Trustee Asset Vesting Quiz

Vesting of Assets in Trustee

• The sequestration order vests the separate property of the insolvent's spouse in the Master and subsequently the trustee, even if it's not property of the insolvent estate.
• This vesting is temporary; solvent spouses can secure the release of these assets under certain conditions.
• Introduced to prevent collusion between spouses, preventing the insolvent from depriving the estate of assets by falsely claiming they are the spouse's property.
• The Constitutional Court found Section 21 doesn't violate the solvent spouse's constitutional rights because:
  • It doesn't permanently transfer the property to the Master and trustee.
  • The differentiation between solvent spouses and other persons is legitimate and rationally connected.
  • It doesn't amount to unfair discrimination.
• "Spouse" includes those in legally recognized marriages, marriages according to law or custom, and common-law couples.
• The Civil Union Act amended the definition of “spouse” to include same-sex and opposite-sex couples in civil unions.

Notice of Intention to Surrender

• The debtor must publish a notice of surrender in the Government Gazette and a newspaper circulating in the district where they live or have their main place of business.
• The notice must include:
  • The debtor's full name, address, and occupation.
  • The date and court where the surrender application will be heard.
  • The time and place for inspecting the debtor's statement of affairs.
• Publication must occur between 14 and 30 days before the hearing.
• Purpose: To alert creditors of the intended application, giving them the opportunity to oppose it.
• The chosen newspaper must circulate in the area where the debtor's creditors are located.
• The 14-day period ensures creditors have enough time to review the statement of affairs.
• The 30-day period prevents debtors from giving long notice, allowing them to dissipate assets before creditors can execute.
• Failure to adhere strictly to the 30-day time limit can be fatal to the application, although it can be remedied if it doesn't cause substantial injustice.
• Proof of publication can be provided with an affidavit and copies of the Government Gazette and newspaper.

Notice to Creditors and other Parties

• Within 7 days of publishing the notice of surrender, the debtor must provide copies of the notice to creditors and other relevant parties.
• This step can be proven with an affidavit.
• A certificate is issued after the inspection period, confirming that the statement was available for inspection and whether any objections were submitted.

Effects of Notice of Surrender

• Stay of sales in execution:
  • It becomes unlawful to sell a debtor's property attached under a writ of execution after the notice of surrender is published, unless the person selling was unaware of it.
  • Even if the sale proceeds, the trustee can claim the property back if the buyer acted in bad faith and knew the sale was unlawful.
  • The court or Master can order the sale of an asset if its value doesn't exceed R5,000, and direct how the proceeds should be allocated.
  • The creditor must demonstrate that moving forward with the sale is beneficial for the general creditors.
  • The notice doesn't affect other civil and criminal proceedings or attachments in execution of judgments, but it does delay sales in execution.
• Curator bonis appointment protects creditors while the debtor still has control over their property.
  • The Master may appoint a curator bonis to manage the debtor's estate.
  • The curator takes custody of the estate but doesn't replace the debtor's ownership.

Potential Compulsory Sequestration

• The debtor may be deemed insolvent if, after publishing the notice of surrender, they fail to:
  • Lodge a statement of affairs.
  • Lodge a complete and correct statement of affairs.
  • Apply to the court on the appointed day.
• If the notice isn't properly withdrawn, a creditor can apply for compulsory sequestration.
• This cannot be done if the notice of intention to surrender has been dropped.
• A notice of surrender can’t be withdrawn without the Master’s consent.

Compulsory Sequestration: Requirements

• The court can grant a compulsory sequestration application if satisfied that:
  • The applicant is eligible to apply according to Section 9(1).
  • The debtor is insolvent.
• In terms of Section 9(1), the following can apply:
  • A creditor with a liquidated claim exceeding R100.
  • Two or more creditors whose liquidated claims total at least R200.
• Having security for a claim doesn’t disqualify a creditor.
• A liquidated claim is a claim with a defined value, e.g., the price of goods sold or a claim based on a judgment.
• Unliquidated claims, such as claims for property transfer or untaxed attorney fees, don't meet the requirement.
• A claim that's accrued but not yet due is considered liquidated.
• A creditor can’t reject full payment but can refuse a partial payment.
• If a creditor's standing is eliminated, another creditor can apply for a provisional sequestration order.
• Costs of opposing the application are not part of the sequestration costs.
• The court may, as a safeguard against abuse, allow the debtor to prove damages suffered and award compensation.

Setting Aside a Sequestration Order

• Persons aggrieved by a final order of compulsory sequestration or an order setting aside a provisional sequestration can appeal.
• Leave to appeal needs to be obtained from the relevant court.
• Appeals aren't possible for the granting or refusal of a provisional sequestration order.

The Legal Position of the Insolvent

• Sequestration limits the insolvent’s legal and financial capabilities.
• Insolvent’s capacity to contract, earn a living, litigate, and hold office is restricted.
• While the insolvent can generally contract, there are restrictions to protect creditors.
• The insolvent cannot make contracts without the trustee’s written consent if the contracts:
  • Deal with any property in their insolvent estate.
  • Negatively impact (or are likely to) their estate or contributions owed to it.
• The insolvent must contribute to their estate, but the amount is determined by the Master.
• The insolvent can contribute only once the Master indicates that the money isn't needed for support.
• Contributions to the insolvent’s estate from their earnings only become due once this indication is given.

Test your knowledge on the vesting of assets in trustees as per sequestration orders. Explore how these orders affect the separate property of the insolvent's spouse and the rights of solvent spouses. Understand the legal definitions and implications detailed by the Constitutional Court.