Trustee Asset Vesting Quiz

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Questions and Answers

Which of the following scenarios would NOT grant locus standi for a creditor to apply for sequestration?

A creditor with a secured claim for R 200.00

A creditor with an unliquidated claim for damages due to breach of contract (correct)

Two creditors with liquidated claims totaling R 250.00

A creditor with a liquidated claim of R 150.00

What is the minimum aggregate amount required from multiple creditors to apply for sequestration?

R 400.00

R 200.00 (correct)

R 100.00

R 300.00

If a debtor's estate is provisionally sequestrated, which of the following actions is prohibited for the debtor?

Seeking assistance from a surety for payments

Making a payment to reduce their claim to below R 100.00 (correct)

Paying part of the claim to the creditor

Requesting a provisional order from another creditor

Which of the following best defines a liquidated claim?

A monetary claim where the amount has been explicitly specified Signup and view all the answers

What happens if a creditor rejects a partial payment after a debtor's estate has been provisionally sequestrated?

The creditor can refuse the partial payment Signup and view all the answers

What happens to the separate property of the spouse of an insolvent when a sequestration order is issued?

It vests in the Master and subsequently the trustee. Signup and view all the answers

What is the primary purpose of Section 21 regarding the separate property of a solvent spouse?

To prevent collusion that can harm creditors of the insolvent estate. Signup and view all the answers

Which statement accurately reflects the constitutional arguments against Section 21?

It does not infringe the right to equality. Signup and view all the answers

How does the definition of 'spouse' under Section 21 change with the Civil Union Act?

It now includes persons in civil unions, regardless of sex. Signup and view all the answers

Which of the following is NOT true regarding the solvent spouse's powers over their property during sequestration?

The solvent spouse retains all rights of ownership. Signup and view all the answers

What legal concept does Section 21 primarily seek to mitigate against?

Collusion to disadvantage creditors. Signup and view all the answers

In the case of Harksen v Lane, what was concluded about the differentiation made by Section 21?

It is a legitimate differentiation that does not violate equality rights. Signup and view all the answers

Which of the following RIGHTS is NOT infringed by Section 21 according to the Constitutional Court?

Right to ownership without constraints. Signup and view all the answers

What is the minimum number of days before the hearing date that the notice of surrender must be published?

14 days Signup and view all the answers

What must be included in the notice of surrender regarding the debtor?

Full names, address, and occupation Signup and view all the answers

In what type of publication must the notice of surrender be published?

A newspaper with local or foreign reports Signup and view all the answers

What is the purpose of the notice of surrender?

To alert creditors about the intended application Signup and view all the answers

What can be used to prove the publication of the notice of surrender?

An affidavit enclosing copies of the relevant gazette and newspaper Signup and view all the answers

What happens if the 30-day time limit for the notice of surrender is not adhered to?

It is considered a fatal error but may be viewed as a formal defect. Signup and view all the answers

Within how many days must the debtor furnish copies of the notice to creditors after publication?

7 days Signup and view all the answers

Where must the debtor's notice of surrender be published if they are a trader?

In the district of their principal place of business Signup and view all the answers

What can the court do if it deems an application for sequestration to be vexatious?

Allow the debtor to prove damage suffered and award compensation. Signup and view all the answers

Which of the following statements about appeals against sequestration orders is correct?

An aggrieved person must obtain leave to appeal from the appropriate court. Signup and view all the answers

What does sequestration do to a debtor's status?

Limits the debtor's capacity to contract and earn a living. Signup and view all the answers

What types of contracts are prohibited for a debtor under sequestration?

Contracts that dispose of property from the insolvent estate without trustee consent. Signup and view all the answers

In the case of Mervis Brothers v Hannekom, what was the crux of the court's decision?

The debtor's undertaking was binding because consent was unnecessary at the time. Signup and view all the answers

What restriction applies to a debtor concerning contributions to their estate?

Contributions are only obligatory after the Master assesses its necessity. Signup and view all the answers

What happens when a debtor makes a binding agreement without the trustee's consent?

The agreement can affect any future contributions the debtor must make. Signup and view all the answers

What is a requirement for appealing a final order of compulsory sequestration?

The aggrieved party must obtain leave to appeal from the appropriate court. Signup and view all the answers

What is the effect of publishing a notice of surrender on property sales in execution?

Sales are unlawful unless the seller was unaware of the notice. Signup and view all the answers

What happens if an asset's value exceeds R 5,000 after the notice of surrender is published?

The court can still permit its sale based on creditor advantage. Signup and view all the answers

What is the role of the curator bonis in the estate of a debtor following the notice of surrender?

The curator manages the estate but does not own it. Signup and view all the answers

Under what circumstance can a creditor apply for compulsory sequestration?

If the debtor does not properly withdraw the notice of surrender. Signup and view all the answers

When can a notice of surrender be withdrawn?

With written consent from the Master. Signup and view all the answers

What must happen following the publication of a notice of surrender for a debtor's assets?

The debtor should lodge a statement of affairs. Signup and view all the answers

Which of the following actions constitutes an act of insolvency in the context of a notice of surrender?

Failing to lodge a complete statement of affairs. Signup and view all the answers

What does the trustee need to prove in order to reclaim ownership of a property sold after the notice of surrender?

That the buyer acted in bad faith and was aware of the unlawful sale. Signup and view all the answers

Study Notes

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.

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Description

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.