The effect of sequestration on the property of the insolvent

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Collection and protection of assets

To assist the trustee in his initial duty to identify and to preserve the assets of the insolvent debtor, the Act provides for the divesting of the insolvent debtor of his estate and the vesting thereof in the Master and, upon his appointment, in the trustee.11 This divestiture deprives the insolvent of control over all his property immediately after the sequestration order has been granted. The Court of Appeal has ruled that a sequestration order causes the insolvent debtor’s estate to pass in ownership first to the Master and ultimately to the trustee.12 However, it is debatable whether the divestiture of his estate deprives the insolvent of all his rights thereto. In Mears v Rissik,13 for example, it was said that:
The law provides that if there is any residue after paying the debts it is to be handed to the insolvent. Not only so, but it is to his interest that as many assets as possible shall be brought into the estate, and the debts reduced to their proper limits. He has an interest in seeing that it is done. An asset may suddenly become valuable which has been considered worthless, or he may have a legacy left to him which may enable him to clear off all his liabilities. Apart from that it is to the interest of the insolvent that his assets should be increased and his liabilities reduced, because in that way the stigma of insolvency rests less heavily upon him; and when he applies for his rehabilitation he is in a better position than if he had a very large margin of unpaid debts. Therefore from whatever standpoint we regard it the insolvent has a very real interest in the administration of his estate. On this point Smith stated that the insolvent retained a vital reversionary interest in his insolvent estate.14 The Act contains a number of provisions that serve to facilitate the trustee in his task of collecting the assets of the insolvent debtor and administering the insolvent estate. To begin with, a copy of the final sequestration order is served on the insolvent, and if he is married out of community of property, also on his spouse.
Furthermore, the Act directs the Registrar of the Court who granted the sequestration order to provide a copy of the order to the Master, to the deputy sheriff of every district in which the insolvent resides or owns property, to every officer charged with the registration of immovable property in the Republic of South Africa, to an officer in charge of a register of ships, and to every sheriff of the court who holds under attachment any property of the insolvent.16 When receiving such an order, such officer must register it and note on it the day and hour when it was received in his office.17As soon as any officer charged with the registration of title to any immovable property in the Republic receives such an order or certificate, he must enter a caveat against the transfer of all immovable property or the cancellation or cession of any bond registered in the name of, or belonging to, the insolvent. If the sequestration order or the certificate also contains the name of the spouse of the insolvent, he must also enter such caveat in respect of the spouse.18 This section of the Act serves to prevent the improper transfer of immovable property out of an insolvent estate or the cancellation or cession of any bond. As soon as the sheriff has received a sequestration order, he must attach and make an inventory of the movable property of the insolvent estate that is in his district, which can be manually delivered and which is not in the possession of a person who claims to be entitled thereto under a right of pledge, a right of retention or under attachment by a messenger.19 The sheriff’s duties include his taking into custody all documentation and records relating to the affairs of the insolvent, as well as cash, share certificates, bonds, bills of exchange, promissory notes and other securities, and remit all such cash to the Master.20 Movable property other than animals must be left by the sheriff in a suitable place, properly sealed up, or he must appoint a suitable person to hold any movable property in his custody.21 He must hand to the person appointed a copy of the inventory, with a notice that the property has been attached by virtue of a sequestration order. This notice must contain a statement that it is an offence under section 142 of the Act to remove, conceal or dispose of property to defeat an attachment.22 The sheriff must make a detailed list of all the books and records attached, and note thereon any explanation given by the insolvent in respect thereof or in respect of any books or records relating to his affairs that the insolvent is unable to produce.23 If the insolvent is present, the sheriff must ask him whether this list is a complete list of the books and records relating to his affairs and his reply must be recorded

The meaning of the term “property”

“Property” in the context of the administration of an insolvent estate has a relatively broad meaning. It includes movable or immovable property wherever situated within the Republic, including contingent interests in property other than the contingent interest of a fideicommissary heir or legatee.28 It is a wider definition of property than that under the common law.29 In respect of property in insolvent estates, the Constitution of the Republic of South Africa30 may also have an important impact; possibly broadening the meaning of property even further. Should this happen, it may mean that greater quantities of assets of different classes find their way into insolvent estates. Then, depending on the class of asset, the presence thereof in the insolvent estate could be advantageous to either the creditors, by swelling the estate, or to the debtor, as an asset in the guise of an excluded or an exempt asset for the benefit of the debtor.
For example, to determine whether a constitutional right to property in an insolvent estate has been infringed, the meaning of “property” as envisaged by section 25 of the Constitution must be considered. This will determine the scope of the rights protected by that section, after which one can enquire whether a particular class of property in the insolvent estate will be afforded constitutional protection. Here Currie31 says there are at least three possible meanings to the term “property”. The constitutional property clause may, firstly, refer to physical property, such as land, houses and cars. Secondly, he says it may the set of legal rules that regulate relationships between individuals and physical property, in other words, the common law property rights. So, he says, property rights such as ownership, and the elements that make up ownership, such as the right to dispose of property, is the property protected by the clause. Currie says a third possibility is that the term could pertain to any relationship or interest having an exchange value.32 The courts, Currie states, will be guided by the existing scope of property law when interpreting the term, thus property is what is accepted as such in existing law. So property in section 25 appears to fall within the second meaning above, being property as rights.33 But Currie says that accepting that property means rights in property does not eliminate the difficulty in determining the scope of the term, and that property envisaged by section 25 should be seen as “those resources that are generally taken to constitute a persons wealth, and that are recognised and protected by law”. They are protected by private law rights, namely real rights in respect of physical things, contractual rights for performances and intellectual property rights in respect of intellectual property.36 It is not inconceivable, it is submitted, that property of a new or unidentified character can emerge. Related to this idea, for example, is Currie’s observation that in the modern state an important channel of wealth is “interests in government largesse”, which includes a right to medical aid schemes, and to state pensions, jobs and contracts. Most of these public law rights, he says, should receive property clause protection as they have the character of property.37 If these rights of the individual are taken over without compensation, or arbitrarily interfered with, the individual can rely on section 25 for protection.


Chapter I: General Introduction 
Chapter 2: Roman Law 
2.1 Introduction
2.2 Legal redress in the Roman Law of civil procedure
2.3 Procedures of execution
2.4 Bankruptcy: The objects of execution in Roman Law
2.5 Conclusion
Chapter 3: Roman Dutch Law 
3.1 Introduction
3.2 General
3.3 Property of the estate
3.4 The Amsterdam Ordinance of 1777
3.5 Exemptions under the Ordinance
3.6 Conclusion
Chapter 4: A brief historical overview of the South African insolvency law 
4.1 Introduction
4.2 Ordinance 64 of 1829
4.3 Ordinance 6 of 1843 (Cape Ordinance)
4.4 Transvaal Insolvency Act 13 of 1895
4.5 Insolvency Act 32 of 1916
4.6 The Insolvency Act 1916 Amendment Act 29 of 1926
4.7 The Insolvency Act 24 of 1936
4.8 Conclusion
Chapter 5: United Kingdom 
5.1 Brief historical overview
5.2 Insolvency reform in the United Kingdom as envisaged by the Cork Report
5.3 The Insolvency Act of 1986
5.4 Conclusion
Chapter 6: United States Bankruptcy 
6.1 Introduction
6.2 A brief history of bankruptcy law in the United States of America
6.3 Policies of American bankruptcy law
6.4 United States bankruptcy law today
6.5 The bankruptcy estate
6.6 Excluded and exempt property
6.7 Conclusion
Chapter 7: The effect of sequestration on the property of the insolvent 
7.1 Introduction
7.2 Collection and protection of assets
7.3 The meaning of the term “property”
7.4 The proprietary status of the assets of the insolvent estate
7.5 Conclusion
Chapter 8: Property acquired during sequestration 
8.1 Introduction
8.2 Property that may accrue to the insolvent during his sequestration in the nature of inheritances and insurance benefits
8.3 Conclusion
Chapter 9: Property excluded or exempted from the insolvent estate  
9.1 Introduction
9.2 Property excluded or exempted by the Insolvency Act
9.3 Exclusion or exemption of property by insurance legislation
9.4 Other legislative and common law provisions
9.5 Conclusion
Chapter 10: The effect of sequestration on the property of the spouse of the insolvent 
10.1 Introduction
10.2 Marriages in community of property
10.3 Conclusion
Chapter 11: The impact of the South African Constitution on selected problem areas in respect of assets in insolvent estates  
11.1 Introduction
11.2 Insurance policies
11.3 Section 21 of the Insolvency Act
11.4 Section 26 of the Constitution: The right to adequate housing
11.5 The rights of children
11.6 Conclusion
Chapter 12: Law reform 
12.1 Introduction
12.2 The Draft Bill
12.3 Proposals in respect of included property, and excluded or exempt property in the Draft Bill
12.4 Matrimonial property
12.5 Conclusion
Chapter 13: Conclusion 
13.1 General
13.2 Problems and pitfalls in South African law
13.3 Proposals for law reform
Newspaper article and internet sites
Draft Bills and reports.


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