Insolvency Law and Trustee Accounts

Insolvency Law Overview

• It regulates the insolvency situation of people and businesses.
• Applies when a debtor is unable to pay debts or total liabilities exceed total assets.
• Insolvency law prioritizes the creditor and to reasonably distribute a debtor's property when there are not enough assets.
• A creditor can demand payment, can issues summons, and can obtain judgement against the debtor.
• Creditors can attach the debtor's property if they don't respond
• When the debtor's assets are insufficient, can create favour for creditors who executed against debtor assets
• Concursus creditorum is when creditors' general interest ranks higher than individual creditors (fairer dispensation)
• Position of payment is
  • Secured by pledge
  • Unsecured through statutory preference or being concurrent

Trustee Accounts

• The trustee works with an encumbered asset account, for assets secured by real security
• Free residue exists in the leftover funds
• Trustee pays money not encumbered or the statutory creditors.
• Concurrent creditors are paid if there is anything left
• Debtors need to have enough funds to have funds left for other creditors

Debt Collection Options

• Individual debt collection
  • One on one process
  • Debtors can dispute the debt.
  • Creditors issue demands, summons, judgements
  • Includes one-on-one-payments
  • Can be multiple procedures but is costly
• Collective debt collection
  • Insolvent debtors are unable to pay debt
  • Creditors use sequestration
  • 50c per rand with a special nature and consequences
  • Includes Stay of action, pool of assets, and pro rata payment

Sequestration Characteristics

• Estate must be insolvent for sequestration
• It secures orderly and equitable distribution of a debtor's assets
• Creditors can apply for the compulsory sequestration of the debtor's estate.
• Sequestration discharges an overburdened debtor's debt.
• Debtors can apply for voluntary surrender of estate

Statutory Relief Measures

• Administration order through the Magistrates Court Act
  • Debtor can apply if the debts do not exceed R50,000
  • They make regular payments
  • The administrator draws up a list of creditors
• Debt review procedure can happen through the National Credit Act.
  • Consumers can also apply if their debts result from credit agreements regulated by the NCA
  • Monthly payments are made to creditors
• There are also NINA debtors who do not have enough assets/income and have debt intervention

Sequestration Procedure

• It is initiated when the High Court grants a sequestration order
• The debtor loses control over his estate, but his creditors can have a longer claim
• The debtor's property vests in the Master of the High Court, through the direction of an appointed trustee
• Trustees realize estate property, distributing the proceeds according to the Insolvency Act
• Debtors cannot alienate or burden their property, as their contractual capacity is limited (until rehabilitated)
• Includes criminal liability for prohibited acts

Corporate Insolvency

• Procedures to wind up a company can commence involuntarily
• A company can be wound up if it is solvent
• The liquidator appointed to finalise the administration controls the liquidated assets
• The debt-paying purpose of proceedings involves shareholders, members and creditors

Companies law to apply

• Liquidation provisions continue to apply with respect to winding up
• Courts order the conversion of the voluntary in terms of the 2008 Act to an insolvent terms of Chapter 14 of the 1973 Act
• Insolvency laws apply when the Companies Act does not have otherwise specifications
• For S340(1), apply provisions for voidable preferences, S341 - liquidator costs, S364(2) to hold first creditors meeting
• Apply S365(2) to vote at creditors meeting, and S366(1) for proving claims
• S 415 is for interrogating directors, while S425 can invoke criminal provisions for liquidation of solvent companies
• Winding up includes a close corporation, with applicable 2008 provisions, same with banks

Estates that can be sequestrated

• Only Debtors like persons, partnerships, partnerships with spouse that have separate claims
• This joint action with deceased, trust or club estate, not corporate

Jurisdiction Requirements

• Only HIgh Court may grant sequestions
• Debtors must thus have domicile, own or have lived in the region at time of application.

Case Law and impact

• Magnum Financial Holdings versus Summerly case trusts are debtors
• In Commissioner, SA Revenue Services versus Hawker Air Services partners are debtors, partners can not be companies
• The main purpose is to ensure order and follow procedure in accordance to Insolvency Act
• Different laws dictate requirements for insolvency such as Matrimonial law for partners, and trust properties

Actions to Take for Applying or in a case

• Publication in Gazzette, with copies to entities
• In duplicate the master must lodge statement
• Then the court has to look on procedural fairness

Ford CAse

• For volutanry surrender, court will look at remedies, may reject such surrenders if debts arise from credit agreements and that the Debt Relief is the only recourse

Types can Apply

• Inmates
• Spouses

General procedure

• Motion occurs with affidavits to court for court action
• If COMPULSARY it has to be long form with notice
• As per Hockleys, include an oath such as "I am deponent to it"

What occurs when order is issued

• Sherriff may come in for asset sale
• If under 5000 Master makes sales
• Estate under trustee control

Volutary Surrender Test

• To ensure creditors that it is happening
• If mistake, should be formal

Section 6

• Must satisfy court has compliance and that it is
• The debtor provides proof that there is value to free residue
• A creditor can also stop this action

Procedure on what to Say for the Court

• Who what and where things are
• Why this happening and pre steps
• That it has come to this step and is an advantage
• In a motion

S197B - Disclosure of information concerning insolvency for LRA

• An employer that is having money problems have to advise their worker

In Horkely Application

• To show that "There is honesty to it, and facts are knowledge" for debtors

Friendly Court

• High level with paper

Compulsory Court

• As opposed to voluntary, this has to be served well

Ford Test

• Voluntary is not always best since it has to help both Debtors and Creditors

197B LRA

• Disclosure about solvency

S8, What is insoluable

• Intent to leave or depart
• Cannot satisfy judgment

What is Sequestuable

• Under a R100 for the debtor
• Or the estate would help

S150

• Appeal

Ford test Part Two

• Voluntary primary remedy has to help debtors mostly

Bouwer

• If is debtor has assets
• There cannot not be a benefit

Concatto

• Has to be different than prior template

Difference with creditor approval

• Will be vs Reaosn to beleive
• Is with is
• What is best
• What they want from it

The court

• Will focus on real over sham

S89s

• There is also

Section 10

• has reason with in the case of debt

Friendly Sequestration abuse from court

• Should it fail
• Must the test be ok

Section 8

• Must see if all can be covered

Section 10

• Is whether help is possible
• It may not be in any form

In general

• Trustee estate has to be a legit legal title

Courts will see if legitimate

Section 21

• The wife has to still operate with trustee

S23

• The debtor also has to have the will to sell
• Has to have an office

S23

• The spouse will have affairs

S230

• Has to have a statement for all assets given

Harkens Test

• To look if there is collusion from the trustee
• Cannot be any property taking by the estate