Voluntary Surrender PDF

Voluntary Surrender Mr. Siphelele Ngubane, Lecturer UKZN, School of Law UKZN INSPIRING GREATNESS VOLUNTARY SURRENDER Voluntary surrender inter alia occurs when: the debtor himself apply to a court for acceptance of surrender of his estate, s 3(1). It is the debtor himself who gives up...

Voluntary Surrender Mr. Siphelele Ngubane, Lecturer UKZN, School of Law UKZN INSPIRING GREATNESS VOLUNTARY SURRENDER Voluntary surrender inter alia occurs when: the debtor himself apply to a court for acceptance of surrender of his estate, s 3(1). It is the debtor himself who gives up his estate to the courts. Who are the applicants: (a) natural person (debtor himself or his agent, s 3(1). The agent must be duly authorised, see Exparte Brown 1951 (4) SA 246 (N); (b) executor (deceased debtor's estate), s 3(1); (c) curator bonis (prodigal's estate), s 3(1); see Exparte Houston 1958 (1) SA 448 (N); (d) members of a partnership (partnership's estate), s 3(2); see Ex parte Bester & another 1937 CPD 45; (e) both spouses (joint estate of spouses married in community of property). UKZN INSPIRING GREATNESS VOLUNTARY SURRENDER Requirements: Courts may approve debtor's voluntary surrender application if: (a) the debtor's estate is actually insolvent; (b) the debtor owns property of sufficient value to cover the costs of the sequestration process, payable from the free residue of his estate; (c) sequestration is to the advantage of creditors, s 6(1). What are the required formalities: (a) Notice of intention to surrender –debtor must publish his intention in a GG & newspaper which circulates where he resides or at his place of business. Publication to be done not more than 30 days & less than 14 days before the date of hearing of the application. The notice to state full names; address; & occupation of debtor; date of acceptance of his application & the court which accepted it. Notice to indicate where the debtor's statement of affairs will be inspected. What is the purpose of the notice? See R v Lewin 1930 AD 344 at 349; Exparte Goldman 1930 WLD 158. UKZN INSPIRING GREATNESS VOLUNTARY SURRENDER What are the required formalities: (b) notice to creditors & other interested parties: Within 7 days of the publication of notice to surrender, debtor must furnish copies of the notice to creditors & other related parties. This could be done via an affidavit of the debtor's attorney, see Exparte Harmse 2005 (1) SA 323 (N) 331. Debtor may furnish the copy of notice of surrender to each creditor, s 4(2)(a); Ex parte Wassenaar 1968 (2) SA 726 (T) 727. Where a debtor is a juristic person, it may furnish the copy of notice of surrender to trade unions & employees, especially those that represents his employees, s 4(2)(b)(i). Such notice must be posted where the employees have access to see it. Debtor must furnish a copy of the notice of surrender to SARS, s 4(2)(b)(iii). UKZN INSPIRING GREATNESS  VOLUNTARY SURRENDER What are the required formalities: (c) preparation & lodging of statement of affairs: Debtor must prepare a statement of his affairs in accordance with Form B. It must show: a balance sheet; list of immovable assets & their estimated value; List of movable property assets & their estimated value, see Exparte Nel 1954 (2) SA 638 (O); List of debtors & their postal + residential addresses, see Exparte Silverstone 1968 (2) SA 196 (O) 198; (list of sundry debts, Exparte Murphy 1929 EDL 168 171; List of creditors & their postal + residential addresses, see Cumes & Co v Sacher & another 1932 WLD 213; List of movable assets pledged, hypothecated, subject to a lien etc; UKZN INSPIRING GREATNESS  VOLUNTARY SURRENDER (c) preparation & lodging of statement of affairs: List & description of all the debtor's accounting books; A detailed statement of what caused the insolvency & other details prior to the insolvency & rehabilitation; Affidavit affirming that the statement of his affairs is correct & complete. The statement of his affairs must be lodged with the Master, s 4(3) & (5) and/or at the magistrate's office. It must lie for inspection for 14 days as stated in the notice of surrender, s 4(6); Exparte Viviers et uxor (Sattar intervening) 2001 (3) SA 240 (T). UKZN INSPIRING GREATNESS  VOLUNTARY SURRENDER When is the debtor insolvent?: Debtor may only be declared insolvent by the courts if his total liabilities exceeds his assets; Courts usually refer to the debtor's statement of affairs, Exparte van den Berg 1962 (4) SA 402 (O) 404; It must verified whether the debtor has more liabilities than assets, see Exparte Harmse 2005 (1) SA 323 (N) 326. See Ex parte Greef 1940 (2) PH C80 (C), where debtor's showed a surplus of assets but the application to surrender was accepted because the value of assets was a mere estimate. UKZN INSPIRING GREATNESS  VOLUNTARY SURRENDER Free residue: Portion of the estate which is not subject to a special mortgage; legal hypothec; pledge or right of retention, s 2. The surplus that remain after the admin. costs & sequestration costs, s 97; Exparte Van Heerden 1923 CPD 279; Goods bought by debtor on installments falls under free residue to the extent that their market value exceeds the outstanding balances, Mindel v Shaer 1937 TPD 378. Debtor must own sufficient property to defray sequestration costs, see Miller v Janks 1944 TPD 127. If the free residue is insufficient, the courts may refuse the application, see Exparte Swanepoel 1975 (2) SA 367 (O). UKZN INSPIRING GREATNESS  VOLUNTARY SURRENDER Advantage to creditors: A debtor must prove that the sequestration is to the advantage/benefit of creditors. Debtor to show that there is a reason to believe that the sequestration is to the advantage/benefit of creditors. This onus of proof is more difficult to meet in voluntary surrender than compulsory sequestration, see Botha v Botha 1990 (4) SA 580 (W) 581. Debtor may be required to give a detailed account of his own financial position etc. It must be proved whether the sequestration holds little or more benefit to the creditors. UKZN INSPIRING GREATNESS  VOLUNTARY SURRENDER A successful notice of voluntary surrender has the following effects: (a) stay of sales in execution – once an insolvent has published a notice of voluntary surrender in a Gazette, he is obliged not to sell any property of his estate after its attachment by the sheriff (unless the sheriff was unaware of the notice of voluntary surrender, see s 5(1)). However, if the value of the property being sold does not exceed R5 000, the court or the Master may grant that the sale of the attached property should proceed and direct how the proceeds of that sale may be distributed, see s 5(1). The duration of the property sale prohibition is not fixed, but it appears that it continues until the voluntary surrender application is adjudicated by the court (see Webb v Bergsma 4 HCG 376, where it was held that the debtor can resist the proceedings or claims brought by a buyer if the sheriff applied or allowed the sale of the property to be done in contravention of s 5(1)). Where the property was transferred to the buyer under an illegal sale contract, a trustee cannot claim the property or the proceeds unless he proves that the buyer acted in bad faith (see Gibson NO v Iscor Housing Utility Co. Ltd & Others 1963 (3) SA 783 (T)). UKZN INSPIRING GREATNESS  VOLUNTARY SURRENDER A successful notice of voluntary surrender has the following effects: (b) a curator bonis may be appointed – [a Master appoint a curator bonis to a debtor’s estate to avoid the debtor from selling or disposing all his assets before the voluntary application is adjudicated, see s 5(2). The curator bonis is obliged to take control of the debtor’s estate, see s 5(2); Moosagee v Bhyat & Co 1921 TPD 465]. (c) potential compulsory sequestration – [if a debtor fails to lodge a statement of his affairs; or lodges an incorrect or incomplete statement of his affairs in a material respect; or fails to make an application to the court on the appointed day, and the notice is not properly withdrawn, he commits an act of insolvency which allows a creditor to apply for compulsory sequestration against him, see s 8(f)]. (d) no withdrawal of notice without consent of the Master – [Once a notice of voluntary surrender has been published it may not be withdrawn or cancelled without the consent of the Master (s 7(1)). A debtor who wants to withdraw or cancel his/her initial notice or application for voluntary surrender must apply to the Master for his consent and the Master may give such consent if the initial notice was published in good faith and there are objectively good reasons for its withdrawal (s 7(2)). UKZN INSPIRING GREATNESS  VOLUNTARY SURRENDER A successful notice of voluntary surrender has the following effects (CONTI…): Once a notice of voluntary surrender has been published it may not be withdrawn or cancelled unless a publication of a notice of withdrawal together with the Master’s consent is made in the Gazette and in the newspaper, in which the initial notice was published, see s 7(2). A notice of surrender only lapses if the court does not accept the surrender; or if such notice is properly withdrawn in terms of s 7(1) and (2); or if the debtor fails to make the application for surrender within 14 days of the date advertised as the date of that application hearing. See s 6(2); Ex parte Viviers et Uxor (Sattar intervening) 2001 (3) 240 (T) – where the court rejected the debtors’ withdrawal contentions because their initial notice had lapsed due to the expiry of the 14-day period]. (e) lapse of notice of surrender – notice of surrender lapses if it is rejected by the courts or its not properly withdrawn, see s 6(2). If a court had appointed a curator bonis to a debtor’s estate to avoid the debtor from selling in terms of s 5(1), the control of the estate must be restored to the debtor upon the lapse of the notice of surrender as contemplated in s 6(2). UKZN INSPIRING GREATNESS  VOLUNTARY SURRENDER The courts' discretion: Courts have discretion to reject the voluntary surrender application if: (a) debtor displayed gross negligence or extravagance & pretended to have debts, Exparte Logan 1929 TPD 201 204; (b) debtors' creditors are not pressing him for payment, or are willing to give him more time or to allow him to pay in installments, see Ex parte Kruger 1928 CPD 233; (c) debtor has an ulterior motive in applying for voluntary surrender eg. to avoid paying or infringe upon the rights of creditors, see Naidoo & another v Matlala NO & others 2012 (1) SA 143 (GNP) 156; Debtor failed to give a detailed account of his financial position; Debtors' application papers were materially defective, see Exparte Harmse 2005 (1) SA 323 (N) 332; Debtors' insolvency can be dealt with under National Credit Act 34 of 2005, see s 86(7) of this Act; Ex parte Ford & two similar cases 2009 (3) SA 376 (WCC), application for voluntary surrender was rejected. UKZN INSPIRING GREATNESS  VOLUNTARY SURRENDER Courts have discretion to reject the voluntary surrender application: Costs of sequestration process are paid from the debtor's estate & no surplus is left, s 97(3). Costs of surrender: Costs of an unsuccessful creditor's opposition of a voluntary surrender are paid by the creditor concerned, Ex parte Bellairs 1932 EDL 189. The setting aside of a sequestration order: There is no appeal against a court's refusal to accept a voluntary surrender application; Nonetheless, any party aggrieved by a court order accepting a voluntary surrender application may appeal, s 150(1) & (5). The lodging of an appeal does not suspend the execution of the relevant court order to grant or accept a voluntary surrender application. No property of the debtor's estate may be realised without the debtor's consent, s 150(3). UKZN INSPIRING GREATNESS  VOLUNTARY SURRENDER The setting aside of a sequestration order: S 149(2) empowers a court to cancel or vary any of its previous orders only if the initial application was defective, see Exparte Mavromati 1948 (3) SA 886 (W) 890; or if there were other factors that warrants the court to cancel or vary the order in question, see Naidoo & another v Matlala NO & others 2012 (1) SA 143 (GNP) 152. Cancelling or varying of a previous sequestration order does not release the debtor from his debts. S 149(2) does not empower courts to suspend their initial orders, see Mondi Ltd v Rhodes 3 All SA 291 (D). Where a creditors meeting failed to elect a trustee, the Master or the insolvent may apply to court to have the sequestration order set aside, s 54(5). UKZN INSPIRING GREATNESS  VOLUNTARY SURRENDER Current debtor's liability v constitution: See Coetzee v Government of The Republic of South Africa Case CCT 19/94. A judgment debtor who has failed to satisfy the judgment debt within 10 days of the date of the judgment was required to attend a hearing at which an enquiry will be conducted by a magistrate into the financial position of the debtor, his or her ability to pay and his or her failure to do so. Ss 65A to 65M of the Magistrates Courts Act 32 of 1944 - provided for the imprisonment of judgment debtors. These provisions violated the right to freedom and security of the person contained in s 12(1) of the Constitution. It was considered that to put someone in prison is a limitation of that person's right to freedom. To do so without any criminal charge being levelled or any trial being held is manifestly a radical encroachment on that right. UKZN INSPIRING GREATNESS  VOLUNTARY SURRENDER Current debtor's liability v constitution: Although, imprisonment was ostensibly aimed at the debtor who will not pay, the committal or continuing imprisonment of any judgment debtor (who fails to pay) in terms of section 65F or 65G of the Magistrates Courts Act was declared invalid. Is this fair on the part of the affected creditor? [what do you think?]. This took effect from the date of the court's order, see Coetzee v Government of The Republic of South Africa Case CCT 19/94. Be that as it may, a debtor who conceals, or destroys books and/or assets is liable to imprisonment for a period not exceeding 3 years at any time before or after sequestration of his estate. This suggest that a debtor might not be directly imprisoned for his debts but he may still go to jail for other criminal activities that relates to his insolvency, see s 132. Is this fair? [what do you think?]. UKZN INSPIRING GREATNESS Thank You!!! UKZN INSPIRING GREATNESS