Question: (20 Marks)
Read the following statement and answer the question that follows:

There are a number of requirements that need to be fulfilled for a court to declare a debtor insolvent and award a sequestration order. A recurring motif and requirement in the Insolvency Act 24 of 1936 is that a voluntary or compulsory sequestration order, whether provisional or final, must be to the advantage of creditors. However, the phrase “advantage to creditors” is not defined in the Insolvency Act. Instead, the courts have, by way of interpretation, shed some light on the meaning of this phrase as envisaged by the legislature. Ordinarily, “advantage to creditors” refers to financial advantage. Interestingly, and recently, in Mercantile Bank Limited A Division of Capitec Bank Limited v Ross (henceforth referred to as the “Ross”), the court, following a purposive interpretation of the Insolvency Act, found that the compulsory sequestration order should be awarded despite the fact that the creditor failed to satisfy the court that sequestration of the estate of a debtor will bring some pecuniary benefit to the creditors.

Required:

With reference to compulsory sequestrations specifically, explain and evaluate the advantage to the creditors’ requirement in terms of the Insolvency Act with reference to applicable case law.

In your essay, you should, among other things, address the following:
• (a) In your introduction, highlight the essay question or topic and briefly set out the general requirements for a creditor/creditors to succeed with a compulsory sequestration.
• (b) With reference to relevant prescribed sources and/or relevant sources, define and explain the requirement that a sequestration order must be to the ‘advantage of creditors’.
• (c) With specific reference to the Ross case, consider and evaluate the court’s interpretation of the ‘advantage to creditors’ requirement.
• (d) Write a conclusion on what has been covered in the essay and consider how the ‘advantage to creditors’ requirement should be construed in law.

Answers to Above Questions on Law of Insolvency

Expert Answer: Introduction
In case of South African insolvency law, it is always a matter of discussion as to whether a debtor’s estate should be sequestrated or not. A creditor normally applies to the court foreign order that requires debtors to be declared as insolvent in cases of compulsory sequestration. However, there are several requirements that need to be fulfilled for such sequestration to succeed. Some of these requirements include:
1) applicant should be a creditor and the claim for liquidation should not be less than R100
2) that should be an act of insolvency on the part of the debtor
3) the advantage of sequestration is available to creditors.
This essay takes into account the ways in which the sequestration request is interpreted by the court with specific emphasis on Ross decision.
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