IURI 322 – Study Unit 3

1. Requirements
 The court may grant an application for the sequestration for a debtor’s estate if it is
satisfied that:
- The applicant established a claim which entitles him, under s9(1), to apply for
sequestration
- The debtor has committed an act of insolvency or is insolvent
- There is reason to believe that it will be to the advantage of the creditors of the
debtor if his estate is sequestrated s12(1)
 The onus of satisfying the court on these three matters rests throughout on the
sequestrating creditor
 The debtor has no onus to disprove any element
 The applicant, when delivering the notice of motion, must serve on each respondent
a notice of motion indicating his agreement or opposition to the refusal of the dispute
to mediation – rule 41A(2)
1.1 Applicant entitled to apply in terms of s9(1)
 Section 9(1) allows proceedings for the compulsory sequestration of a debtor’s
estate to be instituted by:
- A creditor (or his agent) who has a liquidated claim against the debtor for not less
than R100
- Two or more creditors (or their agents) who have liquidated claims against the debtor
amounting, in aggregate, to not less than R200
 A liquidated claim is a monetary claim – a claim for the transfer of property for
instance, doesn’t give locus standi to apply the amount of which is fixed by
agreement, judgment or otherwise e.g. a claim based on a provisional sentence
judgement
 The applicant must have a liquated claim of not less than R100, both when he
applies for a provisional order of sequestration and when he asks for the order to be
made final
 After the debtor’s estate has been provisionally sequestrated, the debtor himself
can’t make a payment to the sequestrating creditor so as the extinguish the latter’s
claim or reduce it below R100
 But a 3rd person such a surety, may pay on the debtor’s behalf, and if the payment
extinguishes the claim or reduces it to less than R100, the provisional order must be
discharged
1.2 Debtor committed act of insolvency or is insolvent
(i) Acts of insolvency
 Since a creditor may believe that a debtor is insolvent, and the creditor will not
always be able to prove that a debtor’s liabilities exceed his assets
 The legislature has designated certain act or omission by debtor as acts of
insolvency and if the creditor can establish that the debtor has committed one or
more of these acts, he may seek an order sequestration the debtor’s estate without
having to prove that the debtor is actually insolvent
 S9(1) gives any creditor of the debtor the right to apply for sequestrating once the
debtor commits an act of insolvency, whether or not the debtor directed the act at the
creditor concerned or intended it to have any bearing on that creditor’s affairs
  An act of insolvency committed by a spouse who is married in community of property
of property operates as an act of insolvency by both spouses, so is a good ground for
sequestrating the joint estate
(a) Absence from the Republic or dwelling
If he leaves the Republic or, being out of the Republic, remains absent from it, or departs
from his dwelling or otherwise absents himself, with intent by doing so to evade or delay
payment of his debts s 8(a)
 The creditor must establish the debtor’s intention to evade or delay payment of his
debts
 Proof of departure or absence, by itself, isn’t sufficient, because a person may leave
or absent himself for reasons completely unconnected with the payment or non-
payment of debts e.g. to avoid a deterioration in his health or join a close relative
 A factor from which the intention to evade or delay payment may be inferred is that
the debtor made an appointment to make a payment and then left without keeping it
 In Estate Salzmann v Van Rooyen the debtor, a company director, left for Cape Town
ostensibly to visit his wife, who had fallen ill there
- Before leaving he appointed someone as co-director to run the company business,
dispose of his office equipment and terminated the lease of the premises where he
had been residing
- He gave no address at which he could be contacted in Cape Town and, immediately
on arriving there, resigned from his position as director
- From then onwards, he ignored letters relating to business matters addressed to him
- The court held that the inference was irresistible that the debtor intended to evade
payment
(b) Failure to satisfy judgement
If a court has given judgment against him and he fails, upon the demand of the officer
whose duty it is to execute the judgment, to satisfy it or to indicate to the officer
disposable property sufficient to satisfy it, or if it appears from the return made by the
officer that he has not found sufficient disposable property to satisfy the judgment s 8(b)
 This section creates two separate acts of insolvency: 1. Where the debtor, upon
demand by the sheriff, fails to satisfy the judgment or to indicate disposable
property sufficient to satisfy, fails to satisfy the judgement or to indicate
disposable property sufficient to satisfy it and 2. Where the sheriff without
presenting the writ to the debtor, fails to find sufficient disposable property to
satisfy the judgment and states this fact in his return
 The two acts although separate aren’t independent of each other: the second act
applies only if the first cannot be established i.e. only if the writ of execution
cannot be served personally on the debtor
 If the sheriff, on serving the writ, neglects to demand satisfaction of the writ by the
debtor and after that he simply states in his return that he was unable to find
sufficient disposable property, no act of insolvency is committed
 And if the debtor fails on demand to satisfy the judgment or indicate sufficient
disposable property, it is irrelevant whether or not the sheriff later find disposable
property sufficient to satisfy judgement
 The demand to satisfy the judgement debt must be made of the debtor or his duty
authorised agent
 The writ doesn’t not be served at his place of residence or business it only
requires a personal service
  Disposable property means property which may be attached and sold in
execution and can be movable, immovable and doesn’t include property that has
been mortgaged unless the applicant himself is the first mortgaged of the
immovable property
 If the debtor points out insufficient disposable property to satisfy the writ, the
sheriff may refuse to attach it and make a return of nulla bona, in which event the
creditor may apply for sequestration
 The onus is then on the sequestrating creditor to establish that the property
pointed out was insufficient to satisfy the judgment
 If the sheriff attached the pointed out by the debtor and, at the sale in execution,
the property doesn’t realize enough to satisfy the judgement, the creditor may
proceed to sequestration on the ground that the debtor hasn’t indicated property
sufficient to satisfy the judgement
(c) Disposition prejudicing creditor or preferring one creditor
If he makes, or attempts to make, any disposition of any of his property which has, or would
have, the effect of prejudicing his creditors or of preferring one creditor above another s 8(c)
 This section envisages two sets of circumstances: an actual disposition of property
and an attempted disposition of property
 If there is an actual disposition, it must have the effect of prejudicing the debtor’s
creditors or preferring one creditor above another
 If there is an attempted disposition, it must be such that it would, if contemplated,
have the same effect
 Only the effect of the disposition need be considered, it doesn’t matter whether the
debtor made the disposition deliberately to favour one of his creditors, or recklessly
without regard for its consequences
(d) Removal of property with intent to prejudice or prefer
If he removes, or attempts to remove, any of his property with intent to prejudice his creditors
or to prefer one creditor above another s 8(d)
 Differs from the s8(c): a disposition of property isn’t required the mere removal being
sufficient and the intention of the debtor, not the effect of what she does, is important
 The test for determining whether the debtor had the requisite intention is subjective
De Villiers NO v Maursen Properties
 The intention may be inferred from the circumstances surrounding the removal
 E.g. of removal with the intent to prejudice creditors is the sending of money or goods
to a foreign country so that they aren’t available to settle creditors claim
(e) Offer of arrangement
If he makes, or offers to make, any arrangement with any of his creditors for releasing him
wholly or in part from his debts s 8(e)
 An arrangement or an offer qualifies as an act of insolvency under this subsection
only if it indicated the debtor’s inability to pay his debts
 This criterion was clearly satisfied in Joosub v Soomar 1930 where the debtor offered
to pay his creditors 50 cents in the rand and intimated If the offer wasn’t accepted, he
would consider surrendering his estate if
 If the debtor offers by way of settlement a lesser amount than that claimed and
denies liability altogether or disputes the amount off debt, he doesn’t commit an act
of insolvency because it doesn’t appear from his offer that he cannot pay the debt
  If he offers a lesser sum in settlement and expressly or by implication admits that he
owes the full debt, he commits an act of insolvency, because he tacitly acknowledges
that he can’t pay the debts
 The object of the arrangement or offer must be to release the debtor from liability,
wholly or in part
 An offer of a certain amount in the rand, subject to the debtor’s being allowed an
extension of time to pay the balance, doesn’t amount to an act of insolvency
(f) Failure to apply for surrender
If, after publishing a notice of surrender of his estate which has not lapsed or been
withdrawn in terms of ss 6 or 7, he fails to comply with the requirements of s 4(3), or lodges,
in terms of s 4(3), a statement which is incorrect or incomplete in any material respect, or
fails to apply for the acceptance of the surrender of his estate on the date mentioned in the
notice of surrender as the date on which the application is to be made s 8(f)
 Three acts of insolvency are embodied in this section
 In each case, the debtor must have published a notice of surrender which hasn’t
collapsed or been withdrawn, and then he must have done one of the following:
- Failed to a lodge a statement of affairs with the Master
- Filed a statement of affairs which is incorrect or incomplete in a material respect
- Failed to apply for the acceptance of the surrender on the specified date
(g) Notice of inability to pay
If he gives notice in writing to any one of his creditors that he is unable to pay any of his
debts s 8(g)
 The notice must be in writing: the debtor doesn’t commit this act of insolvency by
informing the creditor orally that he can’t pay his debts, although he does the creditor
with evidence of actual insolvency
 The debtor commits an act of insolvency if he gives notice of his inability to pay any
single debt e.g. when a debtor writes to a creditor informing him that he is unable to
pay the debt for the time being and offering to pay it in instalment
 The court has regard not so much the debtor’s intention, but to whether a reasonable
person in the position of the receiver and knowing about the relevant circumstances
would have interpreted the document in question to mean that the debtor cannot pay
his debts
 The relevant circumstances are those existing when the letter is received; the
question is how the letter would be understood by a reasonable person in the
position of the creditor when he receives it, considering that creditor’s knowledge of
the debtor’s circumstances
 If it appears from other information provided in the application that the debtor didn’t
intend the unable to be taken literally e.g. if he clearly has sufficient means to pay his
debt and is simply unwilling to do so immediately then he doesn’t commit an act of
insolvency

(h) Inability to pay debts after notice of transfer of business

If, being a trader, he gives notice in the Gazette in terms of s 34(1) [of his intention to
transfer his business and is thereafter unable to pay all his debts s 8(h)
  S34(2) provides that, as soon as a notice is published under 34(1), every liquated
liability of the trader in connection with his business which would become due at
some future date falls due forthwith if the creditor concerned demands payment
 Proof of inability to one debt may be accepted as proof that the debtor is unable to
pay all his debts, but evidence that the debtor was unwilling or has refused to pay a
particular debt isn’t to establish this act of insolvency
(ii) Debtor in fact insolvent
 Instead of relying on act of insolvency by the debtor, the sequestrating creditor may
rely on the fact that the debtor’s estate is insolvent
 If the creditor relies on an act of insolvency and cannot establish that it was
committed, but it is clear that the debtor is in fact insolvent, the court may grant a
final sequestrating order on the latter ground
 Factual insolvency may be established directly, by evidence of the debtor’s liabilities
and the market value of his assets, or indirectly by evidence of facts and
circumstances from which the inference of insolvency is fairly and properly deducible
1.3 Reasons to believe sequestration will be to advantage of creditors
 Before the court it must be satisfied that there is reason to believe that it will be to
advantage of creditors if the debtor’s estate is sequestered s12(1)(c)
 The question is whether a substantial portion of the total of creditors, determined
according to value of the claims, will derive advantage from sequestration
 For sequestration to be to the advantage of creditors, it must yield at the least, a not
negligible dividend
 If after the costs of sequestration have been met, there is no payment to creditors, or
only a negligible one, there is no advantage
 The fact that there will be significant amount for distribution after the costs of
sequestration have been satisfied doesn’t necessarily mean that sequestration will be
to the advantage of creditors
 Sequestration will only be to the advantage of creditors if it will result in a greater
dividend to them than would otherwise be the case
 In Gardee v Dhanamanta Holdings a debtor’s only creditor applied to sequestrate his
estate on the basis of a nulla bona return.
- The court held that the creditor had to satisfy it that there was reason to believe that,
after the costs of sequestration had been paid, he would recover an amount that was
not negligible.
- He also had to demonstrate some reasonable expectation that the amount would
exceed the likely proceeds of ordinary execution.
- As he had given no information other than that he had obtained a nulla bona return,
he had failed to show that sequestration would be to his advantage
 In Lotzof v Raubenheimer it was unsuccessful argued that creditors would not benefit
from sequestration because the debtor had no assets
 The onus of proving advantage to creditors remain on the sequestrating creditor
throughout, even where the debtor has clearly committed an act of insolvency
Wilkens v Pieterse
2. Application for sequestration
2.1 Form and content of application
 The application is brought by way of a notice of motion supported by affidavits
 The affidavit must by the sequestrating creditor or anyone who can attest positively to
the facts
  The founding affidavit must set out sufficient facts to establish the requirements for
sequestration order:
 The affidavit should contain the following information and averments:
- The full names, status occupation and address of the sequestrating creditor
- The full names, date of birth, ID number and marital status of the debtor and, if the
debtor is married, the full names, DOB, and ID number of his or her spouse s9(3)(a)
- Section 17(4)(b) of the Matrimonial Property Act provides that an application to
sequestrate the joint estate of spouse married in community of property must be
made against both spouse
- The amount, cause and nature of the claim and a statement about whether the claim
is secured or not and, if it is, the nature and value of the security s 9(3)
- The act (or acts) of insolvency committed by the debtor and/or his actual insolvency
- An averment that sequestration will be to the advantage of creditors and an
explanation why this will be so
- Any other relevant facts which might influence the discretion of the court in granting
or refusing a sequestration order, eg, the fact that the debtor has a claim for
damages
- A statement that security will be furnished to the Master and his certificate obtained
as required by s 9(3)
- A statement that a copy of the papers will be lodged with the Master with a view to
obtaining his report in terms of s 9(4)
- A statement confirming that copies of the application will be furnished to interested
parties as required by s 9(4A)(a), and that an affidavit will be filed before or during
the hearing, setting out how the section was followed

2.2 Steps prior to adjudication on application

2.2.1Security costs
 A creditor who institutes sequestration proceedings is bound to prosecute them at his
own expense until a trustee or a provisional trustee has been appointed s14(1)
 For this reason he is required to deposit with the Master security for the payment of
all fees and charges necessary for the prosecution of all sequestration proceedings
and of all costs until the appointment of a trustee or provisional trustee, or if non is
eventually appointed, all fess and charges necessary for the discharge of the estate
from sequestration
2.2.2 Master’s report
 A copy of the notice of motion and the founding affidavit must be lodged with the
Master s9(4)
 If there is no Master at the seat of the court, the papers must be lodged with an offer
in the public service designated for that purpose
 The master or the designated officer may then make a written report to the court of
any facts which he ascertained which would appear to him justify the court in
postponing the creditor or his agent s9(4) who may file an answering affidavit if he
wishes s9(5)
2.2.3 Copy of papers to debtor and other parties
 In presenting his application to the court, the applicant must furnish a copy of the
application to the debtor s9(4A)(a)(iv)
  But the court may dispense with this requirement and make a provisional order of
sequestration without advance notice of the debtor if it satisfied that this would be in
the interest of creditors or of the debtor
 Besides providing a copy of the application the debtor, the applicant is required to
furnish a copy to:
- every registered trade union that, as far as he can reasonably ascertain, represents
any of the debtor’s employees
- the debtor’s employees themselves; and the South African Revenue Service (s
9(4A)(a)(i)–(iii)
- within a reasonable time before the application is heard (Sphandile Trading
Enterprise (Pty) Ltd & another v Hwibidu Security Services CC & another
 The applicant must furnish the debtor’s employees with a copy of the application in
one of these ways:
- by affixing a copy of the application to any notice board to which he and the
employees have access inside the debtor’s premises
- or if the applicant and the employees do not have access to the debtor’s premises,
by affixing a copy of the application to the front gate of the premises
- or failing the latter, by affixing a copy of the application to the front door of the
premises from which the debtor conducted any business at the time of the
presentation of the application (s 9(4A)(a)(ii)(aa)–(bb)).
2.3 Provisional sequestration
 the sequestrating creditor must approach the court twice: once to obtain a provisional
order of sequestration s10 and the second time to have the provisional order
confirmed and made final s12
 on each occasion, the creditor must establish the same requirements, but the
standard of proof differs
 at the provisional stage, the court must be of the opinion that prima facie the require
for a sequestration order are satisfied at the final stage, the court must be satisfied
that those requirements are provided on a balance of probabilities
 a final order cant be granted without a provisional one first being made
 when a provisional order of sequestration is applied for, the following items must be
before the court:
- The notice of motion (including a draft of the desired provisional order of
sequestration) and the founding affidavit(s).
- The Master’s certificate that security has been given.
- The affidavit of search made by the sequestrating creditor’s attorney (in the Western
Cape).
- The Master’s report or, if none, proof of service of the papers on him.
- The sequestrating creditor’s affidavit (if any) responding to the Master’s report.
- An affidavit by the person who furnished copies of the application to the debtor and
other interested parties in compliance with s 9(4A)(a), setting out how this was done.
 After considering the documents placed before it, the court may make an order
sequestrating the estate of the debtor provisionally, or it may dismiss the application,
or it may postpone the hearing
 On making a provisional sequestration order, the court must simultaneously granny a
rule nisi an order calling on the debtor to show cause, on day mentioned in the rule,
why his estate should not be finally sequestrated s11(1)
2.4 Service of rule nisi
  The rule nisi ,together with the application papers if the debtor hasn’t already served
with them, must be served on the debtor in accordance with the Rules of Court
 If the debtor has been absent for 21 days from his usual place of residence and from
his business within the Republic the court may direct that the rule will be sufficiently
served if a copy is attached to the door of the courthouse and published in the GG, or
the court may direct some other mode of service s11(2)
 A copy of the rule nisi must also served on any registered trade union that represents
the debtor’s employees s11(2A)(a), the employees themselves s11(2A)(b) and the
SARS s11(2A)(c)
 Furnishing the application to the SARS s9(4A) and serving the provisional
sequestration order on it s11(2A)© are both peremptory requirements
 Service on the debtor’s employees must be effected either:
- by affixing a copy of the petition to a notice board to which the employees have
access inside the debtor’s premises
- or if they do not have such access, by affixing a copy of the petition to the front gate
- or, failing the latter, by affixing a copy of the petition to the front door of the premises
from which the debtor conducted any business at the time of the presentation of the
application (s 11(2A)(b)
2.5 Final Sequestration
 on return day, besides the papers filed at the provisional stage, the court must have
before it:
- the sheriff’s return of service of the rule nisi
- any opposing affidavits of the debtor and/or other interested parties
- the replying affidavit of the applicant
- and any affidavit by the provisional trustee
 the practice is for the applicant’s counsel to appear in court and ask for the
provisional order of sequestration to be made finale
 the insolvent may appear personally or be represented by counsel to oppose the
granting of a final order, and other creditors may appear to oppose or support it
 the sequestrating creditors bears the onus of proving on a balance of probabilities
that the requirements for final sequestration have been met
 there is no onus on the debtor but an evidentiary burden to show that provisional
order is resisted on bona fide grounds
 if the court is satisfied that the creditor has discharged the onus resiting on him, it
may confirm the provisional order
 if the court isn’t so satisfied, it must either dismiss the application and set aside the
provisional order or require the creditor to produce further proof of the allegations in
his application and postpone the hearing for reasonable time but not without setting a
day

3. Court’s discretion
 Even if the court is satisfied that the requirements discussed above have been
established on a balance of probabilities, it is not obliged to grant a final order of
sequestration.
  Where the debtor had instituted an action for damages against the creditor which, if
successful, would wipe out the creditor’s claim (Swellendam Municipality v Kennedy
 or where the creditor’s real motive was to prevent the debtor from enforcing a claim
against his (the creditor’s) son (Amod v Kahn
4. Setting aside sequestration order
 any person aggrieved by a final order of compulsory sequestration, or by an order
setting aside an order of provisional sequestration, may appeal against the order
 the aggrieved person must first obtain leave to appeal from the appropriate court s17
of the Superior Courts Act
 no appeal lies against either the granting of a provisional sequestration order or the
refusal of such an order