Insolvent Estate: Creditor Meetings

Administration of Insolvent Estate Overview

• Meetings of creditors and the proof of claims, including interrogations, are key to administering an insolvent estate.

Creditor Claims

• A creditor refers to debts incurred prior to sequestration
• Creditors of the estate whose claims arose after sequestration do not need to prove their claims and cannot vote at meetings
• Amounts owed to creditors are paid as part of sequestration costs

Meeting Aims in Insolvent Estate

• Meetings in an insolvent estate are held to:
  • Prove claims
  • Nominate a trustee
  • Receive trustee reports
  • Direct the trustee in winding up
  • Interrogate the insolvent and others
  • Consider composition offers

Creditor Meetings

• Creditor meetings allow trustees and creditors to interact and share insolvency information
• There are four types of creditor meetings
  • First meeting
  • Second meeting
  • General meeting
  • Special meeting
• The first and second meetings are most often held
• The Act prescribes formalities for calling meetings; these can be waived by creditors, and informal resolutions are valid if agreed upon

General Meeting Provisions

• The Master sets the date and time for the first meeting
• The trustee sets the dates and times for subsequent meetings
• The presiding officer may adjourn meetings
• Meetings must be accessible to the public as per section 39(6)
• Meetings typically occur at the Master's or a magistrate's office

Presiding Officer at Meetings

• In districts with a Master's Office, the Master or a designee must preside, according to section 39(2)
• In other districts, the magistrate or a designated officer must preside, following the Master's directions per section 39(2)
• If someone other than the magistrate presides, the absence must be recorded per section 39(4)
• Knowledge gained by the presiding officer during the meeting is treated as knowledge of the Master
• The Insolvency Act does not require the presiding officer to be independent of the Master or magistrate
• A magistrate must preside over meetings involving interrogations due to their authority to handle difficult examinees (De Lange v Smuts, 1998)

Record of Proceedings

• The presiding officer must record meeting proceedings, certify them, and send them to the Master in accordance with section 39(3)
• Meeting minutes serve as prima facie evidence but can be challenged if incorrect
• Meetings are presumed valid unless proven otherwise, and actions taken are presumed valid, as per section 68(2)

Privileged Statements

• Statements made during meetings are privileged, similar to those in court, as stated in section 39(6)

Proof of Claims Overview

• Creditors must prove their claim against the estate to share in asset distribution, vote on administration matters, or challenge trustee actions
• Proof of claim grants locus standi and prima facie evidence of debt
• Employees of the insolvent with preferent claims for salary or wages don't need to prove claims in normal fashion
• Creditors can stay informed on estate developments without proving a claim

Section 43: Registering with the Trustee

• According to section 43, creditors can register their name and address with the trustee by paying R25
• The trustee must then send notices of creditor meetings, accounts, and property sales where the creditor has preferential rights
• Trustee non-compliance doesn't invalidate actions under the Act, but is a breach of duty

Solvent Spouse Claims

• A solvent spouse can only share in their assets' proceeds if they prove a claim against the insolvent estate as per section 21(5)
• Once proven, the creditor has the same rights, remedies, and obligations as an insolvent estate creditor, but with exceptions:
  • They cannot share in the insolvent estate's separate assets
  • They don't have to make contributions under section 106 (s 21(9))
  • They cannot vote at creditor meetings

General Claim Proof

• In general, claims can be proven before the estate's final distribution per section 44(1)
• If three months pass since the second meeting's closure, claims can only be proven with Master or court permission and by covering associated costs
• The three-month period rule for proving claims applies to both sequestrations and liquidations

Late Claim Considerations

• According to section 104(2), a creditor who proves their claim after the trustee submits a distribution plan cannot share in the distribution unless the Master allows it
• The Master may allow it if there is a reasonable excuse for the delay before the plan is confirmed
• If not, the creditor can receive an "equalizing dividend" under a further plan, given a reasonable excuse for the delay

Insolvency Act Section 44

• Section 44 of the Insolvency Act details the claim-proving procedure and applies to both liquidated and unliquidated claims
• Section 83(5) amendment means Section 44 no longer applies to creditors realizing security for a 'master agreement' claim as per Section 35B(2)
• Section 83(10A)(a) governs the procedure for creditors proving secured claims

Claim Submission and Inspection

• Claims (affidavit, claim form, and documents) must be delivered to the presiding officer at least 24 hours before the advertised meeting time
• Claims must be proven via affidavit matching Forms C or D in the Act's First Schedule per section 44(4); Form D is for bill of exchange claims and Form C is for all others
• The affidavit can be made by the creditor or a 'fully cognizant' person
• According to section 44(5), creditors, trustees, insolvents, and representatives can inspect claim documents during office hours without charge

Meeting Attendance and Claim Tender

• The Act does not require creditors to attend meetings to prove claims
• According to section 44(3), creditors who submit documents in good time (at least 24 hours ahead) are considered to have tendered proof at the meeting
• Creditors or representatives should be present to address queries or objections during claim admission

Absence of Claimant

• The presiding officer can summon absent claimants for interrogation per section 44(8)
• According to section 44(9), if claimants fail to appear without excuse or refuse lawful interrogation, their claim may be rejected or expunged by the Master

Abuse of Process

• Convening a meeting solely to interrogate a claim already proven (ss 44 and 45) is an abuse of process

Presiding Officer's role in claim evaluation

• The presiding officer must admit or reject a claim and perform a quasi-judicial function with independent judgment (s 44(3)) and scrutinize claims thoroughly, focusing on essential elements rather than minor defects
• According to the presiding officer, claims that are obviously invalid should be rejected
• Conversely, the presiding officer should accept claims on a prima facie basis

Rejection of Claims

• Unless a claim is invalid on the face of it, the presiding officer must hear creditor evidence under s 44(7) before rejecting it
• The rejection of a claim does not prevent a creditor from proving it at a later meeting or establishing it by action at law (s 44(3))

Trustee's Role Post-Admission

• A presiding officer's claim admission is provisional, as the trustee can dispute it
• After admission, claims are delivered to the trustee, who verifies the debt using estate records (s 45(1)–(2)) and considers witness statements and other evidence (Standard Bank of SA v The Master 2010 (4) SA 405)
• Claims cannot be disputed on mere suspicion, and a reasonable belief based on facts is required
• If claims are disputed, reasons must be reported in writing to the Master and claimant, who has 14 days to justify their claim (s 45(3))

Master's Authority and Actions

• The Master can confirm, reduce, or disallow claims after evidence review and must independently consider the trustee's reasons before expunging a claim
• Action to establish claims rejected by the presiding officer or disallowed by the Master lies against the trustee
• Creditors, for example, cannot compel the Master to allow the claim against the estate

Claim Compromise and Admittance

• Once a claim has been compromised, admitted, or settled by court judgment, it is considered proven and admitted routinely
• Nonetheless, the trustee may appeal the judgement if authorized by the creditors as cited in section 78 (3)

First Meeting: Convening and Purpose

• The Master is obliged to convene a first meeting of creditors upon receipt of a final sequestration order
• The meeting's purpose is to enable creditors to prove claims and elect a trustee According to section 40(1), it must done immediately, by notice in the Gazette

Gazette Notice Requirements

• The notice in the Gazette must appear at least 10 days before the meeting date, counting backward and excluding the first day
• The Master must choose a convenient time and place for all parties as cited in section 39(1)

Altering Meeting Details

• The Master may change the time and place of meeting, provided sufficient notice is given in the Gazette

Second Meeting: Purpose

• Enables creditors to prove claims
• Receives trustee report on estate affairs
• Provides trustee directions for estate administration

Second Meeting: Scheduling and Notice

• After the first creditors' meeting and trustee appointment, the Master sets a date for a second meeting of creditors, cited in section 40(3)(a)
• The trustee, not the Master, convenes the meeting and must publish notice in the Gazette and newspapers circulating in the district where the insolvent resides or has a place of business

Notice Publication Requirements

• The notice in the newspaper must appear simultaneously in English and Afrikaans in a newspaper published in both languages, or if there is none, in separate newspapers appearing mainly in each language as cited in section 40(3)(c)
• The publication in each language must occupy approximately the same amount of space
• The Act does not specify a notice publication timeframe, but interested parties must have adequate time to plan attendance
• Revising language requirements to allow for other official languages has been suggested

Special Meetings: Scope

• Special meetings deal with the proof of claims
• A trustee may convene special meetings for creditors' claim proofs with Gazette notice after the second meeting

Trustee Responsibility and interested parties

• The trustee must convene a meeting when required by any interested person tendering meeting expense payments as stated in section 42(1)

Trustee Misconduct

• A trustee abuses powers under section 42(1) by calling a meeting for further claim proof intending only to interrogate the insolvent and other witnesses

Interrogation Parameters

• The meeting isn't properly convened if it intends only for interrogation

Interrogations: Purposes

• To seek out and recover assets
• To determine if the insolvent or company engaged in impeachable transactions that can be reversed
• To determine whether civil claims can be initiated against directors, officials, and other persons under sections 423 and 424 of the Companies Act
• To determine the validity and enforceability of any other parties' claims against the estate

Master's Consent and Trustee's Duty

• The trustee may convene a creditor meeting to interrogate the insolvent with the Master's consent
• The trustee must convene such a meeting when a creditor who has proven a claim against the estate requests it

Scope of Interrogation

• A special meeting cannot be convened solely to interrogate individuals other than the insolvent, as it pertains only to an interrogation of the insolvent

Types of Interrogations

• General inquiries: S 65 and s 415
• Confidential enquiries:
• S 152 (Master's enquiry)
• S 417 & s 418

Scopes for Interrogation

• There is wide scope for interrogation
• "concerning all matters relating to the insolvent or his business or affairs, whether before or after the sequestration of his estate, and concerning any property belonging to his estate, and concerning the business, affairs or property of his or her spouse”
• Smith NO and Others v Master of the High Court, Free State Division, Bloemfontein

Trustee's Role and Financial Position

• Enabling the trustee and creditors to investigate the insolvent's affairs and determine their true financial position is vital
• The Act allows them to interrogate the insolvent and other witnesses
• The Act empowers the Master to conduct private interrogations

Implications of Informal Discussions

• If a trustee holds informal discussions instead of a formal interrogation for matters clearly calling for one, they are derelict in duty
• The Master may reduce or disallow their remuneration under s 63(1)

Interrogation Types: Creditors' Meetings

• An interrogation can occur at a creditors' meeting, including special or general meetings
• The meeting must be properly convened; otherwise, interrogation cannot occur

Eligible Interrogated Parties

• Anyone present at the meeting, who has been or might have been summoned, including the insolvent, can be interrogated under s 64(2)

Presiding Officer Authority section 64(2)

• Any person known or believed to possess the insolvent's property before sequestration or property of the insolvent's spouse
• Any person known or believed to be indebted to the estate
• Any person who may provide material information about the insolvent's affairs (before or after sequestration), property, or the business/affairs of the insolvent or spouse

Presiding Officer Authority section 64(3)

• The presiding officer may summon any person known or believed to possess a book or document containing information per s 64(2)

Attendance Requirements

• The insolvent must attend the first and second creditors' meetings unless excused by the presiding officer per section 64(1)
• Additionally, they are entitled to necessary expense allowances (s 65(8))
• Note: Permission to be absent requires trustee consultation, and attendance is also mandatory at general or special meetings if notified

Documentation and Discovery

• Those subpoenaed to produce documentation must actually produce it, and access to the material should not be implied
• "You can look through everything I have and take what you need," is not an appropriate response, because they must actively identify and hand over the requested documents as specified in the subpoena

Investigations and Witness Examination

• A wide range of witnesses and documentary evidence can be summoned to investigate the insolvent's affairs and for comprehensive assessment
• Subpoenas under section 64(2) must stay appropriately within the allowed investigation scope

Permissible Interrogators

• It may be conducted by:
  • Trustee
  • Any creditor who has proved a claim against the estate
  • The presiding officer
  • Agent of any of those parties (s 65(1))

Subject Matter Overview

• According to section 65(1), an insolvent and witness interrogation can touch on:
  • all matters relating to the insolvent or his business or affairs, whether before or after the sequestration of his estate;
  • any property belonging to the estate; and
  • the solvent spouse’s business, affairs or property (s 65(1)).

Interrogation goals

• Complete, detailed picture of the insolvent's financial affairs and estate
• It provides broad scope to give effect to its purpose
• Interrogation is allowed to gather information for potential civil litigation against individuals connected to the insolvent

Harksen v Lane NO & others (1998 (1) SA 300 (CC))

• The court rejected arguments that section 65(1) of the Insolvency Act violates the solvent spouse’s constitutional rights (equality, property, privacy, and security)
• The court upheld that, since temporarily vesting the solvent spouse’s property in the trustee is constitutional
• The spouse can also be lawfully interrogated about their property if it relates to the insolvent estate
• Limits on questioning can't infringe constitutional rights, thus not justifying imprisonment for refusal to answer

Procedure at Litigation

• The presiding officer has the power to summon and administer oaths under section 65(1)
• This inquiry facilitates trustees and creditors in finding information for the estate's benefit
• Questioning is broad, without preset issues, and statements must be recorded like courtroom evidence (s 65(3))

Record Adequacy and Transparency

• The adequacy of assessment depends on its fulfillment of statutory purpose
• When an insolvent is interrogated, they must fully disclose their affairs (s 65(4))
• The presiding officer must conduct the proceedings fairly, impartially, and within justice principles
• Courts can intervene if abuse, vexation, or oppressiveness occurs under section 65

Questioning Parameters

• One cannot ask things that are irrelevant or long-winded
• Questions assessing relevance are permitted, but unconstitutional questions need not be answered

Inquiry Location and Representation

• Inquiries can be in camera (private) but must take place in public in certain circumstances
• Individuals giving evidence during interrogation may be aided by an advocate, attorney, or agent, and must be informed of this right
• However, they do not receive advanced information access; their role is to provide data rather than acquire it

Witness Participation and Inquiry Outcome

• A witness may still be interrogated if that person is currently a witness in civil trial regarding the specific subject of the proposed interrogation
• This s 65 inquiry doesn't make any decisions but simply gathers information, and the presiding officer's role ensures fair and effective proceedings

Failure to Attend or Submit to Interrogation

• The presiding officer may issue a warrant for the arrest of anyone who fails to attend a creditors' meeting
• According to S 66(1)–(2), any who cannot supply a convincing reason may be imprisoned until compliance occurs
• Likewise, any refusing to produce documents, take an oath, or answer questions to satisfactory standards, could be imprisoned until compliance under S 66(3)

Untrue Answers and Repeat Imprisonment

• Giving deceptive or untruthful answers may be seen as a rejection to give meaningful testimony
• Individuals can be repeatedly imprisoned until they comply though there is a process to apply for release from the High Court section 66(4)(5), if their detainment is illegal

Committal Proceedings

• Regarding any actions taken by this, the presiding officer has same legal immunity cited in section 66(6) as any legal officer
• De Lange v Smuts 1998 CC: it was argued that committal, cited in s 66(3), violated section 12(1)(b) (fair trial rights)
• The court agreed s 66(3) was constitutionally invalid, to the limited extent that it is permissible for a presiding official not recognized by the standards established by the Constitution to issue a warrant for committal

Committal and Judicial Independence

• Regarding the application of s 66(2), is that the committal for not going to a meeting, the same reasoning applies
• These subsections shall be interpreted such that these presiding officials are only to order committal if they are known by the same status or structure conferred on judicial members or bodies in the court
• Possible undermining could occur concerning the efficiency of the sequestration process without the power to perform summary committals of the public service officers.

Summary Judgement Delays

• Without these powers, it may indicate delays, and potentially undermine the efficiency as was suggested
• The court was unpersuaded that those delays were sure to emerge, provided judicial management and courts acted accordingly

Alternative Officers

• It is possible to integrate officers into positions where they can preside officially, such as a specialized bankruptcy court or equivalent structured judicial capacity
• If judicial officers have true structural, legal and constitutional foundations, then there would be no appropriate argument against handing them power to commit examiners

Interrogation Revealing Possible Offence

• If the Master reasonably suspects someone has committed an offence from an interrogation statement, they must send all necessary documents and this statement, so the Director can decide on taking further legal action

Interrogation By Master Scope

• The Act says that, in instances where useful testimony can emerge, the Master can initiate a probe
• Those circumstances can arise any time, with the trustee, insolvent or other parties in the matter, and can be used to determine any claims
• In such case, the master can arrange summoning such party before them, a magistrate or an officer per s 152(2)

Powers

• The Master has power to perform this process either post sequestration and before rehabilitation by the insolvent, including preliminary inquiries

Further powers

• The powers and means per ss 64 and 65 cannot be avoided or be made impractical using powers of 152
• After the summons, and an oath performed, the Master is then entitled themselves to begin examination, and allow the trustee, or agent in their capacity, to take part per s 152(4)
• Finally, Master has unilateral power to order the interrogated party to come again, and bring again related documents for future review per s 152(3)

The Constitutional Right to Privacy

• Privacy takes precedence here in matters which touch the documents of the insolvency in the courts, section 14 is secondary per Gumede & others v Subel NO & others (2006)

Provisions Relating To Interrogations

• As for provisions relating to privilege, incriminating evidence, to attend or not, the actions or immunity the presiding overseer might imply, these should be equally granted as in normal trustee situations
• In the situation where witness fees are awarded it might be argued that the witness would not need attending, till a suitable compensation is granted

Inquiries

• Regarding the inquiry itself, this should be viewed as seeking, and fact based
• The overseer is invested with investigatory scope, however, his or her powers cannot be taken as those with a capacity to harm those rights granted to individuals, nor take part in those determinations

General Legal Procedures

• Because this is a fact finding, or information action taking, there is a right for this to be held without affecting the rights of another group, it suggests that requirements to hear an opposing view before such investigation, or overseeing of a person in court will go ahead is not necessary
• Such process requires no need when a summons has been issued, it will go on uncontested, without appropriate cause from the subject Such cause is to be taken in its most significant definition, as any cause is too limited in its scope

Constitutional Rights

• On no account can the interrogated persons demand legal access at their examination, that such right may require examination in itself
• When regulating process and fairness, an officer is still expected to take it to his charge that there will be as many provisions to facilitate it as they can possibly allow for. However, the fact this takes precedent should not imply that a respondent can at all times obtain access to documents used in the final ruling
• Because no harm may be directly inferred from the examination, there should be no expectation to assume there to be rights that can supersede the ruling
• The courts are there to oversee the legitimacy, and as such are there to intervene and, when and where necessarily, constrain those whose powers are abused. This will very much be linked and depend on events that emerge themselves
• It was the stance and ruling offered in Kebble & Gainsford 2010
• One can summon on the grounds it is a pre-trial, or is an investigation not with intent to hear damaging things, those which do not support claim there may have been negligence

Representation

• Persons other than the trustee don't have right to be represented, The Presiding overseer may see it in his power, at time, to allow a such, based on reasonable grounds

Confidentiality

• Confidence and privacy are core to insolvency inquiry
• It was suggested that at all moments the most rigorous standards of common practice should be followed, otherwise it has a liability to damage matters brought up to the inquiry that has a capacity to harm

Limited Powers of Attorney

• A court has limited powers reviewing Master power to hold inquiry in bad faith, secondary intentions, of failing to think fully on the matter On the further hand, Courts can, and shall take action, whenever the investigation seems any of this: a) Oppressive b) vexatious c) harmful the interrogated party or, d) if exceptional circumstance would lead to this being the moment for a court to step in

• The trustee may schedule a meeting with creditors, commonly for delivering management guidance about an estate

Purpose

For situations in the direction from the second meeting that did not deliver it

• They must demand meeting where such cases emerge that such was directed from a quarter of stakeholders who possessed claims against the estate

Interogating Witnesses

A common inquiry is not adequate grounds to warrant calling meeting for those reasons

Duties of A Trustee

• It is standard that a trustee, without taking sides, in any way, must work to value equality between the shareholders and concerned

Obligations

• The trustee and/or manager of the said operation, and the bankrupt also occupy a position of implied and implicit trust
• In that an issue over shares and earnings is expected as such, or at least, intended and expected as such there is no liability that such should take all possible and reasonable steps to assure creditors have better situation and take over earnings

Duties Owed

• The Master, or any individuals or entities with liability toward the estate/liquidation is in the hands of what was agreed per the Act. As it is the trustee who serves to assure is their duty is upheld, one can appeal to instruct their direction After the appeal process, with 14 day notification at minimum, can an official process get underway

Further Matters On Payment

• Court Payments issued, paid directly, to all stakeholders or to a Manager
• Unless another agreement was declared, in that such agreement was issued out pocket by the manager, such manager is liable for any proven wrong-doing

When the sheriffs have performed or fulfilled processes the first steps must: Take direct control of possessions or movable material, data or information. Value is assessed by an appraiser Payments are due on the 7ths and last days of each month per the tax man on all items

The Right to Property Law

• If any possessions, items or holdings has evidence to a reasonable extent suggests that some things that did not fall right into the power of the holding then one can seek what processes are lawful to do so (s 69(2)–(3)).
• One must issue that their process to reclaim was approved via what was said already (69(2)(3)
• As it is known any reasonable and relevant claim will not hold unless if a prime justification exists
• As is lawful, that power and authority of the summons is to end immediately
• What should also come into order after receiving has to be due on existing legal framework and standards, while there are competitive claims.

A trust will be liable in the occasion a item is requested given a warrant

• Books related a record to a pc are liable to get took, given conditions listed

Section 69(3)

• It does mention for anyone to receive a heads on notice
• In most cases, that rule needs to be upheld to protect one, unless one had the likelihood of the items to disappear

The trustee can seek legal actions

• With the exclusion to 69(2 warrant

• A legal request for something to not be taken, such as items or wealth, by order or directive, prior to it the estate being declared insolvent For wealth or funds that had the possibility of being hidden, for funds or assets at risk

• This offers trust, such that a there must be a request for there not be intention inferred nor be rebuttable

• At all junctures, should the immovable valuables, possessions etc, have to be had possession of

Debt Recovery

• The trustee will write to all who own dues and owed, what is now declared estate, and the requirements and the dates they expect full amounts to be cleared at (s 77).
• Should date be past, and no action be took to claim or right those issues, process with legal intervention may be the call to action
• There is no particular system or regulation to how notices must be delivered. All outstanding requirements for this is due before further action is began from the bankrupted entity.

Debt Ownership

• The banks/trusts may take payments to fulfil requirements per s 78(1).
• When the debt goes beyond a ceiling of 2,000 the authority may need be authorised to continue to press that requirement, or for cases that have not proved themselves it may fall the responsibility of an official agent..
• Debts must be given instructions to show what it may offer, if those conditions are there, per (George Hartman & Kie v Landdros, Reitz en andere 1958 (4) SA 514 (0)).
• What is key, after payment or instructions have been presented, under legal rights and regulations, the process must continue even with any resistance.
• There has to be known understanding and consent of what was decided is clear, there is full support among creditors

Can the business be taken

• Unless authorised, it is a requirement a request be launched for all items and possesssions to taken as there is no explicit right if the business has a loss

• It requires green light from those named parties A. Credit holders. B. A legal judge, officer etc, from authorities (80(1))

• On that note, administration is a direct call for any price incurred (s 97(2)(c)).

• That loss is never meant for any extra call

Legal Authority

• What the Master can do, those legal and rightful things, such as ratifying what was in place

• Those will be held only long enough as requires, that any actions to drag this out is illegal

• The most important is take that all sides had full access to any documentation etc

• The business MUST produce full account of that has the business ran from when all those problems were occurring

Insolvent

• Trustee may require info in written note, asking why they were bankrupt. Asking what lead to that circumstance and be full and transparent and have all related documents