The Requirement of Advantage to Creditors in South African Insolvency Law – a Critical Appraisal

Abstract

South African Insolvency law provides for voluntary surrender and compulsory sequestration. The Insolvency Act requires the insolvent debtor to satisfy the court that sequestration will be to the advantage of his or her creditors. Many insolvent debtors face a challenge to prove advantage of creditors as they do not have sufficient assets in their estates. For a creditor to succeed in sequestrating the insolvent estate, he or she must obtain both provisional and final sequestration orders. In granting a provisional sequestration order, the court must be of the opinion that prima facie there is reason to believe that it will be to the advantage of creditors of the debtor if his or her estate is sequestrated. Concerning a final sequestration order, the sequestrating creditor must satisfy the court that there is reason to believe that it will be to the advantage of the creditors of the debtor if his or her estate is sequestrated. The court has a duty to carefully scrutinise friendly sequestrations in order to protect the interest of creditors. At least the court must be satisfied that there are assets for the creditors to obtain a not negligible dividend. Even if there are no assets, the court can still grant the sequestration order, as the investigation and interrogation provided under Insolvency Act may reveal some assets. Poor debtors do not obtain sequestration orders as they cannot prove advantage to creditors if their estates are sequestrated. Society should assist individuals who use their talents and create jobs, even if they fail in the process. It is recommended that advantage to creditors should not be a requirement for sequestration.

Insolvency resolution and doing business reforms in BRICS Nations: A comparative study

“…There was no consensus on which Law-The Insolvency Act 1936 6 , the Companies Act 1973 7 , or a separate Act would govern insolvency matters, requiring reform or replacement, making judicial management and statutory corporate rescue procedures efficient and effective (Loubser 2007). Kanamugire (2013) discussed various provisions of the Insolvency Act 1936 that regulated sequestration of the estates of debtors benefiting creditors in the case of an insolvency proceeding under a court's order. The paper addressed how South Africa had a pro-creditor system of insolvency.…”