IURI 322 – Study unit 2

 A debtor’s estate may be sequestrated in 2 ways:

- The debtor himself (or his agent) may apply to court for the acceptance of the
surrender of his estate s3(1) = voluntary surrender
- A creditor or creditors (or his/her agents) may apply to court for the sequestration of
the debtor’s estate s9(1) = compulsory sequestration
1. Who may apply
 Estate of a natural person; the debtor himself or his agent
 Estate of a deceased debtor; the executor
 Estate of a debtor who is incapable of managing his own affairs; the party entrusted
with administering the state; curator bonis
 Partnership estate: all members of the partnership (other than silent partners whose
identity is hidden and who do not take part in managing or certain special partners)
 Joint estate of spouses married in community
2. Requirements
 The court may accept the surrender of a debtor’s estate only if is satisfied that:
- The debtor’s estate is in fact insolvent
- The debtor owns realizable property of sufficient value to defray all costs of the
sequestration which will, in terms of the Act, be payable our of the free residue of his
estate
- Sequestration will be to the advantage of creditor s6(1)
2.1 Debtor’s estate insolvent
 A debtor is insolvent if the amount of his total liabilities exceeds the value of all his
assets
 The extent of the debtor’s assets and liabilities in generally determined by reference
to the statement of affairs which eh has to prepare and file, the court isn’t bound the
valuations in the statement – Ex parte Van den Berg
 The test is whether it is established that the debtor is without funds to pay his debts
in full and it is improbable that the assets will realize enough for this purpose
 In Ex Parte Deemter the state of the debtor’s affairs showed that his assets
exceeded his liabilities by a considerable sum, but he was being sued by several of
his creditors for large amounts, he had failed to sell his major assets and he had no
other source of income. The court accepted that his estate was insolvent and granted
the application of surrender
2.2 Free residue sufficient to pay costs of sequestration
 Free residue is defined in s2 as that portion of the estate which isn’t subject to any
right of preference by reason of any special mortgage legal hypothec, pledge or right
of retention
 It includes the balance of the proceeds of encumbered property after discharge of the
encumbrances
 Goods bought by the debtor under instalment agreement also form part of the free
residue to the extent that their market value exceeds the balance outstanding under
the transaction – Mindel v Shaer
  A result of the requirement that the debtor must own sufficient property to meet the
costs of sequestration is that a debtor who has no assets and only liabilities cannot
surrender his estate
 So in Ex Parte Collins the court refused to grant an application for surrender because
the debtor had only liabilities even though the cost of sequestration had been
guaranteed to the Master
 If the free residue is clearly insufficient, the court must refuse the application – Ex
parte Swanepoel
 But if it is unclear whether the free residue is sufficient, the court may grant the
application, provided a guarantee for costs has been furnished to the Master’s
satisfaction
2.3 Sequestration to be to the advantage of creditors
 The debtor must prove that sequestration will be to the advantage of creditors, while
in an application for compulsory sequestration, the creditor has to show merely that
there is a reason to believe that it will be
 The onus is more strenuous in voluntary surrender than in compulsory sequestration
 One reason for that a debtor can normally be expected to describe his won financial
position in detail, while a sequestrating creditor would seldom have access to this
information – Hillhouse v Stott
 Another reason is to reduce the ever-present risk of the debtor’s abusing the
sequestration procedure and resorting to sequestration when it hold little or no real
benefit for creditors and simply gives the debtor a way to escape his liabilities
3. Preliminary requirements
 S4 sets out the steps to be followed before applying for voluntary surrender
3.1 Notice of intention to surrender
 First step to be taken by a debtor who wishes to surrender his estate is the publishing
of a notice of surrender in the GG and in a newspaper circulating in the magisterial
district where he resides or in the district where he has to principal place of business
 The Form A of the first Schedule must state:
- The full names, address and occupation of the debtor
- The date on which, and the particular Division of the High Court before which, the
application for acceptance of the surrender will be made
- When and where the debtor’s statement of affairs will lie for inspection as required by
the Act
 Publication of the notice in the GG and a newspaper must take place not more than
30 days and not less than 14 days before the date stated in the notice as the date for
the hearing of the application
 The purpose of the notice of surrender is to alert creditors as to the intended
application, in case they wish to oppose it
 Notice must be published in a news paper in the usual sense
 Ex parte Goldman it was held that weekly journal devoted to Jewish interest and
printed mostly in Yiddish wasn’t a newspaper for this purpose
 If the objective of altering credtors is to be attained, that the newspaper chosen for
publication must circulate in the area in which the debtor’s creditors are located, even
if the debtor no longer resides or carries on business there
 The 14 day time limit is to ensure that creditors have sufficient opportunity to read the
statement of affairs carefully and decide whether to oppose the application
  Legislature’s objective in imposing 30-day limit was that debtors should be able to
give long notice, moths beforehand, and in that way creditors from levying execution
and in the meantime dissipate all the assets – Ex parte Meyer
 Failure to adhere to strict 30 day period has mostly been taken to be fatal to the
application but in Ex part Harmse the court held that failure is a formal defect or
irregularly as envisaged by s157(1) and so does not invalidate the application unless
it has caused a substantial injustice which cannot be remedied by a court
3.2 Notice to creditors and other parties
 Within 7 days after publication of the notice of surrender, the debtor must furnish
copies of the notice to creditors and other parties
 Compliance with this requirement may be proved by means of an affidavit giving
details of the steps taken
(i) Notice to each creditor
 The debtor must deliver or post a copy of the notice to every one of his creditors
whose address he knows or can ascertain s4(2)(a)
 The object of this requirement is t provide further protection to creditors who may
wish to contest the application or take steps to safeguard their interest
 Ex parte Wassenaar reason is that it cannot be expected of creditors continually to
pressure GG or legal notices in newspaper
 A failure to give notice to creditors in the prescribed manner will generally be
considered fatal to give notice to creditors in the prescribed manner although the
courts may in certain circumstances be prepared to condone non-compliance with
the time period – Ez parte Hetzler
(ii) Notice to trade union and employees
 The debtor must post a copy of the notice to every registered trade union that, yo his
knowledge, represents his employees s4(2)(b)(i)
 The debtor must give notice to the employees themselves, either:
- By affixing a copy of the notice to any notice board to which the employees have
access inside the debtor’s premises
- If the employee have no access to these premises, by affixing a copy of notice to the
front gate of the premises
- Failing the latter, by affixing a copy of the notice to the front door of the premises
from which the debtor conducted any business immediately prior to the surrender
s4(2)(b)(ii)-(aa)-(bb)
 It would appear from these provisions that if the employees have access to the
debtor’s premises, he has to give notice by means of notice board on the premises,
even if this meaning erecting notice board specifically for this purpose
(iii) Notice to SARS
 The debtor must also send a copy of the notice by post to the SARS s4(2)(b)(iii)

3.3 Preparation and lodging of statement of affairs

(i) Preparation of statements
The statement of affairs referred to in the notice of surrender must be framed substantially
according from Form B in the Fist Schedule, it consists of the following:
 A balance sheet
 A list of immovable assets, with the estimated value of each assets and details of any
mortgages on the assets
 A list of any movable property not included in Annexures III or V, setting out the value
of each assets mentioned. Merchandise listed in this annexure must be valued either
at its cost price or its market value at the time of making of the affidavit verifying the
statement of affairs, depending on which amount is the lower and the annexure must
be supported be detailed stock sheets, merely handing in at the hearing a stock book
containing the relevant details
 A list of debtors with their residential and postal address, details of each debt, and an
estimate of how far the debts are good, or bad or doubtful
 A list of creditors, their addresses, and particulars of each claim and any security held
for it. This list should mention contingent creditors, e.g. persons to whom the debtor
has agreed to liable as surety and co-principal debtor and also, it would seem any
party who asserts that he is a creditor, even if the debtor disputes the claim
 A list of any movable assets pledged, hypothecated, subject to a lien, or under
attachment in execution of judgement
 A list and description of every accounting book used by the debtor at the time of the
notice of surrender of sequestration or at the time when he stopped carrying on
business
 A detailed statement of the cause of the debtor’s insolvency
 Certain personal information about the debtor, including details of any prior
insolvency and rehabilitation
 An affidavit, made by the debtor verifying that the statement of affairs is true and
complete and that every estimated amount contained in it is fairly and correctly
estimated
 On receiving the statement of affairs, the Master may specially direct the applicant to
have any property mentioned in it valued by a sworn appraiser or a person
designated by the Master for this purpose s4(4)
(ii) Lodging of statement
 The statement of affairs with supporting documents must be lodged in duplicate at
the Master’s Office s4(3)
 If the debtor resides or carries on business in a magisterial district in which there is
no Master’s Office, he must lodge an additional copy of the statement at the office of
the magistrate of that district s4(5) – this requirement doesn’t apply to a debtor
residing in the districts of Wynberg, Simonstown or Bellville in the Western Cape
 The statement must lie for inspection by creditors at all times during office hours for a
period of 14 days stated in the notice of surrender s4(6)
 On expiry of the inspection period, The Master and the magistrate each issues a
certificate to the effect that the statement has duly lain for inspection as advertised in
the notice of surrender and the Master must state whether creditors have lodged
objections with him
 The certificate must be filed with the Registrar before the application is heard
 4. Effect of notice of surrender
4.1 Stay of sales in execution
 After the publication of the notice in the GG, it unlawful to sell any property in the
estate which has been attached under a writ of execution unless the person
charged with the sale (sheriff) could not have known of the publication
 If the value of the property exceeds R5000 the court or Master may order the sale
of attached property to go ahead and direct how the proceeds of the sale must be
applied
 The creditor must show that it would be more to the advantage of the general
body of creditors to go ahead with the sale than to hold it over
 In Ex parte Pretoria Hypotheek Maattschappy The applicant, a bondholder, had
obtained judgment and attached the debtor’s property in execution. The debtor’s
notice of surrender was due to appear in the Gazette on the day before the date
appointed for the sale in execution. The evidence showed that the property would
not realize enough to pay the applicant in full. The court held that, as concurrent
creditors could have no interest in the sale, and as costs would be wasted if it
were held over, it should be allowed to go ahead on the date advertised.
 If the officer charged with executing a writ holds a sale in execution that
contravenes s5(1), the sale is illegal, and the debtor can successfully resist
proceedings brought by the buyer to enforce it
 But if the ownership of the property is transferred to the buyer under illegal sale,
the trustee of the estate can’t claim the property unless he proves that the buyer
acted in bad faith and with the knowledge that the sale was unlawful
 Publication of a notice of surrender doesn’t affect other civil and criminal
proceedings
4.2 Curator bonis may be appointed
 Despite the publication of a notice of surrender, the debtor is still at liberty to deal
with his property as he chooses
 As a safeguard against the debtor’s dissipating his assets after publishing a notice of
surrender, the Master may appoint a curator bonis to the debtor’s estate s5(2)
 The curator bonis is obliged to immediately to take the estate into his custody and
assume control of any business or undertaking of the debtor, as the Master may
direct
 The estate remains vested in the debtor as the curator is only a caretaker
4.3 Potential compulsory sequestration
 If after publishing a notice of surrender, the debtor fails to lodge a statement of his
affairs, or lodges a statement which is incorrect or incomplete in a material respect,
or fails to make the application to court the appointed day, and the notice of
surrender is not properly withdrawn, the debtor commits an act of insolvency which
entitled a creditor to apply for the compulsory sequestration of the debtor’s estate
s8(f)

4.4 No withdraw of notice without consent

  A notice of surrender published can’t be withdrawn without the Master’s written
consent s7(1)
 The debtor may apply to the Master for his consent and the Master must give if it
appears to him that the notice was published in good faith and that there is a good
cause for its withdraw s7(2)
4.5 Lapse of notice of surrender
 The notice of surrender ( and so the debtor’s application for surrender) lapses if the
court doesn’t accept the surrender, or if the notice of surrender is properly withdrawn
in terms of Act, or if the debtor fails to make the application for surrender within 14
days after the date advertised as the date of the hearing of the application s6(2)
5. Application for surrender
5.1 Form and contents of application
 Application for surrender is bought by way of notice of motion supported by affidavit
 The purpose of founding affidavit(s) is to persuade the court that the 4 requirements
for voluntary surrender have been satisfied
 The notice of motion, affidavit and the annexures must be filed with the Registrar of
the HC before the date advertised
 The court papers should contain the following information:
- The full name, status, occupation and address of the applicant
- An allegation to the effect that the debtor is insolvent and facts that prove this. It is
customary to attach a copy of the debtor’s statement of affairs and refer to this to
prove insolvency
- An explanation of how the insolvency came about. The causes of the debtor’s
insolvency should be detailed to enable the court to determine whether the
application is in good faith
- An averment that the applicant owns realizable property of sufficient value to defray
all the costs of sequestration which will under the Act be pa yable out of the free
residue of his estate.
- An allegation that it will be to the advantage of creditors if the debtor ’s estate is
sequestrated, amplified by facts supporting the allegation
- Details of any salary or income that the debtor is receiving
- Any other information that may influence the court in granting or refusing the
surrender
- A description of the procedural steps followed by the applicant before bringing the
application, supported by documents proving that each step has been taken: eg, tear
sheets from the Gazette and newspaper, an affidavit by the applicant or his attorney
giving details of notices sent, and a certificate by the Master and, where necessary,
the magistrate, that the debtor’s statement of affairs has lain for inspection
- The affidavit must be signed and sworn to before a commissioner of oaths who is
independent of the office in which the affidavit was drawn.
5.2 Copy of application to consulting party
 If the debtor is an employer he must, at the time of making the application, provide a
‘consulting party’ contemplated in s 189 of the Labour Relations Act 66 of 1995 with a
copy of the application (s 197B(2)
 Section 189 (dealing with the dismissal of employees for reasons based on the
employer’s operational requirements) requires the employer to consult one of the
following:
 - the person whom the employer is required to consult in terms of a collective
agreement;
- if there is no collective agreement that requires consultation, the workplace forum
and registered trade union of the employees likely to be affected by the proposed
dismissals
- there is no such workplace forum, the registered trade union whose members are
likely to be affected by the proposed dismissals;
- if there is no such trade union, the employees likely to be affected by the proposed
dismissals or their representative nominated for that purpose
5.3 Opposition to application
 a creditor has the right to oppose the application even if his claim is less than the
amount required to entitled him apply for the compulsory sequestration of the
debtor’s estate
 the creditor must deliver one or more affidavits, before the date of the application,
setting out the grounds for opposition
5.4 Adjudication on application
 on the date that the application is adjudicated upon, these documents must be fore
the court:
- The notice of motion and supporting affidavit(s)
- The debtor’s statement of affairs, incorporating the verifying affidavit.
- Any sworn valuation necessary in the circumstances.
- Proof of publication of the notice of surrender in the Gazette and newspaper, eg, an
affidavit by the debtor’s attorney enclosing copies of the newspapers or the pages on
which the notices appeared.
- Proof by affidavit that the applicant has delivered or posted copies of the notice of
surrender as required
- A certificate from the Master (and the magistrate too, if necessary) that the statement
of affairs has lain for inspection as advertised, and whether any written objections
have been lodged with him
- Any report by the Master.
- Any opposing affidavits by creditors.
- The debtor’s replying affidavit.
 Before the court can accept the surrender, it must satisfied that the applicant has
shown, on a balance of probabilities, that the requirements set out in s6(1) of the Act
are satisfied
6. Courts discretion
 Even if the court is satisfied that the requirements have been met and that the
primarily formalities have been observed, it sill has a discretion to reject the
surrender
 These are examples of factors that may influence the court towards refusing the
application:
- The debtor displayed gross extravagance and ran up debts on a pretentious scale,
even after judgment had been granted against him
- The debtor’s creditors are not pressing him for payment and are willing to give him
time or to accept payment in monthly instalments
- The debtor had an ulterior motive in applying for surrender, e.g., to avoid paying or to
defeat the rights of a particular creditor
- The debtor failed to give a full and frank account of his financial position
- The debtor’s papers were deficient in many respects
- The debtor’s financial problems could be dealt with more appropriately under the
National Credit Act