MRL3701 - Insolvency Law summary

MRL3701 - Insolvency Law summary S`tudy unit 1INTRODUCTION TO INSOLVENCY LAW Identify the problem faced by the court in Magnum Financial Holdings. The only problem before the court was whether a trust could, at law, be s ...

MRL3701 - Insolvency Law summary S`tudy unit 1INTRODUCTION TO INSOLVENCY LAW Identify the problem faced by the court in Magnum Financial Holdings. The only problem before the court was whether a trust could, at law, be sequestrated. Summarise the authority which the court relied on to solve the problem which it faced. No South African case seemed to have dealt with whether a trust could be sequestrated in terms of section 9(1) read with the definition of “debtor” in section 2 of 16 the Insolvency Act. Therefore the court relied on Ex parte Milton NO 1959 (3) SA 347 (SR). In that case, the Southern Rhodesian court, interpreting a similarly worded section of the Rhodesian statute, approved the voluntary surrender of the estate of an administrative trust created by contract. The trust fell within the definition of a “debtor” and could be described as a debtor in the usual sense of the word. Through its trustee, the trust could borrow money and, as a property owner, be liable for rates and taxes. Creditors would be paid only from the trust’s property. The trustee was not personally liable for debts which he incurred on the trust’s behalf. A concursus creditorum could not be established by sequestrating the estates of the donor of the trust property, the trust beneficiaries, or the trustee. By way of comparison, the Rhodesian court also relied on South African decisions concerning a club which owned property apart from its members, who were not liable for its debts beyond the amount of their subscriptions. Such a club was a debtor within the meaning of the Insolvency Act, and its estate could therefore be sequestrated. Explain the common-law meaning of the phrase “any body corporate”. The court gave the common-law meaning of “any body corporate” as an association of individuals capable of holding property and of suing and being sued in its corporate name, or a universitas having the capacity to acquire certain rights apart from the rights of the individuals which form it, and having perpetual succession (ie, continuous existence). (1) Explain the main purpose of a sequestration order in respect of Tenza’s estate. (2) The main purpose of a sequestration order is to ensure the orderly and fair distribution of a debtor’s (Tenza’s) assets if his assets are not sufficient to pay all his creditors in full. (2) 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) If a debtor has only one creditor, there are no conflicting interests between creditors which must be equitably resolved. If the debtor’s assets are not sufficient to cover the costs of sequestration, creditors will derive no advantage from the process of sequestration. Consequently, in such a case sequestration would merely amount to a waste of time and money. (3) Explain whether a debtor whose estate is under sequestration may obtain a new estate which does not form part of the sequestrated estate. (2) Because some assets which a debtor has or acquires do not form part of his insolvent estate, it is indeed possible to build up a new estate which does not form part of the estate under sequestration. (4) Suppose that Bonzo Ltd is a British company which owns property which is lying in awarehouse in Cape Town harbour. Bonzo Ltd does not, however, have a place ofbusiness in South Africa. (a) Briefly explain whether the Western Cape High Court, Cape Town hasjurisdiction to liquidate Bonzo Ltd. (2) Because Bonzo Ltd does not have a place of business in South Africa, a