreith has a claim of R250 000,00 against Rodney Rogue for theft and damages.

5.

Anreith has joined another firm of architects and he now earns a gross salary of R20 000,00 per month. Besides his above-mentioned claim against Rodney Rogue, his assets now comprise investments worth R50 000,00 a house valued at R600 000,00, two motor vehicles worth R150 000,00, household furniture and paintings worth R200 000,00 and a holiday cottage worth R200 000,00. His only liabilities are a mortgage bond of R300 000,00 on his house and an outstanding balance of R30 000,00 on the hire purchase agreement in respect of one of his motor vehicles.

His assets and liabilities are as follows: ASSETS:

LIABILITIES:

Farm (Land and farmhouse) Beach House in Hermanus

R10 million R500 000.00

Motor vehicle (bought on HP) Investments & cash savings

R120 000.00 R100 000.00

Bond on farm R12 Million Bank overdraft R450 000.00 Bankfin HP R 50 000.00 Receiver of revenue R 70 000.00 Credit Card R 30 000.00 Trade Creditors R250 000.00

Prepare the affidavit in support of the application for the surrender of M Red Bordeaux=s estate. Make sure that you refer to all the formalities which you have to comply with. Make up any facts / particulars which you may require to complete the affidavit.

6.

The total amount of Anreith's liabilities as at the date of his sequestration were the liabilities referred to above, plus his pro rata share of the partnership debts of one million rands.

DRAFT THE NECESSARY AFFIDAVIT IN SUPPORT OF AN APPLICATION FOR ANREITH'S REHABILITATION

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EXERCISE NINE EXERCISE TEN

Your client is Mr Able Trustee, the trustee of insolvent Mr Joe Bloggs. Bloggs was provisionally sequestrated on 1 December 1997, the order being made final on 1 January 1998. During 1997 Bloggs entered into a transaction with Mr Sly Smith who was one of his creditors. At the time of the transaction, it appears that Bloggs’s liabilities exceeded his assets. At best, his finances were in a precarious situation and he was not paying all his other creditors the amounts due to them.

1.

Your client is XYZ Bank which finances the purchase of motor vehicles by means of installment sale agreements in terms of the Credit Agreements Act, 1980. The manager of your client tells you that one of its customers who purchased a motor vehicle on an installment sale for R90 000,00 have recently been declared insolvent. The balance owing in terms of the installment sale agreement is R80 000,00. Advise your client of its rights in terms of the Insolvency Act with regard to taking possession of the vehicle and recovering the outstanding balance owing under the installment sale. What are the steps which your client has to take in the circumstances?

2.

You act for ABC Bank. The manager of ABC Bank tells you that four months ago he became concerned at the fact that one of his customers had an overdraft of R300 000,00 which was only partially secured by a mortgage bond of R150 000,00. He had therefore insisted that the customer pass a second mortgage bond for R150 000,00 in favour of the bank over his house. The manager has now ascertained that the customer concerned was sequestrated two weeks after the registration of the second bond. How much of your client's claim of R300 000,00 is secured?

3.

You act for a property development company which leases shops and offices in one of its large shopping centres. The tenant manager of your client tells you that one of its small tenants who ran a clothing boutique in one of its shopping centres has been declared insolvent. The tenant had not paid his rental for the two months prior to his being declared insolvent. You are requested to advise your client of its rights regarding the recovery of the arrear rental and the further duration of the lease.

4.

You are approached by John Jones who advises you that six months ago he was offered a job in Cape Town with a yacht manufacturing company, on the strength of which he relocated from Pretoria to Cape Town at a cost of R10 000,00 to take up his new job. (The company had undertaken to pay his reasonable relocation expenses.) His employment contract was for three years. Five months later the company was liquidated. John Jones was not paid his salary of R10 000,00 per month for the two months prior to the liquidation of the company. Advise him of his rights in the circumstances.

5.

You act for a construction company which was contracted by a property development company to perform construction work on land owned by the property development company. Your client is still on site and in possession of the work erected by it. The property development company has recently been liquidated and the liquidator has requested your client to vacate and hand over possession of the site. Your client is reluctant to do so as it has not been paid for its work and it is concerned that if it vacates the site it will loose its builder's lien. Advise your client of its rights and the practical steps which it must take to protect its interests.

6.

Your client is Samuel Smith who tells you that three months ago he entered into a deed of sale with Jake Hudson in terms of which he sold his house to Hudson. By agreement, Hudson took immediate

Since March 1997 Joe Bloggs owed Sly Smith R300 000.00 in respect of a gambling debt. Informers have told your client that Sly Smith resorts to A strong arm@ tactics if his debtors do not pay him in one way or another. Joe Bloggs sold his house to Sly Smith for R600 000.00. The agreement of sale was signed on 1 May 1996 and transfer was passed on 15 July 1996. The house was unbonded at the time of the transfer. Your client tells you that he has checked with an estate agent who works in the area where Bloggs’s house is situated. The estate agent says that this particular property could have fetched a nett purchase price of R1.2 million on the open market at the time when it was sold to Sly Smith (i.e. nett commission). 1.

What advise will you give Mr Able Trustee? In particular consider:

2.

(i)

Will your proceedings be by way of action / motion?

(ii)

Who will be your Plaintiff / Applicant?

(iii)

What is your cause of action / causes of action

(iv)

What relief will you seek?

(v)

Who will pay the costs of the proceedings?

Now draft the particulars of claim / affidavit in support of the relief you are seeking.

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occupation of the house, but transfer was to be registered four months later, ie. in one month's time. Smith has just heard that a final order of sequestration of Hudson's estate was granted yesterday. He is concerned that Hudson failed to pay his occupational rental for last month and it does not appear that he will be able to do so now, but he is still in occupation of the property. Smith wants to know whether the sale will fall through because of Hudson's insolvency, and how long it will be before he can take steps to resell the house. Advise him fully of his position in terms of the Insolvency Act. 7.

Your client is a wholesaler who sells goods to general dealers and grocers. Five days ago he delivered a load of goods to Mr X who handed him a cheque in payment therefore, the terms of the sale being COD. Yesterday he received notice from the bank that the cheque had been dishonoured for lack of funds and marked refer to drawer. Later on the same day he heard that Mr X's estate had been provisionally declared insolvent subsequent to his last delivery of goods to Mr X. Your client wants to know whether he can reclaim the goods in the circumstances.

8.

Your client has a claim against Joe Soap who ran a laundry business called "The Soap Opera". Joe Soap has recently been sequestrated and it appears that there are insufficient assets in his estate to ensure that your client will receive a dividend in respect of his claim. He tells you that Joe Soap sold his laundry business just two months prior to the sequestration of his estate. You check the government gazette for the relevant period and can find no notice advertising the sale of the business. Advise your clients of its options in the circumstances.

9.

You are approached by Mrs Styles who tells you that she married her husband out of community of property three years ago. In terms of their antenuptial contract he donated to her a large house in Rondebosch. Mr Styles has recently been sequestrated. A nosy neighbour told Mrs Styles that she could lose her house as it was a disposition without value. Is there any accuracy in this statement? Would the position be different if the Styles' had been married only eighteen months ago?

10.

(a)

Name the various impeachable transactions which can be set aside in terms of the Insolvency Act.

(b)

What has to be proved in each instance and who bears the onus of proof?

(c)

Who initiates the proceedings to set aside an improper disposition and what form do the proceedings take?

8

Law Society of South Africa - Practical Legal Training

1999 Edition

8

Law Society of South Africa - Practical Legal Training

1999 Edition