Assignment

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Contents Page
1. Cover Page…...……………………………………………………………………………………….1
2. Contents page……………………………………………………………………………….………..2
3. Question 1…………………………………………………………………………………….…….3-5
4. Question 2…………………………………………………………………………………………..6-8
5. Question 3…………………………………………………………………………………………9-11
6. Bibliography/Reference List………………………………………………………………………..12

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Question 1 – Letter

Mongae Attorneys
24 Gerhard Brummer Street
PO Box 1234
Biesiesvlei
0045
Tel: 045 874 2346
Fax: 045 235 4567

Our reference: 108/SAE/34

Mr. and Mrs. Peters
PO Box 254
Biesiesvlei
0045

12th March 2023

Dear Mr. & Mrs. Peters

Letter of advice: Voluntary Surrender of Estate

Surrender proceedings can be a complex and daunting process, requiring careful consideration
and planning. In this letter, I will provide advice on some of the most important aspects to consider
before commencing any surrender proceedings.

I confirm the facts as you provide them to me:

As Mr. and Mrs. Peters, you are married in community of property and jointly own a house located
in Bryanston, Gauteng. Mr. Peters is the sole proprietor of a small-batch beer company that bottles
and distributes beer. Your company employs three people and has no trade union. However, you
both are currently experiencing financial difficulties as a result of the recent increase in petrol
prices and the ongoing recession within South Africa. As a result, your monthly income decreased
from R150 000 to R100 000 in 2023. Furthermore, you have a monthly debt payment of R125
000 and are unable to pay off all your debts. As a result of your failure to repay some debts, Jars
(Pty) Ltd has attached a warrant of execution against your office and farm equipment.

Please read through these facts carefully and contact me if there are inaccuracies or important
omissions. My advice relies on the facts as relayed to me.

To begin, if you intend to surrender your estate, it is important for you to firstly get a date from the
court to establish when your proceedings will occur. The next step is to publish a notice of
surrender in the Government Gazette and a newspaper that circulates in the district where you
reside or where your business is located. Based on the information provided, it is understood that
both your residential and business addresses are located in the Johannesburg North magisterial

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district.1 In addition, the notification should closely resemble Form A in the First Schedule. This
implies that it should contain complete details such as your complete names, John Peters and
Sally Peters, your location which is Bryanston, Gauteng, and your profession which is owning a
small-batch beer company.2

It should be highlighted that a notice to surrender can have various consequences concerning a
warrant of execution. Once the notice is advertised in the Gazette, it becomes unlawful to sell any
asset that has been confiscated under a writ of execution or comparable procedure, except if the
seller was not aware of the publication.3 Ultimately, this implies that the warrant of execution
obtained by Jars (Pty) Ltd would become null and void.

It would be prudent of me at this time to draw your attention to the parties that need to be given
notice of the sequestration application. It is critical that you provide copies of the notice of
surrender to creditors and other parties within seven days of its publication.4

According to section 4(2)(a) of the Insolvency Act,5 you must first deliver or post a copy of the
notice to each of your creditors whose address you know or can ascertain. Based on the
information available to me, it seems that your creditors include New Bank Limited, James Peters
and Jars (Pty) Ltd.

It should also be emphasised that you are required to provide a copy of the notice to the three
employees who are employed at your business. This can be done by attaching a copy of the
notice to any bulletin board that is accessible to the employees within your premises.6 If the
employees cannot access the premises, another way to inform them is by attaching a notice copy
to the front gate. As per the Insolvency Act's Section 4(2)(b)(ii)(aa)-(bb), you additionally have the
option to attach a duplicate of the notice to the primary entrance of the property. 7

Furthermore, section 4(2)(b)(iii) of the Insolvency Act provides that you send a duplicate of the
notice to the South African Revenue Services through postal service.8

It is important to note that a court may accept your estate's surrender only if it is satisfied that your
estate is insolvent, you own a realizable property of sufficient value to cover all costs of the
sequestration, which will be paid out of the free residue of your estate, and the sequestration will
benefit creditors.9

First and foremost, it is clear that your estate is insolvent. Insolvency occurs when a debtor's
liabilities exceed the value of his assets. According to the information provided, your assets are
worth R7 100 000 and your liabilities are worth R7 315 000. This means that your liabilities exceed
your assets by R215 000. Furthermore, it is clear that you both own a valuable realizable property.
According to the information provided, you own a house worth R5 500 000 and a farm worth R200

1
Sharrock, R. Van Der Linde, K. Smith, A. Hockly’s Insolvency Law 9th ed (2022) 20.
2
Sharrock et al Hockly’s Insolvency Law 20.
3
Sharrock et al Hockly’s Insolvency Law 25.
4
Sharrock et al Hockly’s Insolvency Law 21-22.
5
Sharrock et al Hockly’s Insolvency Law 21-22.
6
Sharrock et al Hockly’s Insolvency Law 21-22.
7
Sharrock et al Hockly’s Insolvency Law 21-22.
8
Sharrock et al Hockly’s Insolvency Law 21-22.
9
Sharrock et al Hockly’s Insolvency Law 18.

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000. Sequestration is estimated to cost R50 000. As a result, it is evident that the value of your
property exceeds the cost of sequestration, and so this criteria is met.

The last requirement is that the sequestration be beneficial to creditors. To be beneficial to

creditors, sequestration must produce at least not a negligible dividend. There is no advantage if,
once the cost of sequestration is satisfied, there is no or only a small payment to creditors. 10
Having said that, if you take the value of your assets and minus the cost of sequestration, the
amount is R7 050 000. Your debts are valued at R7 318 000, based on the information provided.
If your estate is sequestrated, you will be able to provide a reasonable amount of money to your
creditors. Therefore, it can be said that the sequestration of your estate will benefit your creditors.

Overall, whether a court is likely to accept or reject an application for voluntary surrender will
depend on a careful assessment of all relevant factors.

I am confident that we can submit an application for the voluntary surrender of your estate and
have a strong likelihood of receiving court approval. I strongly advise you to contact our offices if
you require clarification on any of the aforementioned issues prior to the filing of your application.

Warm Regards,

Hannah Andrews
HANNAH ANDREWS

Word Count: 1 000

10
Sharrock et al Hockly’s Insolvency Law 43.

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Question 2 - Essay

Advantage to Creditors in South Africa

Introduction

According to section 12(1)(c) of the Insolvency Act, before any court can grant a final order of
sequestration, it must be satisfied that there is grounds to believe that sequestration will benefit
creditors.11 While this clause is meant to protect creditors from fraudulent claims, it presents a
significant challenge to many debtors who do not have the required assets to provide creditors an
advantage.12 This essay will examine the constitutionality of the provision advantage to creditors,
and assess its potential discriminatory effects on poor debtors.

Constitutionality of the Requirement Advantage to Creditors

As pointed out above, section 12 of the Insolvency Act require sequestration applications to be to
the advantage of creditors.13 This requirement is included in both voluntary surrender and
compulsory sequestration. However, in voluntary surrender applications, this requirement is
stricter as the debtor bears a stronger burden of proof to demonstrate that surrendering his estate
will be to the advantage of creditors.14 This distinction in favouring creditors leads to poorer
debtors being excluded from insolvency procedures.15

It was pointed out by Coetzee16 that the only way for such debtors to avoid debt slavery is to enter
into debt rearrangements through voluntary agreements with creditors. Coetzee, on the other
hand, accurately observes that these debtors are at a disadvantage in negotiations because they
cannot provide any monetary return to creditors.17

As compared to different kinds of debt relief, the advantage of sequestration proceedings is that
they eventually give the insolvent debtor a fresh start in his financial situation following
rehabilitation. Yet, as previously stated, the advantage to creditors-requirement has led to an
abuse of both voluntary and compulsory sequestration proceedings.18

The status of debtors, particularly those with no income and no assets, has received little
consideration in South African insolvency law. This is due to the requirement under the law that
creditors be given precedence before an individual's estate may be sequestrated. Unless the
Insolvency Act is amended, this will continue to be the case. While the current economic situation
may elicit sympathy for debtors whose financial burden has become too great to bear, insolvency

11
“Evans, R “Waiving of rights to property in insolvent estates and advantage to creditors in sequestration proceedings in South Africa”
2018 De Jure Law Journal (2) 298-317 at http://www.saflii.org/za/journals/DEJURE/2018/20.html [Accessed 20th March 2023].”
12
“Kanamugire, J “The Requirement of Advantage to Creditors in South African Insolvency Law – a Critical Appraisal” 2013
Mediterranean Journal of Social Sciences (4) 19-36 at: file:///C:/Users/edgetec/Downloads/1484-5885-1-PB.pdf [Accessed 20th
March 2023]”.
13
“Evans ‘Waiving of rights to property in insolvent estates and advantage to creditors in sequestration proceedings in South Africa’.”
14
Singini, A “The Advantage to Creditors under the Insolvency Act 24 of 1936” January 2020 website at:
https://repository.up.ac.za/bitstream/handle/2263/77435/Singini_Advantage_2019.pdf?sequence=1&isAllowed=y [Accessed 20th
March 2023].
15
“Evans ‘Waiving of rights to property in insolvent estates and advantage to creditors in sequestration proceedings in South Africa’.”
16
Coetzee, H “A Comparative Reappraisal of Debt Relief Measures for Natural Person Debtors in South Africa” September 2015
website at: https://repository.up.ac.za/bitstream/handle/2263/52372/Coetzee_Comparative_2015.pdf?sequence=1 [Accessed 20th
March 2023].
17
“Evans ‘Waiving of rights to property in insolvent estates and advantage to creditors in sequestration proceedings in South Africa’.”
18
“Evans ‘Waiving of rights to property in insolvent estates and advantage to creditors in sequestration proceedings in South Africa’.”

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law seeks to protect the interests of creditors to the extent that a minimum advantage must be
ensured for the concurrent creditor when the hand of the law is laid on the insolvent estate.19

Yet, the difficulty of certain debtors being denied access to sequestration proceedings has raised
the question of whether the "advantage" requirement, which underpins the whole South African
insolvency regime, is unconstitutional.20

Evans, according to Coetzee, first raised the possibility of unconstitutionality of the apparent
differentiation that exists in South African insolvency law.21 He added that, while the Insolvency
Act does not provide for different classes of debtors to be treated differently based on changing
or varied circumstances, the requirement of advantage to creditors does distinguish between
debtors who can provide some financial benefit to creditors and those who cannot.22 This begs
the question of whether current legislation has created a door for these poor debtors to challenge
the legitimacy of their situation.23

In an informative analysis, Coetzee explains that while evaluating the validity of South Africa's
insolvency regime, the right to equality, which is enshrined in both the Constitution and the
Promotion of Equality and Prevention of Unfair Discrimination Act, must be examined.24

She claims that the concept of equality is a challenging and contentious societal goal. She also
claims that all insolvent natural persons face the identical dilemma of being unable to pay their
debts and the resulting socio-economic consequences. Yet what she finds dissimilar is these
individuals' ability to pay back their debts in varied conditions. As a result, she calls into question
the concept of debtor equality in the framework of insolvency law.

In Harksen v Lane NO,25 the Constitutional Court examined whether a violation of the right to
equality had occurred in three steps. When applying these steps to the limited access to South
African debt relief measures, Coetzee feels comfortable arguing that the broader natural person
insolvency system at the very least distinguishes between categories of people, such as those
who have something to offer creditors, be it assets or income, and those who do not.26 This is due
to the fact that the 'haves' have access to the system via one of the three statutory debt relief
mechanisms, while the 'have nots' are barred from any kind of statutory remedy. One could claim
that this distinction qualifies as discrimination based on the mentioned basis of 'social origin,'
which includes 'class' and can be utilised to remedy unfair discrimination based on socio-
economic status. If the exclusion is based on this premise, discrimination and unfairness will be
imputed, shifting the burden to the respondent.27

19
“Evans ‘Waiving of rights to property in insolvent estates and advantage to creditors in sequestration proceedings in South Africa’.”
20
“Evans ‘Waiving of rights to property in insolvent estates and advantage to creditors in sequestration proceedings in South Africa’.”
21
Coetzee, H “A Comparative Reappraisal of Debt Relief Measures for Natural Person Debtors in South Africa”.
22
Lesenyeho, N “Constitutionality of the advantage to creditors requirement and a comparative investigation in insolvency law” January
2017 website at:
https://repository.up.ac.za/bitstream/handle/2263/62544/Lesenyeho_Constitution_2017.pdf?sequence=1&isAllowed=y [Accessed
20th March 20023].
23
“Evans ‘Waiving of rights to property in insolvent estates and advantage to creditors in sequestration proceedings in South Africa’.”
24
“Evans ‘Waiving of rights to property in insolvent estates and advantage to creditors in sequestration proceedings in South Africa’.”
25
1998 (1) SA 300 (CC).
26
“Evans ‘Waiving of rights to property in insolvent estates and advantage to creditors in sequestration proceedings in South Africa’.”
27
“Evans ‘Waiving of rights to property in insolvent estates and advantage to creditors in sequestration proceedings in South Africa’.”

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Coetzee, on the other hand, considers it problematic that the word "social origin" has yet to be
judicially defined. She therefore takes a more cautious approach by acknowledging that socio-
economic status, in the present context, may not definitely resort under "social origin". Coetzee
expands on the issue of "socio-economic status," stating that the ultimate constitutional question
must be whether established unfair discrimination can be justified under the limitations clause.28

For the time being, it is sufficient to concur with Coetzee's conclusion that the initial constitutional
investigation shows that the broader insolvency system would fail a constitutional challenge. Yet
the point that must be stated is that the policy of advantage to creditors, on which the South
African insolvency system is built, is undoubtedly vulnerable to constitutional scrutiny and may
even be found to violate some constitutional requirements. Much evidence is documented in court
decisions and academic writing to illustrate that desperate 'poor' creditors attempt to avoid the
advantage policy by misusing court procedures in both voluntary and compulsory sequestration
procedures.29

Conclusion

In conclusion, while there are legitimate concerns about the constitutionality of the requirement
advantage to creditors in South Africa, it is ultimately up to legislators and legal experts to
determine how to best balance these concerns with the need for a fair and equitable system of
insolvency law.

Words: 998

28
“Evans ‘Waiving of rights to property in insolvent estates and advantage to creditors in sequestration proceedings in South Africa’.”
29
“Evans ‘Waiving of rights to property in insolvent estates and advantage to creditors in sequestration proceedings in South Africa’.”

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 Question 3 – Office Memorandum

TO: Ms Veronica Mongae

FROM: Hannah Andrews
RE: Compulsory Sequestration Proceedings
Date: 12th March 2023

I. Statement of Facts
Mr. & Mrs. Peters are married in community of property. Mr. Peters is the sole proprietor of
a business that bottles and distributes beer. However, both Mr. and Mrs. Peters are currently
experiencing financial difficulties as a result of the recent increase in petrol prices and the
ongoing recession in the country. They now have a monthly debt payment of R125 000 and
are unable to pay off all their debts. As a result of their failure to repay some debts, Jars
(Pty) Ltd has attached a warrant of execution against their office and farm equipment. Due
to this, the Peters decided to voluntarily surrender their estate and publish a notice of
surrender, but after the notice was published, they ultimately chose not to continue with the
application.

II. Question Presented

Can Jars (Pty) Ltd proceed with compulsory sequestration proceedings against the Peters?

III. Short Answer

Yes, Jars (Pty) Ltd can proceed with compulsory sequestration proceedings against the
Peters.

IV. Applicable Law

Requirements for Compulsory Sequestration
Section 6 of the Insolvency Act
If the court is satisfied that the applicant has established a claim that entitles him to apply for
the debtor's estate, the debtor committed an act of insolvency or is in fact insolvent, and
there are grounds to believe that sequestration of the debtor's estate will benefit his creditors,
the court may grant an application for the sequestration of the debtor's estate.30 If a court
rejects the surrender of a debtor's estate, or if the petitioner withdraws the notice of surrender
as per section 7, or if the petitioner does not file an application for accepting the surrender
within 14 days of the notice of surrender, then the notice of surrender will lapse.31

Section 9(1) of the Insolvency Act

Section 9(1)32 enables a creditor with a liquidated claim against a debtor, for not less than
R100, to institute proceedings for the compulsory sequestration of the debtor's estate.33

30
Sharrock et al Hockly’s Insolvency Law 33.
31
S 6(2) of 24 of 1936.
32
24 of 1936.
33
Sharrock et al Hockly’s Insolvency Law 34.

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 Acts of Insolvency or is Insolvent
Furthermore, every creditor of the debtor has the right to petition for sequestration if the
debtor commits an act of insolvency. According to section 7(1),34 once a notice of
surrender is published in the Gazette, it cannot be withdrawn without the Master's written
consent.35 The debtor may request the Master for his consent, and the Master is required to
grant it if it appears to him that the notice was published in good faith and there is good
cause for its withdrawal.36 The notice of surrender shall be deemed withdrawn upon the
publishing, at the applicant's expense, of a notice of withdrawal and the Master's consent
thereto in the Gazette and in the newspaper in which the notice of surrender appeared.37

It is important to note that, according to section 8(f),38 if after publishing a notice of surrender
of his estate that has not lapsed or been withdrawn in accordance with sections 6 or 7, he
fails to comply with the requirements of section 4(3) or lodges, a statement that is incorrect
or incomplete in any material respect, or fails to apply for the acceptance of the surrender of
his estate on the date specified on the notice as the date to which such application is to be
made, this will be regarded as an act of insolvency.39

Furthermore, rather than relying on the debtor's act of insolvency, the sequestrating creditor
may further rely on the fact that the debtor's estate is insolvent, i.e. that his liabilities exceed
his assets.40

Advantage to Creditors
In addition, according to section 12(1)(c) of the Insolvency Act, before the court may grant a
final order of sequestration, it must be satisfied that there are grounds to think that
sequestration will benefit creditors. Sequestration is generally thought to provide no benefit
to creditors unless the debtor's assets are worth more than the expected cost of
sequestration.41

V. Application of law to the facts

Jars (Pty) Ltd does, objectively, have a liquidated claim against the Peters. According to the
given facts, their claim is worth R600 000, for the supply of goods, which is more than the
amount specified under section 9(1).42

Furthermore, if the Peters do not validly withdraw their notice of surrender in accordance
with the Act, or if they fail to apply for the acceptance of their surrender within 14 days, their
notice of surrender will lapse and this will ultimately be considered an act of insolvency.43

34
24 of 1936.
35
Sharrock et al Hockly’s Insolvency Law 26.
36
Sharrock et al Hockly’s Insolvency Law 26.
37
S 7 of 24 of 1936.
38
24 of 1936.
39
Sharrock et al Hockly’s Insolvency Law 26.
40
Sharrock et al Hockly’s Insolvency Law 40.
41
Sharrock et al Hockly’s Insolvency Law 43-44.
42
24 of 1936.
43
S 8(f) of 24 of 1936.

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 Jars (Pty) Ltd would therefore have the right to file a petition for sequestration against the
Peters.

It is also worth noting that Jars (Pty) Ltd could also rely on the fact that the Peters estate is
insolvent. Based on the given facts, the Peters assets are worth R7 100 000 and their
liabilities are worth R7 315 000. This indicates that their liabilities do in fact exceed their
assets by R215 000. If Jars (Pty) Ltd relies on an act of insolvency and is unable to establish
that it was committed, but it is clear the Peters are in fact insolvent, the court may then grant
an order of final sequestration on the latter ground.

Additionally, in order for the sequestration to be to the advantage to creditors, it is necessary

to first examine the Peter's assets and the cost of sequestration. The assets of the Peters
are valued at R7 100 000 while the cost of sequestration is valued at R50 000. Sequestration
is generally thought to provide no benefit to creditors unless the debtor’s assets are worth
more than the excepted cost of sequestration. Jars (Pty) Ltd, as a creditor, stands to benefit
from the fact that the Peters assets surpass the anticipated cost of sequestration. On this
basis, the court may then grant a final order of sequestration.

VI. Summary and Recommendation

Assuming that we will be able to prove the facts as set out above, Jars (Pty) Ltd should be
able to proceed with compulsory sequestration against the Peters, as all the requirements
have thus been met.

Words: 1 000

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Bibliography/Reference List

Legislation

Insolvency Act 24 of 1936

Case Law

Harksen v Lane NO 1998 (1) SA 300 (CC)

Books

Sharrock, R. Van Der Linde, K. Smith, A. Hockly’s Insolvency Law 9th ed (2022) JUTA: Cape
Town.

Journal Articles

“Evans, R “Waiving of rights to property in insolvent estates and advantage to creditors in

sequestration proceedings in South Africa” 2018 De Jure Law Journal (2) 298-317 at
http://www.saflii.org/za/journals/DEJURE/2018/20.html [Accessed 20th March 2023].”

Kanamugire, J “The Requirement of Advantage to Creditors in South African Insolvency Law – a

Critical Appraisal” 2013 Mediterranean Journal of Social Sciences (4) 19-36 at:
file:///C:/Users/edgetec/Downloads/1484-5885-1-PB.pdf [Accessed 20th March 2023]”.

Website

Singini, A “The Advantage to Creditors under the Insolvency Act 24 of 1936” January 2020
website at:
https://repository.up.ac.za/bitstream/handle/2263/77435/Singini_Advantage_2019.pdf?sequenc
e=1&isAllowed=y [Accessed 20th March 2023].

Coetzee, H “A Comparative Reappraisal of Debt Relief Measures for Natural Person Debtors in
South Africa” September 2015 website at:
https://repository.up.ac.za/bitstream/handle/2263/52372/Coetzee_Comparative_2015.pdf?sequ
ence=1 [Accessed 20th March 2023].

Lesenyeho, N “Constitutionality of the advantage to creditors requirement and a comparative

investigation in insolvency law” January 2017 website at:
https://repository.up.ac.za/bitstream/handle/2263/62544/Lesenyeho_Constitution_2017.pdf?seq
uence=1&isAllowed=y [Accessed 20th March 20023].

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