Question Marks Topic

1 10 Topic 1 & 2
Remember Requirements for voluntary surrender and compulsory
sequestration, maybe comparing
2 10 Case Law (Specific Cases from previous videos)
Application and comprehension
3 21 Topic 3
Voidable dispositions
Application type
4 7 Topic 5
Administration process
Application type
5 10 Topic 5 & 6 & 7
Application type
6 7 Topic 7
Comprehension Type
7 5 Topic 13
Rehabilitation
True or false Type Question
8 20 Drafting Question
Application
9 10 Topic 14
Business rescue and compromises
Application type
Topic 1 - Introduction
1.1 General

The law of insolvency deals with what happens when a person or business cannot pay their debts. It
mainly focuses on the financial situation of debtors (people who owe money). Mostly governed by
the Insolvency Act 24 of 1936.

1.2 Methods of Collecting a Debt

When a debtor fails to pay their debts, a creditor has two main options for collecting what they are
owed: individual procedures or collective procedures.

1.2.1 Individual procedures

A creditor first tries to recover a debt directly — usually by demanding payment, then issuing a
summons and obtaining a court judgment. If the debtor still doesn’t pay, the creditor may get a writ
of execution to attach and sell the debtor’s property. If the debtor has limited assets, the court can
order instalment payments or a garnishee order, where part of the debtor’s salary is paid to the
creditor.
If the debtor has too few assets for sequestration and is often sued, they may apply for an
administration order in the Magistrate’s Court (only if debts are below R50,000). The debtor pays an
administrator, who distributes funds among creditors while stopping new legal actions.

1.2.2 Collective procedures

If individual methods fail, creditors can seek sequestration — a collective process where the debtor
is declared insolvent. This halts all separate actions and ensures the debtor’s assets are fairly
divided among creditors. After sequestration, the debtor is usually released from most debts,
allowing a financial fresh start.

1.3 Summary of the Sequestration Procedure

Sequestration can occur in two ways: compulsory sequestration, where a creditor applies to court
to have the debtor’s estate sequestrated, and voluntary surrender, where the debtor applies to
have their own estate sequestrated. The purpose is to ensure that creditors are repaid as fairly and
fully as possible. Once sequestration is granted, the debtor’s estate first vests in the Master of the
High Court, and then in a trustee, who collects, sells, and distributes the assets among creditors.
Creditors participate in the process through meetings and voting. The law recognises secured,
preferent, and concurrent creditors. Until rehabilitation, most property the debtor acquires can still
be used to pay debts. Rehabilitation frees the debtor from most remaining debts, giving them a
financial fresh start.
Topic 2 – The Application for Sequestration
1. Jurisdiction
Only the High Court has authority to deal with sequestration matters, as they affect a person’s legal
status.
A court will have jurisdiction if the debtor:

 Lives, owns property, or conducts business within its area of authority; or

 Did so within the 12 months before the application.

There are two types of sequestration applications:

 Voluntary surrender – brought by the debtor.

 Compulsory sequestration – brought by a creditor.

2. Voluntary Surrender
In a voluntary surrender, the debtor applies for their own estate to be sequestrated, often to avoid
multiple lawsuits or judgments.

Formal requirements:

 A notice of surrender must be published in the Government Gazette and a local newspaper
at least 14–30 days before the court hearing.
 Notice must also be sent to creditors, employees, trade unions, and SARS.
 The debtor must submit a statement of affairs to the Master of the High Court, listing
assets, debts, and liabilities.

Application requirements:

1. All formal requirements have been met.

2. The debtor’s estate is insolvent.
3. There are sufficient assets to cover the costs of sequestration.
4. Sequestration will be to the advantage of creditors (i.e., creditors will likely receive some
payment).

Even when these requirements are satisfied, the court retains discretion and may refuse the
application if it is not in the best interests of creditors.

3. Compulsory Sequestration
This type of sequestration is initiated by a creditor (or creditors) against a debtor.

Who may apply:

 A single creditor with a claim of at least R100, or

 Multiple creditors with claims totaling R200 or more.
Additional requirements:

 The creditor must provide security for the costs of sequestration to the Master.
 The process usually begins with a provisional sequestration order, giving the debtor an
opportunity to oppose it (rule nisi).
 A final sequestration order is granted only if all legal requirements are met.

Section 8 of the Insolvency Act - Acts of insolvency (showing inability to pay):

1. Absence
A debtor commits an act of insolvency by leaving, being outside, or remaining absent from
South Africa—or from their home—with the intention to evade or delay payment of debts.
Mere absence is not enough; intent must be proven.
2. Nulla Bona Return
When a creditor obtains judgment and the sheriff finds no property to satisfy it, or the
debtor fails to indicate sufficient assets, it amounts to an act of insolvency.
1. First act: Debtor fails to show sufficient property.
2. Second act: Sheriff’s return shows no assets found.
3. Disposition of Property
Disposing of property to prejudice creditors or prefer one creditor over others constitutes
an act of insolvency. The result matters, not the debtor’s intention.
4. Removal of Property
Removing or attempting to remove property with the intention to prejudice creditors or
prefer one over another is an act of insolvency. Here, the debtor’s intent is key.
5. Arrangement for Release from Debt
Offering an arrangement to be released wholly or partly from debts is an act of insolvency if
it indicates inability to pay debts. A mere proposal to pay part later is insufficient.
6. No or Incomplete Statement of Affairs
If a debtor, after publishing a notice of surrender, fails to lodge or lodges an incomplete
statement of affairs with the Master, or fails to appear on the date set in the notice, it is an
act of insolvency.
7. Notice of Inability to Pay
Giving written notice to any creditor stating inability to pay debts constitutes an act of
insolvency. This is the most common act relied upon.
8. Sale of Business
When a trader gives notice of intention to transfer their business under section 34(1) and
then cannot pay all debts, it is an act of insolvency. All future debts become immediately
due upon notice if creditors demand payment.

Courts are cautious about friendly sequestrations—where a debtor and creditor collude to create a
false claim—and will investigate them carefully. The court may also refuse sequestration if the
application is not made in good faith or if other remedies are available.

4. Final Sequestration Order

Application requirements - The court grants a final order only when:

1. The creditor has a valid claim.

 2. The debtor is insolvent or has committed an act of insolvency.
3. Sequestration will be to the benefit of creditors.

The standard of proof is high — the applicant must fully satisfy the court that these requirements
are met before the order will be granted.
Case - Walker v Syfret (1911 AD 141)
Facts:
The Grand Junction Railways Ltd issued debentures (loan certificates). John Walker and others had
promised to pay the company’s debts, including these debentures. When the company went into
liquidation, John Walker’s brother bought 280 of these debentures from him, even though he knew
the company was already liquidated. John Walker couldn’t claim on the debentures because he
owed the company money — his claim was cancelled out by set-off. His brother then tried to prove a
claim in the liquidation, arguing that he was an innocent (bona fide) holder of the debentures.

Main Legal Questions:

1. Could the brother (as transferee) have stronger rights than John Walker?
2. Does liquidation prevent creditors from changing their position afterward?
3. Do insolvency rules, like set-off, apply to liquidated companies?

Court’s Findings:

1. All creditors are treated equally after liquidation. Once liquidation starts, the rights of all
creditors are fixed — no one can change their position to harm others.
2. Transferees can’t get better rights than the original holder. Since John Walker had no valid
claim, his brother couldn’t have one either.
3. Knowledge of liquidation matters. Because the brother knew about the liquidation, he took
the debentures with all their legal defects. The Court said it might be different if the
transferee didn’t know about the liquidation.
4. Set-off (compensation) applies. John Walker’s debt to the company cancelled out any claim
he had on the debentures.
5. Insolvency principles apply to liquidation. The same rules used in personal insolvency (like
set-off and fairness among creditors) also apply to company liquidations.

Outcome:
The Court rejected the brother’s claim — he had no greater rights than John Walker, whose claim
was already cancelled.

Key Takeaways:

 After liquidation, creditors’ rights are fixed and can’t be changed to the detriment of others.
 A person who receives a claim or debenture after liquidation can’t have more rights than the
original holder.
 Set-off cancels out mutual debts.
 Insolvency rules also govern company liquidations to ensure fairness among creditors.
Topic 3 – Consequences of Sequestration
1. Introduction:
When sequestration is granted, all creditors’ claims are combined (concursus creditorum) and
handled through the insolvency process. The debtor’s property first vests in the Master of the
High Court, then in the trustee, preventing the debtor from disposing of assets. Caveats are also
placed on property to block transfers.
2. Effects on the Insolvent:
All the debtor’s property becomes part of the insolvent estate under the trustee’s control.
Property gained before rehabilitation (like inheritances) also forms part of the estate. However,
essentials such as clothing, tools, pensions, compensation for injuries, and reasonable post-
sequestration income are excluded. Life policies are protected up to R50 000 or fully if payable
to a third-party beneficiary. The insolvent may still enter contracts but cannot sell or damage
estate assets without consent. They also lose eligibility to act as an MP, company director,
trustee, or liquidator until rehabilitated, and must assist the trustee and keep proper records.
3. Effects on the Insolvent’s Spouse:

 In community of property: both spouses are insolvent.

 Out of community: the solvent spouse’s property temporarily vests in the trustee but can be
reclaimed by proving ownership.
“Spouse” includes customary or cohabiting partners, and the solvent spouse can reclaim
property owned before marriage or bought with personal funds.

4. Effects on Legal Actions:

All judgments and executions stop immediately. Civil cases are paused until the trustee decides
whether to continue them. Once the trustee’s accounts are confirmed, no new actions may be
brought for pre-sequestration debts.
5. Effects on Contracts:
Unfinished contracts aren’t automatically cancelled — the trustee may choose to perform or
repudiate them.

 Land sales: trustee can confirm or cancel; the seller may apply to court after six weeks.
 Movables: seller can reclaim goods if sequestration occurs within 10 days of delivery.
 Leases: trustee may cancel within 3 months if the lessee is insolvent; if the lessor is
insolvent, the lease usually continues.
 Employment: suspended if the employer is insolvent, with employees holding preferent
wage claims.
 Instalment agreements (under the NCA): if the seller is insolvent, the trustee may continue
or cancel; if the purchaser is insolvent, the seller becomes a secured creditor.

3.6 Dispositions that Can Be Set Aside

1. General:
Insolvent debtors may try to dispose of assets or favour certain creditors before sequestration.
Trustees can undo these actions to protect all creditors fairly.
2. Disposition Without Value (Section 26):
Occurs when an insolvent transfers property for little or no return, reducing assets for creditors.

 Within 2 years: beneficiary must prove the debtor was solvent afterward.
  More than 2 years: trustee must prove debtor was insolvent.
Examples: gifts, selling at unreasonably low prices, or waiving rights.
Exception: Good-faith antenuptial transfers within 3 months before marriage are protected
unless sequestration occurs within 2 years.

3. Voidable Preference (Section 29):

Happens when a debtor unfairly prefers one creditor within 6 months before sequestration.

 Trustee must prove insolvency.

 Court will not set it aside if done in ordinary business without intent to prefer.
 If set aside, the creditor can still claim as a concurrent creditor.

4. Undue Preference (Section 30):

Occurs when a debtor intentionally prefers one creditor over another while insolvent.

 No time limit; key factor is intent.

 Trustee must prove insolvency, the disposition benefited a creditor, and the intention to
prefer.
 Benefited creditor may still claim as a concurrent creditor.

5. Collusive Dealings (Section 31):

Occurs when the debtor colludes with another to defraud or prejudice creditors.

 Trustee must prove both knew the debtor was insolvent and the disposition would harm
creditors.
 Consequences: transaction set aside, colluding party compensates losses, may pay a penalty,
and loses their claim if a creditor.

6. Voidable Transfer of Business (Section 34):

Traders transferring a business must publish notice in the Gazette and newspapers 30–60 days
before transfer.

 Failure to do so makes the transfer void against creditors for six months and against the
trustee if sequestration occurs.
 Protects creditors by allowing them to claim debts before assets are shifted.

7. Debt Set-Off:
Mutual debts cancel each other out, but may unfairly benefit one creditor before sequestration.

 Trustee can ignore set-off within six months before sequestration if not in ordinary business.
 Similar rule applies for debt cession causing set-off within one year.
 Set-off in market or normal exchange agreements remains valid.

8. Debt Secured by Mortgage Bond (Section 88):

Debtors cannot unfairly secure a previously unsecured debt just before sequestration.

 Mortgage bonds lodged within six months before sequestration (for debts older than 2
months) lose their preference.
 Bond remains valid, but creditor becomes concurrent with others, preventing last-minute
advantage.
Topic 5 – The Administration Process
1. Purpose:
Sequestration aims to collect the insolvent’s assets, sell them, and distribute the proceeds to
creditors according to the legal order of preference.

2. Meetings of Creditors and Proof of Claims:

Creditors play a key role in managing the estate:

 First Meeting: Called by the Master; creditors prove claims and elect a trustee.
 Second Meeting: After trustee appointment; late claims can be submitted, the trustee
reports, and creditors give instructions.
 General Meeting: Called if necessary; creditors give further instructions.
 Special Meeting: Usually to prove claims or interrogate the insolvent; costs borne by
requesting creditor.

Voting: Creditor votes depend on claim value; secured creditors vote fully only for matters affecting
their security. Decisions on trustees, compositions, or hiring professionals often require majority by
both number and value. Claims acquired after sequestration cannot vote.

Proof of Claims: Creditors submit an affidavit detailing the claim. Secured creditors rely on the value
of their security, and conditional claims are allowed but paid once conditions are met. Claims may be
withdrawn by notifying the Master and trustee.

3. Interrogations:
Used to locate assets and clarify the insolvent’s affairs. Types include:

 Creditor interrogation (during claims proof).

 Questions at meetings of creditors.
 Master’s interrogation anytime to obtain information on assets, claims, or administration.

4. Liquidation of Assets:
Assets are sold to generate cash for distribution.

 Before the second meeting, trustee may propose selling perishable or high-value items.
Secured creditors’ consent required if encumbered.
 After the second meeting, trustee acts according to creditors’ instructions; unauthorized
sales may be void.

Secured Creditors: Hold rights over assets via mortgage, pledge, hypothec, or lien. Trustee may:

1. Take over the asset at the secured value,

2. Sell it for all creditors’ benefit, or
3. Abandon it to the secured creditor (shortfall becomes a concurrent claim).
Excess proceeds go to the free residue, which is used to pay unsecured creditors.

5. Application of Proceeds:
Order of payment:
 1. Secured preferent creditors – from proceeds of their security.
2. Unsecured preferent creditors – from free residue.
3. Concurrent creditors – from remaining free residue, shared pro rata.

Example: Free residue R10,000; concurrent claims R12,000, R6,000, R2,000 → each receives 50% of
their claim. Surplus may cover post-sequestration interest.

6. Trustee’s Account:
Trustee prepares a detailed account showing assets, liabilities, and distributions. This ensures
transparency and allows creditors to monitor administration.

Key Takeaways:

 Administration relies on creditor meetings, claims proof, interrogations, and asset

liquidation.
 Creditors influence the process through instructions to the trustee.
 Secured and preferent creditors are paid first; concurrent creditors share what remains.
 Trustee accounts ensure transparency and proper oversight.
Topic 6 – The Trustee’s Account
Introduction

The trustee must prepare accounts to show how the insolvent estate’s assets were collected,
managed, and distributed to creditors.
These accounts are essential for transparency and supervision by the Master of the High Court.

Types of Accounts

1. Liquidation Account – records all assets sold, proceeds received, and payments made.
2. Distribution Account – shows allocation of funds to creditors (secured, preferent, concurrent).
3. Contribution Account – details any amounts creditors must contribute to estate costs.
4. Trading Account (rare) – if the trustee operated a business on behalf of the estate.

Supporting documents include vouchers, bank statements, and schedules of shared costs.

Account Details

 Must include: account status (first, second, final), estate details, date of sequestration, and
Master’s reference.
 Receipts: describe property, buyer, sale method, date, gross proceeds.
 Disbursements: describe purpose, date, and amount.
 Non-final accounts list unliquidated assets, outstanding debts, and reasons for non-realisation.

Certificate

 Each account is signed by the trustee and verified by affidavit, confirming it is full and accurate.

Time of Submission

 Usually submitted within 6 months of trustee appointment.

 Delays must be explained by affidavit sent to creditors.
 The Master can order submission within 14 days if necessary.

Inspection and Objections

 Accounts are open for 14 days for creditor inspection, with notices in the Government Gazette
and local newspapers.
 Interested parties can lodge objections on incorrect or improper entries.
 The Master can require amendments if necessary.

Confirmation

 The Master confirms the account if no objections exist or objections are resolved.
 Confirmation is final, unless reopened by the court before dividends are paid.
Topic 7 – Application of Proceeds
7.1 General

The administration of an insolvent estate involves distributing the proceeds from the estate’s assets.
Key concepts:

 Secured creditors: Creditors with claims against specific assets (encumbered assets). If
surplus remains after paying secured creditors, it is transferred to the free residue.
 Preferent creditors: Unsecured creditors who are first in line to claim from the free residue
account (net proceeds of unencumbered assets or surplus from encumbered assets), as
provided in the Insolvency Act.
 Concurrent creditors: Creditors whose claims are neither secured nor preferent. They share
pro rata in the free residue after deducting costs of sequestration.

7.2 Preferent Claims

Preferent claims are paid before concurrent claims from the free residue.

Funeral and Deathbed Expenses

 Paid from free residue after deducting costs of maintaining, conserving, and liquidating assets.
 Limited to R300 per claim.
 Funeral and deathbed expenses must have occurred within three months prior to
sequestration.
 Multiple claims rank equally and are reduced pro rata if funds are insufficient.

Costs of Sequestration

 Order of preference:
1. Sheriff’s charges since sequestration.
2. Master’s fees.
3. Costs ranking pari passu:
 Taxed costs of sequestration.
 Fees for assistance in preparing insolvent’s statement of affairs.
 Remuneration of curator bonis and trustee.
 Other administration costs deemed reasonable by the Master.
 Expenses incurred by the Master or presiding officer at creditor meetings.
 Salaries or wages of persons engaged by curator/trustee (unless normally part of
trustee’s duties).
 If free residue insufficient, concurrent creditors may contribute to the deficit.

Costs of Execution

 After paying prior costs and expenses, remaining funds in free residue go to taxed fees of the
sheriff for property execution.
 Maximum R50 for other taxed costs; total limited to proceeds from the attached property.
 Attachment prior to sequestration does not confer preference, except for costs of attachment.
Salaries and Wages of Employees

 Employees’ claims follow a hierarchy:

1. Salary/wages (max R12 000 per employee) for up to three months.
2. Accrued leave/holiday (max R4 000 per employee).
3. Other paid absences up to three months (max R4 000).
4. Severance/retrenchment pay (max R12 000 per employee).
5. Employer contributions to pension, medical aid, unemployment, etc. (max R12 000).

Statutory Obligations

 Claims arising from amounts collected by the insolvent for the state or semi-state institutions
take preference.
 Includes:
1. Workmen’s Compensation Act.
2. WHT and employee-related deductions (Income Tax Act).
3. Occupational Diseases in Mines and Works Act.
4. Customs and Excise penalties.
5. National Supplies Procurement Fund payments.
6. VAT.
7. UIF.

Income Tax

 Remaining funds pay taxes on income/profits prior to sequestration, including interest on

arrears.

General and Special Bonds

 Next in line: holders of general bonds (unsecured) and certain special notarial bonds registered
before 7 May 1993.

Concurrent Creditors

If a balance of the free residue remains after paying all the above, it is distributed amongst the
concurrent creditors. Concurrent creditors:

Rank equally, but if there is a shortfall in the free residue, and therefore not enough to pay all their
claims, then concurrent creditors are paid proportionally by way of dividend..
Summary – Ranking of Preferent Claims

1. Funeral and deathbed expenses (max R300 each).

2. Costs of maintaining, conserving, and realizing assets.
3. Costs of sequestration (sheriff, Master, trustee, administration).
4. Costs of execution (sheriff and related taxed costs).
5. Employees’ salaries, leave, severance, and contributions (Section 98A).
6. Statutory obligations (Section 99).
7. Income tax due.
8. General bonds and certain pre-1993 special notarial bonds.

The ranking preferent claims can be summarised as follows:

7.3 Encumbered Assets

Encumbered assets are those used to secure debts—for example, through mortgages, pledges,
liens, or instalment sale agreements. Each encumbered asset is recorded in its own sub-account
within the liquidation account, while unencumbered assets appear in the free residue account.
Bonds create a real right over property and may secure claims even without possession (in the case
of notarial bonds).
A landlord’s legal hypothec gives preference for unpaid rent over movables on leased premises,
limited to a period depending on the rental term.
Pledged assets (where the creditor holds possession) and liens or rights of retention (where a
creditor has improved or preserved an item) also create preference. Other secured claims include
instalment sale agreements—where sellers or buyers retain rights to goods or property until
payment is complete and, in the case of immovables, the contract is recorded in the deeds office.
When several creditors have claims over one asset, priority is determined by the date of creation or
registration. The order of preference is generally: (1) enrichment lien, (2) pledge, (3) mortgage, (4)
debtor–creditor retention, (5) landlord’s hypothec, and (6) seller under an instalment sale. Creditors
may limit their claims to the proceeds of a specific asset to avoid liability for contributions to other
creditors.

The costs linked directly to an asset—like repairs, municipal charges, or auction expenses—are
deducted from that asset’s sub-account. General costs, such as the Master’s fees, are shared
proportionally across all assets. The free residue then covers the remaining preferent and
concurrent claims. Funeral and deathbed expenses are paid from the free residue first, and if that’s
insufficient, the shortfall may come from proceeds of encumbered assets after their own costs are
met.

Regarding interest, secured creditors may claim interest accrued up to two years before
sequestration as part of their secured claim; older interest ranks as concurrent. After sequestration,
secured creditors continue earning simple interest (at the agreed rate or 8%, whichever is higher) on
the secured portion until payment. If the proceeds from the asset fall short, the unpaid balance
becomes a concurrent claim.

The free residue account consists of the gross proceeds from unencumbered assets, surplus from
encumbered assets, and related costs.

7.4 Contribution

If an insolvent estate’s free residue cannot cover sequestration costs, creditors must contribute.
This rule prevents the financial burden from falling on innocent parties such as taxpayers. The
petitioning creditor (who applied for sequestration) remains liable even if they do not formally
prove a claim. Concurrent creditors usually carry the main responsibility for unpaid costs,
contributing in proportion to their claims, including the concurrent portions of secured debts.
Preferent creditors may rarely be required to contribute, and then only in reverse order of their
preference ranking. Secured creditors cover the costs of maintaining or selling their own secured
assets, and if the proceeds don’t cover those costs, they may have to pay the shortfall. However, if
they rely solely on their security and do not benefit from the free residue, their contribution liability
is limited.

7.5 Withdrawal of Claims

Creditors can withdraw their claims to avoid future contribution liability, but they remain
responsible for costs already incurred up to the time the trustee receives the withdrawal notice.
Secured creditors who withdraw are not liable beyond their security, and if concurrent creditors
remain, those creditors cover any deficits. Withdrawal within five days of a creditors’ meeting is
treated as if it occurred before any new costs arose. If all concurrent creditors withdraw, there might
appear to be a deficit, but secured creditors relying only on their security cannot be forced to
contribute beyond that asset (in terms of section 89(2)). Petitioning creditors, however, remain
liable for contribution regardless of whether they proved their claim, as liability depends on their
role in initiating sequestration, not on proof of debt.
Topic 13 – Rehabilitation
Introduction

 Rehabilitation restores an insolvent’s personal capacity and removes sequestration

disabilities.
 Usually discharges debts, giving a fresh start.

Applicant & Court

 Can apply: insolvent, widow (community of property), divorced spouse (joint estate), or
agent with power of attorney.
 Apply at the court that sequestrated the estate.

Grounds for Application

 After composition: creditors paid ≥50c in rand or security provided; 3-week notice to
Gazette & trustee.
 After time periods:
o First-time, no fraud: 12 months after first trustee account.
o Not first-time, no fraud: 3 years.
o Fraud/serious offences: 5 years.
 No claims proved: 6 months after sequestration.
 Full payment of claims: anytime after distribution account confirmed.

Rehabilitation by Time

 Automatic after 10 years (from provisional order if compulsory).

 Effects similar to court rehabilitation; formal application may still be needed.

Security & Declarations

 Security: R500 for costs of opposing parties, ≥3 weeks before application.

 Application: must provide facts and evidence showing prima facie entitlement.

Opposed Applications & Court Discretion

 Master reports; opposition may come from trustee, creditors, or Master.

 Court can refuse, grant, or impose conditions.
 Assets acquired before rehabilitation may vest in insolvent; notice must be given.

Consequences

 Sequestration ends; pre-sequestration debts discharged (unless fraud).

 Insolvent freed from legal disabilities.
 Difference from setting aside: rehabilitation absolves debts; setting aside restores position
but leaves debts.
Drafting Question
Notice of surrender of a debtor’s estate (section 4(1))

Notice is hereby given that application will be made to the High Court of South Africa ( Western
Cape), Cape Town, on Wednesday the 25th day of October 2023 at 11h00 in the forenoon or as
soon as possible as the matter can be heard, for the acceptance of the surrender of the estate of
Tony Stark, ID No 1234567890, an adult male technology specialist of 701 Victoria Road, Hout Bay
and that a statement of his affairs will lie for inspection at the office of the Master of the Supreme
Court at Cape Town, at the office of the Magistrate, Cape Town, for a period of fourteen days as
from the 5th of
October 2023.

Attorneys for the applicant: Insol Specialists Incorporated

797 Plumtree Road
Hout Bay
Western Cape
7806

Statement of debtor’s affairs Section (4 (3) and 16)

Balance sheet of Tony Stark

Liabilities Assets
R R
Debt due Immoveable property
Moveable property (Furniture, Stock)
Outstanding claims
Deficiency (difference)
Total: Total:
XXX XXX
Topic 14 – Companies Act 71 of 2008, as
amended (2011)
1. Introduction:
Business rescue replaced judicial management under the old Act. It applies to companies and close
corporations and is administered through the Companies and Intellectual Property Commission
(CIPC). Chapter 6 provides two mechanisms for financially distressed companies: business rescue
and compromise.

2. Business Rescue:

 Purpose: Temporarily supervise management, halt creditor claims, and implement a plan to
either restore solvency or achieve better returns for creditors than immediate liquidation.
 Financially distressed: Company unlikely to pay debts or likely to be insolvent within 6 months.
 Commencement: Can be started by directors (board resolution) or by court order (application by
affected persons). Directors cannot apply if liquidation is ongoing.

Key Roles:

 Business Rescue Practitioner: Oversees the company, can be removed for incompetence.
 Directors: Remain in office but must act under practitioner’s authority.
 Creditors and Shareholders: Notified of proceedings, may participate and vote on the rescue
plan.

Consequences:

 Moratorium: Legal actions are paused (with exceptions).

 Employee payments: Prioritized, except for practitioner’s fees.
 Contracts: Practitioner may suspend or cancel some contracts (not employment contracts).

Rescue Plan:

 Proposed after consulting affected persons.

 Contains three parts: Background, Proposals, Assumptions/Conditions.
 Adopted or rejected at a meeting.

Termination:

 Occurs if the court sets aside the order, practitioner files notice, or the plan is adopted/rejected.
 Intended duration: ≤ 3 months.

3. Compromise:

 Applies whether or not the company is distressed, but not if in business rescue. May apply
during liquidation.
 Proposal made by board or liquidator.
 Must include Background, Proposals, Assumptions/Conditions.
 Directors must certify that information and projections are accurate and made in good faith.
Adoption and Approval:

 Adopted if majority in number and ≥75% in value of creditors/class approve.

 Court approval required to ensure fairness; once sanctioned, it is binding on all creditors.

Key Takeaways:

 Business rescue focuses on rehabilitating distressed companies temporarily.

 Compromise is a formal arrangement with creditors to settle claims, even if the company isn’t
distressed.
 Both processes involve practitioner oversight, creditor participation, and legal safeguards to
ensure fairness.