Insolvency

CHAPTER 10
 1 INTRODUCTION

 Just like the prodigal, the insolvent is a person with normal mental abilities. Also, as in the case of the prodigal, a court order
can limit the capacities of an insolvent. A declaration of insolvency by the High Court is therefore also a status determining
factor. It is, in fact, the court order which influences the status of the insolvent person.

 It can be said that the declaration of insolvency, in general, takes away a person's capacity to perform certain acts and to hold
certain offices. These limitations should not be seen as punishment of the insolvent, but as measures to protect the public.
 Simply put, an insolvent is a person who is unable to settle all of his or her debts because of the fact that his or her liabilities
exceed his or her assets.
 2 THE EFFECT OF INSOLVENCY ON
CAPACITY TO ACT

 A sequestration order result's in the insolvent losing control of his or her estate, but does not, as a rule, affect his or her
capacity to act. This simply means that the insolvent can, with certain exceptions, perform any legal act. He or she may not
dispose of any assets in the insolvent estate. In the case of Umzinyathi District Municipality v Transglobe Industrial Holdings
Limited, the Court confirmed that if an application is brought to declare a person insolvent, a successful counter-application
would have the effect of the respondent being declared solvent. The Insolvency Act also provides for certain contracts that can
only be concluded with the consent of the insolvent's curator:
 Contracts which are likely to have an adverse or seemingly adverse effect on the insolvent estate; and
 Contracts that have any relation to the business of a general dealer or manufacturer.

 Davel and Jordaan, correctly so, come to the conclusion that the insolvent only has, in these circumstances, limited capacity to
act. Should he or she conclude a contract in contravention of these provisions, the contract will be voidable at the choice of
the insolvent.
 3 THE EFFECT OF INSOLVENCY ON
CAPACITY TO LITIGATE

 According to section 23(6) of the Insolvency Act, all civil proceedings against an insolvent's estate are stayed. It is irrelevant
whether the proceedings were instituted by or against the insolvent. The Act, however, in section 23(6), makes express
provision for certain circumstances in which the insolvent will retain his or her capacity to litigate. Such cases include:
 Cases in which the dispute has an effect on the insolvent's status or on any right which does not affect the insolvent's estate.
 Actions concerning defamation or personal injury.
 Cases in which the dispute arises from a juristic act into which the insolvent was competent to enter.
 Actions to recover pension to which the insolvent is entitled.
 Voget v Kleynhans 2003 2 SA 148 (C), where the Court expressed itself as follows on 153 footnote 434:
Sequestration does not deprive an insolvent of his/her locus standi other than in those instances mentioned in s 23(6) of the Act. The
deprivation of an insolvent’s locus standi is a consequence of the fact that his or her estate vests in his/her trustee who exercises all
rights in respect of the property comprising it. … Where, however, an insolvent’s trustee refuses to institute proceedings against a
debtor of an insolvent estate for the recovery of any benefit to which the insolvent estate is entitled, the right of an insolvent, by virtue
of his or her reversionary interest in the insolvent estate, is recognised by our courts.
 4 THE EFFECT OF INSOLVENCY ON
LEGAL CAPACITY

 A person's legal capacity is influenced by a declaration of insolvency. While an insolvent may follow any profession or
occupation, he or she may not carry on the business of a general dealer or manufacturer, or be employed or have an interest
in such a business. The insolvent may also not hold certain offices. He or she may, for example, not be the curator of an
insolvent estate or hold a liquor license, and may only act as the director of a company with permission from the High
Court.
Good Luck for the TEST!!!