MRL3701 EXAM Pack Frequently Asked Questions 2020___LATEST_EXAM_PACK___MEMOS__2015_TO_JUNE_2020.

MRL3701 EXAM Pack Frequently Asked Questions 2020___LATEST_EXAM_PACK___MEMOS__2015_TO_JUNE_2020.Fill in the missing words: (a) The term "debtor" also embraces a person who is incapable of managing his own affairs. (2) (b) Thabo’s application for voluntary surrender must contain an allegation that it will be to the advantage of creditors if his estate is sequestrated. (2) (c) Christopher commits an act of insolvency by departing from his dwelling with the intent by doing so to evade payments of his debts. (2) (d) An application for compulsory sequestration brought by a creditor who is not at arm’s length is generally referred to as a " friendly " sequestration. (2) (e) Section 24(1) of the Insolvency Act which deals with the effect of prohibited contracts on third parties, places the onus upon a third party to prove that, at the time he received the property in question, he was neither aware, nor had any reason to suspect, that the debtor was insolvent. (2) (f) An insolvent’s right to earn and recover income relates only to lawful income. (2) (g) The solvent spouse must, within 7 days of service, lodge with the Master a statement of his/her affairs as at the date of sequestration, framed by the necessary requirements and verified by affidavit. (2) (h) With regard to a contract completed by an insolvent, a right to performance held by the estate lapses if the other party in good faith, and without knowledge of the sequestration, performs to the insolvent. (2) (i) Section 84(2) of the Insolvency Act, which deals with the returning of property sold in terms of an "instalment agreement" to the seller, is intended to enable the trustee to reclaim the property for the benefit of concurrent creditors. (2) (j) Regarding the meeting of creditors, the publication of any statement of affairs made at a meeting is priveleged to the same extent as the publication of a statement made in a court of law. (2) (k) The Master may remove a trustee from office on the ground that the majority of creditors has requested in writing that he be removed. (2) (l) The object of section 26 of the Insolvency Act is simply to prevent a person in insolvent circumstances from impoverishing his estate by giving away assets without receiving any appreciable advantage in return. (2) (m) In deciding whether a disposition was made in the ordinary course of business, an objective test is applied. (2) (n) In Estate Wege v Strauss 1932 AD 76 it was decided that although a wagering debt cannot be enforced in a court of law, it still creates a "natural obligation ". (2) (o) Compared to a common-law compromise, the main advantage of a statutory composition is that it does not depend on the consent (p) An application for rehabilitation is brought by way of notice of motion supported by affidavit. (2) (q) A sequestration of a partner’s estate, ipso iure, terminates the partnership.(2) (r) A creditors’ voluntary winding-up, unlike a members’ voluntary winding-up or voluntary winding-up by the company, will be resorted to where the company is unable to pay its debts. (2) (s) Section 7(k) of the Companies Act 2008 provides for "the efficient rescue and recovery of financially distressed companies, in a manner that balances the rights and interests of all relevant stakeholders". (2) (t) In voluntary business rescue, the board cannot pass a resolution if the company is already the subject of liquidation proceedings. (2) TOTAL QUESTION 1: [40] Question 2 Indicate whether the following statements are true or false and motivate the reason for your answer. 1. Once an order of or a provisional order of sequestration is granted, a concursus creditorum is established, and the interests of creditors as a group enjoy preference over the interests of individual creditors. (2) True. This is designed to ensure that whatever assets the debtor has, are liquidated and distributed among all his creditors in accordance with a predetermined and fair order of prefera 2. The "costs of sequestration" only include the costs of surrender. (2) False. It also includes all the general costs of administration. 3. The removal of property with intent to prejudice or prefer is not one of the listed grounds that may be deemed as "acts of insolvency" in terms of section 8 of the Insolvency Act 24 of 1936. (2) False. The intention of the debtor to prejudice his creditors or to give preference is important and is one of the listed grounds 4. The debtor may make a contract that purports to dispose of any property of his insolvent estate. (2) False. The debtor may not make a contract which purports to dispose of any property of his insolvent estate 5. The courts have held that the after-acquired estate of an insolvent debtor may never again be sequestrated. (2) False. This is due to sometimes the insolvent during the period of insolvency may acquire a new estate and hold it with another title, the after-acquired estate can in turn be sequestrated. 6. Section 21 of the Insolvency Act applies to all spouses married in community of property. (2) False. The provision applies only to marriages out of community of property. 7. As a general rule, sequestration suspends or puts to an end any contract which the insolvent had concluded. (2) False. As a general rule, sequestration does not suspend or put an end to the contract. 8. An insolvent may be interrogated at a special meeting convened for that purpose, provided the Master gives his consent. (2) True. With the master’s consent, the trustee may and if so required convene a special meeting for the purpose of interrogating the insolvent. 9. A disposition made in fraud of creditors may be set aside in terms of the common law. (2) True. These dispositions are set aside by means of the action Pauliana, in terms of the common law. 10. If movable property has been delivered to a debtor under an instalment agreement, the seller acquires ownership over the property, on sequestration. (2) True. This secures the claim for the balance outstanding under the contract. 11. In Ex parte Snooke 2014 (5) SA 426 (FB), the judge criticised the excessive legal fees charged but held that there was no abuse of the process of voluntary surrender. (2) False. The judge criticised the excessive legal fees charged and held that there was an abuse of the process of voluntary surrender. 12. An application to surrender a partnership estate must, as a rule, be brought by only one partner. (2) False. As a rule it must be bought by all the partners or their agents. 13. In the case of a voluntary winding-up of a company by the court, the court decides whether the company will be placed in liquidation. (2) True. It is the court that decides if the company will be placed in liquidation, if it is a winding – up by the court. 14. The court having jurisdiction to wind-up a close corporation is the court where the corporation’s registered office or main place of business is situated. (2) True. This could be either the High Court or magistrate’s court which has jurisdiction where the corporation’s registered office or main place of business is situated. 15. Section 44 of the previous Insurance Act 27 of 1943 restricted married women and men to a portion of the benefits of life insurance policies when their estate is sequestrated. (2) False. The previous insurance Act 27 of 1943 restricted married woman only and not men to a portion of the benefits of life insurance policies where the estate of the husband was sequestrated. TOTAL QUESTION 2: [30] Question 3 (a) Give reasons why a sequestration order may not be granted if a debtor has only one creditor or if there are not enough assets to cover the costs of sequestration. (3) There will be no conflicting interests between creditors which must be equitably resolved if there is only one creditor. Further, if the debtor’s assets are not sufficient to cover the cost’s of sequestration, there is no advantage to be derived from sequestration process to any creditors. In the caseas depicted above, sequestration would merely amount to a waste of time and money. (b) Tenza’s uncle and aunt, Mr and Mrs Badi, were married in community of property in 1991 and are now insolvent; explain, giving reasons for your answer, who may now apply for the voluntary surrender of their estate. (3) Voluntary surrender may be sought or applied for by Mr and Mrs Badi, as they were married in community of property in 1991 and are now insolvent. (c) The legislature has designed certain acts or omissions by a debtor as "acts of insolvency". If a creditor can establish that the debtor has committed one or more of these "acts of insolvency", he may seek an order sequestrating the debtor’s estate. Name two of these "acts of insolvency". (2) 1. The debtor gives notice in writing to any one of his creditor’s that he is unable to pay any of his debts. 2. Removal of property with the intent to prejudice or prefer. (d) Indicate, giving reasons, whether the following property falls into the insolvent estate: • Property inherited by a spouse to a marriage in community of property if the will contains a provision specifically excluding the property from any in community of property. (2) Yes. Property inherited by a spouse to a marriage in community of property forms part of the insolvent estate even if the will does contain a provision, as sequestration of a joint estate makes both spouses insolvent debtors. • The insolvent’s wearing apparel and bedding. (2) No . The insolvent may retain for his own use his wearing apparel and bedding as the creditors may determine. (e) In Harksen v Lane 1998 (1) SA 300 (CC) section 21 was challenged in the Constitutional Court. In this case, Harksen argued that section 21 infringed her rights in the equality guarantee in section 8 of Interim Constitution and the property guarantee contained in section 28 of the Interim Constitution (respectively sections 9 and 25 of the final 1996 Constitution). Provide the reasons why the Constitutional Court found that section 21 did not infringe section 28 of the Interim Constitutions. In your answer, only discuss the court’s reasons regarding section 28 of the Interim Constitution and not section 8. (7) In the judgement of the Court in Harksen v Lane 1998 (1) SA 300 (cc) was correct to find that section 21 of the Insolvency Act did not infringe the constitutional provisions. As there was a distinction between a deprivation of rights in property as set out by Section 28 (2) and an expropriation and therefore the court ruled that the section did not amount to expropriation as contended by the applicant. The temporary divestment of the solvent spouse was merely to ensure that the insolvent estate was not deprived of property it was entitled to. Adequate measures were also provided in Section 21 that innocent solvent spouses can get their property back. (f) Why must a trustee who has been found guilty of offences such as theft and fraud be removed from office? (2) Holding office as a trustee is a very important job and is incompatible with conduct such as theft and fraud where an element of dishonesty is present, as the assets of the insolvent vests in the trustee and he has to gather and preserve the assets of the insolvent debtor, realise them and divide the proceeds among the Creditors according to the provisions of the Act. A dishonest person cannot be in such a position of trust. (g) What must a plaintiff prove to succeed in bringing the actio Pauliana action? (4) To succeed in this action, the plaintiff must prove that: 1. The transaction diminished the debtor’s assets. 2. The person who received from the debtor, did not receive his own property. 3. There was intention to defraud. 4. The fraud took effect. (h) Explain why an insolvent applying for a declaratory order must notify the creditors of his intention to do so. (2) This is done to ensure that the creditors and trustees by making no claim to the asset have waivered whatever rights they might have to do it. (i) Name three instances when an insolvent company may be wound up by a court. (3) 1. Loss of Capital where 75 % of the issued share capital has been lost or become useless for the business. 2. Inability to pay it’s creditors. 3. Dissolution of external company. OCTOBER / NOVEMBER 2019 EXAMINATION PAPER AND ANSWERS QUESTION 1 - FILL IN THE BLANKS (a) The term "debtor" also embraces a partnership, even one whose members are all JURISTIC persons (2) (b) The free residue includes the balance of the proceeds of ENCUMBERED property after discharge of the encumbrances (c) A"liquidated claim " is a MONEY claim (2) (2) (d) An application for compulsory sequestration brought by a creditor who Is not at arm's length Is generally referred to as a " FRIENDLY “sequestration (2) (e) An insolvent may not without the written consent of the trustee carry on, beemployed in any capacity, or have any direct or indirect interest in the business of a TRADER who is a general dealer or manufacturer (2) (f) Dave Is a miner, and his right to a benefit or a GRATUITY or money paid to him as a miner, does not form part of his insolvent estate (2) (g) The solvent spouse must, within 7 days of service, lodge with the Master a statement of his/her affairs as at the date of sequestration, framed by the necessary requirements and verified by affidavit (2) (h) With regard to a contract completed by an insolvent, a right to performance held by the estate lapses If the other party in good faith, and WITHOUT knowledge of the sequestration, performs to the insolvent (2) (I) Section 84(1) of the Insolvency Act provides that, on the sequestration of the buyer's estate, the seller automatically acquires a HYPOTHEC over the res vend1ta, whereby the balance outstanding under the agreement 1s secured (2) (j) A general meeting cannot be convened solely for the purpose of “INTERROGATING witnesses” (2) (k) If the Master declines to confirm a party's election or to appoint him as trustee, he must notify theparty in WRITING and state the reasons for so declining (2) (l) The object of section 26 is simply to prevent a person in insolvent circumstances from impoverishing his estate by giving away assets without receiving any appreciable ADVANTAGE in return (m) If the other party to a collusive disposition is a CREDITOR, he forfeits any claim that he may have had against the estate (2) (n) Under section 29(1), the court may set aside a disposition which the insolvent made at any time before sequestration If he made the d1spos1t1on with the intention of preferring one of his creditors above another (2) (o) Comparedtoacommon-lawcompromise, themain advantageofastatutorycomposition is thatit does notdependonthe" PARTICIPATION” of all the creditors (p) Examples of factors which may persuade the court to refuse an order of rehabilitation are that the insolvent conducted his business in an improper and NEGLIGENT manner (q) A sequestration of apartner's estate, ipso ,ure, TERMINATES the partnership (2) (r) " WINDING UP "means, essentially, the procedure by which a compan y' s assets are sold, its debts are paid, and any money left over is divided amongst the shareholders according totheir rights (2) (s) Section 7(k) of the Companies Act 2008 provides for "the efficient rescue and recovery of financially distressed companies, in a manner that BALANCES the rights and interests of all relevant stakeholders" (2) (t) Thereisalwaystherisk thatbusinessrescue eproceedingsmaybe ABUSED by a company with noprospect of financial recovery to obtain a temporary relief from creditors (2) Question 2 Indicate whether the following statements are true or false a) An estate is usually conceived of as a collection of assets of a debtor for purposes of sequestration - FALSE - IT’S A COLLECTION OF ASSETS AND LIABILITIES b) The "costs of sequestration" only include the costs of surrender -FALSE c) The insolvency Act does not deprive a debtor of his contractual capacity generally and accordingly the retains a general competency to make binding agreements, but subject to certain restrictions on the debtor’s capacity - TRUE d) Property inherited by a spouse to amarriage in community of property forms part of the insolvent estate, unless the will contained a provision that specifically excluded the property from any community of property – FALSE e) Section 21 of the Insolvency Act 24 of 1936 contemplates an existing relationship between spouses If, prior to sequestration, the relationship between the spouses has been terminated, then section 211s not applicable – TRUE f) If a trustee elects to repudiate a contract, the opposite party can obtain an order of specific performance If he has performed his own obligations in full - FALSE. THE OPPOSITE PARTY IS PRECLUDED FROM OBTAINING AN ORDER OF SPECIFIC PERFORMANCE g) The Insolvency Act 24 of 1936 provides that the work office of the trustee is the only venue where the meetings of creditors must be held -FALSE. THE ACT MAKES NO PROVISION REGARDING THE VENUE h) Tosucceedin bringingtheact, ofPauliana(a disposition madeinfraudofcreditors), the plaintiff must prove that there was an intention to defraud - TRUE I) If movable property has been delivered to a debtor under an instalment agreement, the seller acquires, ownership over theproperty, on sequestration – TRUE j) An insolvent may apply for his rehabilitation after 12 months have elapsed from the confirmation by the Master of the first account m the estate. If the insolvent's estate has previously been sequestrated, period of three years from the date of confirmation of the first account must elapse before he can apply for rehabilitation - TRUE k) If the court sequestrates the estate of a partnership, It Is not bound to also sequestrate the private estate of every member of the partnership – FALSE-IT IS BOUND l) In Rand Air (pty) Ltd v Ray Bester Investments (Pty) Ltd 1985 (2) SA 345 0N) It was decided among other things, that a summons Is actually a demand as contemplated by section 345(1)(a) of the Companies Act - TRUE m) A close corporation cannot beplaced inbusiness rescue. -FALSE - IT CAN n) During the period of sequestration, only the Master may be compelled to appear to give information that he considers desirable about the insolvent or his estate or the administration of the estate or about any claim or demand against the estate F A L S E QUESTION 3 A) Discuss Magnum Financial Holdings (Pty) Ltd (in liquidation) v Summerly and another NNO 1984 (1) SA 160 (W) with reference to the following: (1) Give reasons why the court in Magnum Financial Holdings was satisfied that the applicants had made out a case for the relief sought (the urgent grant of a provisional sequestration order) (6) There had been sufficient service of the papers on the trustee of the trust. (Note that this was not a trustee in terms of the Insolvency Law, because the estate of the trust had not yet been sequestrated. Instead, the trustee was the trustee in terms of the law of trusts, who administered the trust property for the benefit of the trust beneficiaries.) The one provisional liquidator of the applicant company had locus standi to apply for the provisional sequestration of the trust estate. The applicant company had a claim against the trust for about R1,6 million which was due and payable. An act of insolvency in terms of section 8(g) of the Insolvency Act, 1936 had been committed, and the trust estate was also insolvent. It was to the advantage of the trust’s creditors that its estate be sequestrated urgently. Further, the necessary security bond had been duly lodged and also annexed to the court papers