MRL3701/201/3/2023

Tutorial letter 201/3/2023

Insolvency Law
MRL3701

Semester 1

Department of Mercantile Law

IMPORTANT INFORMATION:

This tutorial letter contains important information

about the assignments in your module.

BARCODE

1 INTRODUCTION AND WELCOME

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1 INTRODUCTION AND WELCOME

Dear Student,

1.1 Tutorial matter

So far, this academic year you should have received the following study material:

1. Study guide
2. Tutorial letter 101/3/2022 (Various topics)
3. Relevant study material per learning unit

2 CONTENTS OF THIS TUTORIAL LETTER

1 Suggested Answers to Assessment 01

2 Suggested Answers to Assessment 02
3 Questions and Suggested Answers to Assessment 03 (not compulsory and do not submit)
4 Information about the Examination Paper for 2023

3 SUGGESTED ANSWERS TO ASSESSMENT 01

MEMORANDUM: Max 10 MARKS

• Amod v Khan 1947 (2) SA 432 (N) concerns the compulsory application of a debtor’s estate.
(1)
• Max 1 mark for facts of the case. (1)
• It is an appeal from an order dismissing the appellant’s petition for the compulsory
sequestration of the respondent’s estate, (1)
• and the setting aside of the provisional order for sequestration. (1)
• In terms of section 12 of the Insolvency Act the court must be satisfied that there is reason to
believe that sequestration of the debtor’s estate will be to the advantage of his creditors before
granting a final sequestrartion order. (1)
• But with voluntary surrender section 6 of the Act places a heavier burden of proof on the
applicant, being the debtor himself, (1)
• in that he has to satisfy the court that sequestration of his estate will be to the advantage of
his creditors. (1)
• The court drew attention to and explained this difference in the burden of proof, (1)
• and held that even when all the requirements of the respective sections were complied with,
the court retained its discretion to refuse a sequestration order. (1)
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• In this judgment it excercised its discretion by refusing an application for compulsory

sequestration (1)
• because the applicant was clearly abusing the process (1)
• The court will exercise its discretion, considering all circumstances, on whether to grant the
final order (1)
• In this case, whether the creditor’s real motive was to prevent the debtor from enforcing a
claim against his (the creditor’s) son (1)

4 SUGGESTED ANSWERS TO ASSIGNMENT 02

MEMORANDUM: Max 10 MARKS

1. (Max 2 MARKS)
• Dispositions made in fraud of creditors. (1)
• The action in common law is the Actio Pauliana. (1)

2. (Max 2 MARKS)
• The trustee must prove that the insolvent made a disposition, (1)
• and when he made it, he received no value for it. (1)

3. (Max 3 MARKS)
• This is a Voidable Preference. (1)
• The exception is that the trustee cannot set aside a disposition made in the ordinary course
of business. (1)
• The test would be an objective test. (1)

4. (Max 3 MARKS)
• False. (1)
• Collusion in this context is an agreement with a fraudulent purpose, (1)
• not merely an agreement with the result that one creditor is preferred over another. (1)

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5 QUESTIONS AND SUGGESTED ANSWERS TO ASSESSMENT 03

PLEASE NOTE:

This is not a compulsory assessment, and you need not submit it, because it will not be
marked, and feedback will not be provided, as it will not count towards your final marks.
This is a simple and easy way for you to test your knowledge on the work covered. It may
be a good suggestion to do this assessment as part of your exam revision.

QUESTIONS:

1. Name one of the ways in which a sequestration order can be obtained.

2. What is the definition of “disposition” in terms of section 2 of the Insolvency Act 24 of 1936?

3. Under which circumstances may a court having jurisdiction over a debtor refuse (or
postpone) the surrender or sequestration of the debtor’s estate?

4. Explain why the Constitutional Court in Brink v Kitshoff 1996 4 SA 197 (CC) found section
44(1) and (2) of the Insurance Act 27 of 1943 incompatible with Chapter 3 of the interim
Constitution of 1993.

5. Does the right of a spouse (A) to share, in terms of the Matrimonial Property Act 88 of
1984, in the accrual of the estate of the other spouse (B) form part of the insolvent estate
of the first spouse (A)? Give reasons for your answer.

6. The trustee may terminate employment contracts between the insolvent employer and the
employees after consultation with certain parties. Name these parties.

7. Name one consequence of a composition in terms of section 119 of the Insolvency Act 24
of 1936.

8. Name three situations in which the court may postpone the insolvent’s application for
rehabilitation.

9. Name one of the two ways in which a company may be wound up under the legislation on
companies.

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10. A court has given judgment of R10 000 against Sam in favour of Jen. Upon the demand of
the officer whose duty it is to execute the judgment, Sam fails to satisfy it and also fails to
indicate to the officer, disposable property sufficient to satisfy it. The return made by the
officer states that he has not found sufficient disposable property to satisfy the judgment.
Explain to Jen what the implications of the aforementioned facts may be.

11. Anne is an insolvent. She very much wishes to stand as a candidate in the coming
provincial elections for the FEM party. Her trustee is of the opinion that she should not
begin her political career at this stage. Explain whether Anne’s trustee may interfere with
her intended political career.

12. Don, an art dealer, sells a Henry Moore sculpture to Mat for R500 000 cash and delivers
the sculpture to Mat on 10 June. Mat promises Don that he will pay him the cash on 14
June. On 14 June, before paying Don for the sculpture, Mat’s estate is sequestrated. What
action must Don take to recover the sculpture from the trustee of Mat’s insolvent estate?
Note that this is a cash sale, and not a credit agreement.

13. Explain why the Constitutional Court in Harksen v Lane 1998 (1) SA 300 (CC) rejected the
arguments that section 21 was invalid because it violated the solvent spouse constitutional
right not to have property expropriated without compensation and the right to equality
before the law and not be discriminated against.

14. Jack’s estate has been sequestrated. Three creditors proved their claims against his
estate, Andrew, Barker and Charlize. Jack is indebted to these creditors in the amounts of
R10 000, R20 000 and R40 000 respectively. At the first meeting of creditors, Vincent was
elected as the trustee by Andrew and Barker while Charlize elected Winnie as the trustee.
Who will be appointed as the trustee of Jack’s insolvent estate? Substantiate your answer.

15. Briefly state the facts in Rand Air (Pty) Ltd v Ray Bester Investments (Pty) Ltd 1985 (2) SA
345 (W) and discuss the legal principles set forth in the judgment regarding the need to
establish a “just and equitable” ground for the winding up of a company.

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MEMORANDUM AND SUGGESTED ANSWERS:

1 Hockly’s Chapter 2

Voluntary surrender (the debtor applies) or compulsory sequestration (one or more

creditors applies).

2 Section 2 Insolvency Act and Hockly’s 12.1

A disposition means any transfer or abandonment of rights to property and includes a sale,
lease, mortgage, pledge, delivery, payment, release, compromise, donation or any
contract therefor, but does not include a disposition in compliance with an order of the
court.

3 Hockly’s 1.4.4 and section 149 of the Insolvency Act

If it appears equitable or convenient that the estate should be sequestrated in another court
within the Republic; or the debtor is domiciled in a state which has not been designated in
terms of the Cross-Border Insolvency Act 42 of 2000 and it appears to the court equitable
or convenient that the estate should be sequestrated by a court outside the Republic.

4 Hockly 6.2.1(iv) and 5.3.8 (ii) read with paragraph 3.1 of Addendum G in tutorial letter 101

• It was discriminatory against married women

• It was argued that it violated section 8 of the interim Constitution which provided for
equality of all persons before the law and for the equal protection of all by the law.
• In addition that section proscribed any form of unfair discrimination, whether direct or
indirect, which was based on, amongst other things, gender and sex.
• In her judgment, O Regan J found that section 44(1) and (2) treated married women
and men differently, thereby disadvantaging married women and not married men.
• She held that it infringed section 8 of the interim Constitution and was therefore invalid.

5 Hockly’s 5.3.9

No, the claim only arises on the dissolution of the marriage.

6 Hockly’s 7.2.6

• Collective agreement.

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• Workplace forum.
• Registered trade union.
• Employee’s registered trade union.
• Employee personally.
• Employee’s nominated representative.

7 Hockly’s 18.4

Any one of the following:

• All concurrent creditors are bound;

• Property may be restored to the insolvent if it is a term of the composition;
• Restoration of property to the solvent spouse;
• Trustee must frame accounts, administer the composition and report to creditors;
• The insolvent may be entitled to the right to prompt rehabilitation.

8 Hockly’s 19.2.5(i)

• Where the court requires further information for the proper exercise of its discretion.
• Where criminal proceedings against the insolvent are pending.
• As a mark of the court’s disapproval of the applicant’s conduct.

9 Hockly’s 23.1

By court (application to Court) or by voluntary winding up (special resolutions of

shareholders).

10 Hockly’s 3.1.2(i)(b)

As regards section 8(b), the first act of insolvency was committed by Sam when, on the
demand of the officer whose duty it was to execute the judgment, she failed to satisfy the
judgment or to indicate to the officer disposable property sufficient to satisfy the judgment.
The facts do not expressly mention this detail, but it is necessary that the writ of execution
was served personally on the debtor.

It is irrelevant whether the sheriff subsequently found disposable property sufficient to

satisfy the judgment (Dicks v Marais 1952 (3) SA 165 (N)).

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11 Hockly’s 4.4

An unrehabilitated insolvent may not be a member of the provincial legislature (section

106(1)(c) of the Constitution of the Republic of South Africa Act, 1996). A’s trustee’s
opinion that she cannot now begin her political career is thus correct.

12 Hockly’s 7.2.5

By virtue of section 36, a seller of movable property for cash, who has delivered the
property but not yet been paid (and therefore has the right to cancel the contract) and
recover the property, cannot claim the property from the trustee unless the seller (Don)
gives notice in writing to the buyer (Mat)(or the trustee or the Master) within 10 days after
delivery (not sequestration) that he reclaims the property; and if the trustee disputes his
right to reclaim the property, he institutes legal proceedings within 14 days of receiving
notice of the trustee’s objection.

13 Hockly 6.1 three bullets on page 80.

Paragraph 3.2 of Addendum G in tutorial letter 101.

14 Hockly’s 10.1.1

At the first meeting of creditors, creditors who have proved their claims may elect one or
two trustees. If more than one person is nominated, the individual who obtains a majority
of votes in both number and value must be elected as sole trustee. If one person obtains
a majority in value, and another person a majority in number, both must be elected
trustees. However, if either party declines a joint trusteeship, the other must be elected
sole trustee. Should one person obtain a majority of votes in number and no other person
obtain a majority in value, or vice versa, the party who obtains the majority must be elected
as sole trustee. See section 54 of the Insolvency Act.

15 Hockly’s 23.2.2 - Rand Air (Pty) Ltd v Bester Investments (Pty) Ltd 1985 (2) SA 345 (W)

The court ruled that a summons is not a demand. It then pointed out that this just and
equitable ground under section 344(h) of the Companies Act 71 of 2008 is not a “catch-all”
ground. Since the appearance of section 344, the “just and equitable” basis of a winding-
up order has become a rather special ground under which only certain features of the way
in which the company is run can be questioned. It is an independent ground for winding-

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up and it is no longer necessary that the circumstances should be analogous to those

which justify an order on one or more of the specific grounds preceding it in section 344.
The courts have held it just and equitable to wind up a company in the following instances:

• where the main object for which the company was formed can no longer be attained; in
other words, the company’s substratum has disappeared. This happened in In re
Rhenosterkop Copper Co 1908 CTR 931 because the land on which the company was
to conduct mining operations contained no minerals;
• where the company's objects are illegal, or where the company was formed to defraud
the persons invited to subscribe for its shares;
• where there is a justifiable lack of confidence in the way in which the directors are
managing the company's affairs. In Moosa NO v Mavjee Bhawan (Pty) Ltd 1967 (3) SA
131 (T) a director had misled members on the advisability of a transaction because he
wished to make a profit at the company’s cost;
• where there is a deadlock in the management of the company, that is, where the voting
power in the board of directors and the general meeting is divided and winding-up is
the only solution;
• where the company is a quasi-partnership and grounds exist on which a partnership
could be dissolved. This is encountered where the personal relationship between the
members is based on good faith;
• where the minority shareholders are oppressed by the controlling shareholders.
Winding-up will be just and equitable only if the oppression cannot be removed by
another suitable remedy.
• there is no closed group of situations in which it will be just and equitable to wind up a
company and the courts accordingly still have a discretion to identify new situations.

6 INFORMATION ABOUT THE EXAMINATION PAPER OF 2023

Due to the COVID-19 pandemic, the examination will now be conducted online as follows:

1. The examination will be conducted as a take-home examination on MyExams. Please

ensure that you follow ALL the announcements and discussion forums on
MyModules regularly because very important information is communicated to the
students on this plarform.
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2. The examination timetable will be managed on the MyExams platform. We will let you know
as soon as we have received the actual exam date.

3. The date and time (SAST) of the examination will be announced on the MyModules
platform. Please continue to check your announcements (as well as your emails) and
MOST IMPORTANTLY your Unisa timetable. It is the responsibility of each student
to ensure that they know the date and time of the exam.

4. The duration of the examination will be 4 (four) hours. Your answers must be submitted
on or before the due date and time (SAST).

5. You may only submit a PDF version (i.e., MS Word documents, or password protected
documents etc, will not be marked). Make sure that you submit the correct PDF file on
time, as there will be no swapping of exam files after submission. NOTE that your
uploaded PDF cannot be more than 50MB.

6. No emailed submission will be allowed under any cicumstances!

7. You will get a zero for incorrect submissions (i.e., the exam paper instead of the
answers, another modules’ paper, a private document, or a blank document, to name
but a few.) Again, take note that no emailed submissions will be accepted.

8. Kindly be reminded that this module is subject to invigilation on the invigilator app.
Make sure that you download the app timeously and that you are familiar with how to use
the app to upload papers. More information will be posted as an announcement on
MyModules.

9. The examination question paper counts 100 marks. It consists of 3 questions. Question
1 totals 50 marks. Question 2 totals 25 marks and question 3 totals 25 marks. You
have to answer all three questions. The questions are broken down into shorter
questions and answers.

10. Your answers must be in English only. Your answers can be typed or handwritten. Make
sure that you number your answers according to the exam question numbers.

11. Whether your answers are typed or handwritten, your submission must be made in the
form of one PDF document. If your paper will be handwritten, please ensure that you write
legibly, as we can only mark what we see.

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12. For the examination, you must study all the prescribed parts of the textbook, the
prescribed cases, the study guide as well as the tutorial letters which you have received
during the course of the academic year. We do not scope!

13. NOTE: The examination in this module will be OPEN-BOOK. You may therefore consult
all prescribed and recommended study material, statutes and personal notes during the
examination. Remember, when you study to prepare for the exam, that you can make use
of your “baby summaries” (should you wish to) as we discussed in class. This should be
on great benefit to you.

14. Although there is no restriction on the material you may have with you during the
examination, do not approach this examination too differently from a closed-book
examination. The time allocated is simply not sufficient to read through study material for
the first time. It may be a good idea rather to use your own study notes or summaries (like
your baby summaries), where you have already condensed the material into a more
workable format. It is also advisable to consult your prescribed textbook and the prescribed
legislation. Try to minimise the time that you spend looking for appropriate material during
the examination by using a good system of indexing. Unless you are able to provide a
major part of the answer to a question without consulting your study material, you will find
it difficult to finish the examination within the given time period. You should approach the
examination with this in mind. Your study material should be available to assist you to write
more accurate answers by providing correct references, checking statute terminology, etc.
Finally, please remember that having your books with you does not mean that you
are allowed to commit plagiarism. You must explain the opinions expressed by authors
of articles and textbooks in your own words and you must always cite the authority you are
referring to. If you agree with a particular point of view, you should say so, but with reasons.
Never pass off another author's argument as your own.

7 CONCLUSION
Do not hesitate to contact us via email if you are experiencing problems with the content of this
tutorial letter or with any academic aspect of the module.

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With best wishes for your studies,

THE LECTURERS

Ms Z Taljaard taljaz@unisa.ac.za

Ms E Mbiriri mbirie@unisa.ac.za

Prof F Cassim Ecassimf@unisa.ac.za

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