Study Unit 1 Tutorial Exercise
1. Which of the following best describes liabilities?
A. Cash and inventory
B. Bank debts, mortgage debts, wages owed
C. Movable and immovable property
D. Income earned by the debtor
2. True or False:
A person is insolvent as soon as they are unable to pay their debts.
3. What does a sequestration order refer to?
A. The debtor personally.
B. The debtor’s income.
C. The debtor’s estate.
D. The creditor’s claim.
4. Which statute is the principal legislation governing insolvency in South Africa?
A. Companies Act 71 of 2008.
B. Insolvency Act 24 of 1936.
C. Constitution of the Republic of South Africa, 1996.
D. Magistrates’ Courts Act 32 of 1944.
5. What is the primary purpose of sequestration?
A. To punish the debtor.
B. To benefit the debtor only.
C. To benefit the creditors.
D. To cancel all debts automatically.
6. Who may apply for the sequestration of an estate?
A. Only the debtor.
B. Only the creditors.
C. The debtor or the creditors
D. The Magistrate
7. True or False:
Magistrates’ Courts have jurisdiction to grant sequestration orders.
8. True or False:
A debtor cannot be described as insolvent if a sequestration order has not yet been
granted.
9. Which of the following best describes voluntary surrender?
A. An application brought by creditors.
B. An automatic court process.
C. An application brought by the debtor.
D. A process handled by the Magistrates’ Court.
10. Which of the following is excluded from the definition of a debtor under the Insolvency
Act?
A. Natural person.
B. Partnership.
C. Company.
D. Deceased estate.
11. A person is regarded as insolvent when:
A. They are unable to pay one debt when it becomes due.
B. Their liabilities fairly estimated exceed their assets fairly valued.
C. They apply for voluntary surrender.
D. A creditor obtains judgment against them
12. Which statement best describes the legal meaning of sequestration?
A. The imprisonment of a debtor.
B. The attachment of a debtor’s movable property.
C. A court order declaring the debtor’s estate insolvent.
D. The cancellation of all the debtor’s debts.
13. Which of the following correctly reflects what is sequestrated?
A. The debtor personally.
B. The debtor’s income only.
C. The debtor’s estate.
D. The debtor’s business
14. Upon sequestration, which legal consequence occurs?
A. The debtor retains control of their estate.
B. The debtor is imprisoned.
C. Individual creditor actions are suspended.
D. Only secured creditors may prove claims
15. Which statement correctly distinguishes sequestration from liquidation?
A. Sequestration applies to juristic persons only.
B. Liquidation allows for rehabilitation.
C. Sequestration applies to natural persons’ estates.
D. Both are governed by the Insolvency Act
16. True or False:
One of the key distinctions between sequestration and liquidation is that sequestration
allows for the rehabilitation of the debtor, whereas liquidation results in the dissolution of
the juristic person.
17. True or False:
A formal defect in insolvency proceedings will invalidate the proceedings, regardless of
whether the defect caused prejudice to creditors.
18. True or False:
A company registered under the Companies Act qualifies as a “debtor” under the
Insolvency Act if it is unable to pay its debts.
19. True or False:
Once a sequestration order is granted, a concursus creditorium is established, and
individual creditors may no longer enforce claims independently against the debtor’s
estate.
20. True or False:
The Insolvency Act permits the sequestration of an estate consisting only of liabilities,
provided that the debtor previously controlled assets that were disposed of in a suspicious
manner.
Solutions
1.B; 2. False; 3.C; 4. B; 5.C; 6.C; 7. False; 8. True; 9. C; 10.C; 11. B; 12. C; 13. C; 14. C; 15.C;
16. True; 17. False; 18. False; 19. True; 20. True.