MRL3701 EXAM PACK 2021.

MRL3701 EXAM PACK 2021. INSOLVENCY LAW (MERCANTILE LAW 1 MODULE 3701) Duration : 2 Hours 100 Marks QUESTION 1 Fill in the missing words or word: (a) A debtor’s estate is sequestrated, not the debtor himself. (2) (b) The debtor need not have ordinarily resided or carried on business for the entire 12 months preceding the sequestration application: ordinary residence or conduct of business at any time during that period suffices. (2) (c) Free residue’ is defined in s 2 as ‘that portion of the estate which is not subject to any right of preference by reason of any special mortgage, legal hypothec, pledge or right of retention. (2) (d) The insolvency Act does not deprive the debtor of his contractual capacity generally, and, accordingly, he retains a general competency to make binding agreements. However, to protect creditor, the Act imposes certain restrictions on the debtor’s capacity to contract. (2) (e) If an insolvent pursues a vocation without obtaining consent where it is required, he commits a criminal offence. (f) Because of the principle of “huur gaat voor koop”, the trustee cannot, as a rule, repudiate a lease of immovable property concluded by the insolvent as lessor and must realize the property subject to the lease. (2) (g) Where the joint estate of spouses married in community of property is sequestrated, both spouses become insolvents and section 21 of the Act accordingly has no application.(2) (h) In accordance with section 21(2)(a) of the insolvency Act the trustee must release property that was the solvent spouse’s property immediately before her marriage to the insolvent, or before 1 October 1926.(2) (i) If the trustee elects to carry on and complete the contracts, he ‘steps into the shoes’ of the insolvent. He may insist on receiving any performance owed bye the other party, and he is bound to carry out any performance that the contract required of the insolvent.(2) (j) When an employment contract between an employer and employee is suspended in terms of section 38(1) of the insolvency Act, amongst other things, no employment benefit accrues to the employee in terms of the contract. (2) 2 (k) Enrichment liens are so called because they are based on unjustified enrichment. There are two kinds: salvage liens and improvement liens. (2) (l) A special meeting may be called for proving claims or interrogating an insolvent. (2) (m) The court may remove a trustee from office on the grounds of his misconduct as a trustee. The power which the court has at common law to order removal on this grounds has not been displaced by s 60 of the insolvency Act (Fey No and Whiteford No v Serfontien & another 1993 (2) SA 605 (A)). (2) (n) In Estate Wege v Strauss 1932 AD 76 the court rejected the argument that no value was received, because a payment which is made in terms of an invalid agreement cannot be regarded as value. In reaching its decision the court held that the word value carries its ordinary meaning. (2) (o) In deciding whether the insolvent had the intention to prefer, the court must weigh up all the relevant facts that prevailed at the time of the disposition and decide the issue on the balance of probabilities. If the facts permit more than one inference, the court must select the most plausible or probable inference. (2) (p) To fall within the ordinary course of business, both the making and receiving of the disposition must be lawful. (2) (q) A secured creditor is entitled to be paid out of the proceeds of the property subject to security, after payment of certain expenses and any secured claim which ranks before his. If the proceeds of the encumbered property are insufficient to cover the secured creditor’s claim, he has a concurrent claim for the balance (Singer NO v The Master & another 1996 (2) SA 133 (A)). (2) (r) One of the questions considered in Ensor No v Rensco Motors(Pty) Ltd 1981 (1) SA 815 (A) was whether or not the alienation of certain goods by an insolvent company just before its liquidation occurred as intended in section 34 of the Insolvency Act 24 of 1936. (2) (s) Because the basis of the court’s power to grant a declaratory order is that the trustee and creditors do not lay claim to the property in question, it follows that if any creditor objects to the declaratory order, the insolvent is not entitled to the property and court cannot vest it in him (Vorster v Steyn 1981 (2) SA 831 (O)). (2) (t) If creditors adopt a composition which provides for less than 50 cents in the rand, the insolvent may apply for rehabilitation only on the basis of the prescribed period. (2) TOTAL QUESTION 1: 40 3 QUESTION 2 Indicate whether the following statements are true or false. DO NOT give a written explanation: use only the letters T or F. 1. Sequestration will usually be applied for only when the debtor’s liabilities already exceed his assets. True 2. An estate is usually conceived of as a collection of assets and liabilities, but a debtor who has only liabilities may not be regarded as having as estate for sequestration purposes. False 3. In an application for voluntary sequestration, it is possible to infer that the debtor who has only liabilities may not be regarded as having as estate for sequestration purposes. False 4. Section 9(2) provides that a liquidated claim which has accrued but which is not yet due by the time the application is heard must not be regarded as liquidated for these purposes. False 5. A debtor who has no assets and only liabilities cannot surrender his estate. True 6. If the court is satisfied that the requirements have been established on a balance of probabilities, it is bound to grant a final order of sequestration. False 7. The debtor may not make a contract which purports to dispose of any property of his insolvent estate( sec 23(2)). Furthermore, he may not, without the written consent of the trustee, enter into a contract which adversely affects(or is likely to adversely affect) his estate or any contribution which he is obliged to make towards his estate.True 8. Payment of a lawful debt is not a payment without value. True 9. Where spouses are married in community of property their creditors may recover debts from both of them, and not only from each spouse‘s undivided interest in the joint estate, but also from his or her separate estate outside the joint estate. False 10. Another category of property which the trustee must release is that acquired by the solvent spouse under a marriage settlement. The solvent spouse needs to prove that the settlement was bonafide. False 11. Once he has decided to uphold or to repudiate the contract the trustee may not change his mind. True 12. The purpose of the first meeting is to enable creditors of the estate to prove their claims against the estate and elect a trustee. False 4 13. In terms of the Insolvency Act, the Master has the power to confirm, or to refuse to confirm, the appointment as trustee of any elected or nominated person. False 14. Under sec 30 the court may set aside a disposition which the insolvent made at any time after sequestration if he made the disposition with the intention of preferring one of his creditors above another and when he made it, his liabilities exceeded his assets. False 15. Rehabilitation has the effect of putting an end to the sequestration. It relieves the insolvent of every disability resulting from sequestration and discharges all his debts(other than debts arising out of fraud on his part) which were due or the cause of which arose before sequestration. True TOTAL QUESTION 2: 30 QUESTION 3 (a) Discuss the judgment of the court in Ensor No v Rensco Moors (Pty) Ltd 1981 (1) SA 815 (A)(10) marks A company(M) did business as a garage and dealer in motor vehicles(a franchise agreement with another party existed). It also ran a workshop for repair of vehicles for which tools and spare parts were kept in stock. After several unfortunate developments M was liquidated. This was after it had sold the spare parts mentioned above.(1 mark for the facts) The question on appeal was whether or not the alienation of goods by an insolvent company(M) just before its liquidation was in “the ordinary course of business” of the company(1) within the meaning of that phrase in section 34(1) of the Insolvency Act(1) Section 34 reads as follows(5 marks for some sort of description of Section 34) “ 34 Voidable sale of business (1)If a trader transfers in terms of a contract any business belonging to him, or the goodwill of such business or any goods or property forming part thereof(except in the ordinary course of that business of for securing the payment of a debt), and such trader has not published a notice of such intended transfer in the Gazette and in two issues of an Afrikaans and two issues of an English newspaper circulating in the district in which that business is carried on, within a period not less than 30 days and not more that 60 days before the date of such transfer, the said transfer shall be void as against the trustee of his estate, if his estate is sequestrated at any time within the said period…” 5 The exception to the requirement of section 34 is therefore where the transfer took place in the ordinary course of business(1) In the judgment in question the Appeal court dealt first with the question whether the burden of proof is on the trustee to prove that the “alienation” was not in the ordinary course of that business, (1) or on the purchaser to prove the opposite (1). The court held that the onus was on the trustee(1) Secondly, the court dealt with the test to be applied to determine whether the alienation had been in the ordinary course of that business(1). The court held that the sale of its spare parts by a dealer after cancellation of a franchise to sell cars on which such sold parts were used was what a solvent sealer would do after losing the franchise(1). It was therefore done in the ordinary course of business (1) (b) Andy places his bets with his friend Betty, a licensed bookmaker who grants him credit to be able to bet on horse races. From time to time, Andy pays Betty the amounts that he owes her on these wagering transactions. Andy’s estate was sequestrated in October 2013. The trustee of the insolvent estate wishes to sue Betty for various sums of money. The trustee argues that, when Andy’s liabilities exceeded his assets, he paid Betty several sums between 2011 and 2013 in order to pay his wagering debts, and that these payments were dispositions without value. Alternatively, the trustee alleges that one of these payments worth R514 000 and paid on 3 June 2013 was a voidable preference. You must first discuss the series of payments made between 2011 and 2013, and then the single payment made on 3 June 2013. Your answer must be based on the relevant authority in statute and case law. (i) Explain whether this series of payments of wagering between 2011 and 2013 may qualify as disposition without value. The trustee must prove that when the insolvent made the disposition he received no value for it(1). The present facts are based on those of Estate Wege v Strauss(1). The trustees argued that not value had been received, as a payment under an invalid agreement cannot be regarded as value(1). The question was whether the money paid to a bookmaker was a disposition of property without value(1). “value” in the Insolvency Act means value in the ordinary sense(1). “A racing bet with a book maker is a promise on the part of the bookmaker to pay if the horse wins”(1). The bookmaker’s promise may be a very valuable right or asset(1), even though it is speculative(1) The betting agreement is not illegal in South African law but it is not enforceable in court(1). The statutory provisions regarding dispositions made without value are not intended to prevent a person in insolvent circumstances from engaging in ordinary transactions(1). Instead, these provisions are intended to prevent such a person from 6 impoverishing his estate by giving away his assets without receiving any advantage in return(1). (ii) Explain whether the payment of the wagering debt of 3 June 2013 may qualify as a voidable preference. As part of your answer, you should also discuss the defense that may open to Betty in these circumstances. The defence that may be open to the creditor, Betty, in these circumstances is that the payment was a disposition that was made in the ordinary course of business(1) and that it was not intended to prefer one creditor above another(1). To decide whether this payment of the wagering debt on 3 June 2013 was made in the ordinary course of business(1), it is necessary to consider that the transaction relates to betting business between a bookmaker and a client(Estate Wege)(1). This is a special kind of business(1). It is not in the ordinary course of a bookmaker’s business to allow the settlement of debts to stand over for an unlimited period(1). If this is done, and a client whose liabilities exceed his assets pays a betting debt long overdue(1), he does not pay in the ordinary course of betting business(1). If it can be proved that this wagering debt on 3 June 2013 was paid long after it should have been settled(1), then it was not paid in the ordinary course of this kind of business(1). (c) Consider the following example of the application of section 98A of the Insolvency Act: The Insolvent had three employees – A, B and C. A earned R6 000 per month, and C R2 000 per month. A and B have not received their salaries for the past three months, and C has not received his salary for the last month. Explain the position in respect of A, B and C’s salaries. Because only three months’ arrear salary enjoys a preference,(1) and because each one’s preference is also limited to R12 000, (1) the position is as follows: A will have a preferent(1) claim for R12 000, (1), B will have a preferent(1) claim for R12 000, (1) and C will have a preferent(1) claim for R2000(1mark). A will have to prove a concurrent(1) claim for the rest of his salary but B and C will be able to recover the full amounts(1) of their arrear salaries as preferred(1), not concurrent, (1) claims. (d) Summarise Prinsloo v Van Zyl 1967(1) SA 581 (T) by stating the facts in two concise sentences and the ration of the court in three sentences Facts: (a) This case deals with a composition(1) in terms of section 119(1mark) of the Insolvency Act. An offer of composition by the insolvent, Prinsloo had been accepted by a simple majority in value of creditors(1), but not by a three-fourths majority in number or in value(1) (b) The presiding officer at the meeting of creditors erroneously(1) noted the composition as having been accepted(1), resulting in the insolvent being reinstated with his assets and certain consequences(1) 7 Judgment (a) The requirement of the acceptance of composition by three fourths in value and in number is regulated by section 119 of the Insolvency Act(1) (b) This acceptance is required to render it valid and enforceable(1) (c) This is an absolute requirement(1) and no composition can be valid unless it has been so accepted(1) TOTAL QUESTION 3: [30] TOTAL: [100] THE EXAMINATION PAPER OF OCTOBER/NOVEMBER 2013 INSOLVENCY LAW (MERCANTILE LAW 1 MODULE 3701) Duration : 2 Hours 100 Marks QUESTION 1 Fill in the missing words or word: (a) In an application for voluntary surrender, the debtor's founding affidavit must allege that it will be to the advantage of creditors if the debtor's estate is sequestrated. (2) (b) The debtor need not have ordinarily resided or carried on business for the entire 12 months preceding the sequestration application: ordinary residence or conduct of business at any time during that period suffices. (2) (c) A liquidated claim‘ is a monetary claim, the amount of which is fixed by agreement, judgment, or otherwise (Kleynhans v Van der Westhuizen NO 1970 (2) SA 742 (A). (d) In relation to section 8(e) of the Insolvency Act, the object of the arrangement or offer must be to release the debtor from liability (or his debts), wholly or in part. (2) (e) The function of the trustee is to collect the assets in the estate, realize them, and distribute the proceeds amongst creditors in the order of preference laid down by the Act. (f) Because of the principle of “huur gaat voor koop”, the trustee cannot, as a rule, repudiate a lease of immovable property concluded by the insolvent as lessor and must realize the property subject to the lease. (2) (g) Section 21 of the Insolvency Act applies only where there is, indeed, a solvent spouse. (2) (h) Section 21 was introduced to prevent, or at least hamper, collusion between spouses to the detriment of creditors of the insolvent estate. (2)