Report: Review ofInsolvency Law, April 2000

555 Pages·2000·1.11 MB·English

To Dr P M Maduna, Minister for Justice and Constitutional Development
I have the honour to submit to you in terms of section 7(1) of the South African Law Commission Act,
1973 (Act 19 of 1973), for your consideration the Commission's report on the Review of the Law
of Insolvency.
pp Mr Justice I Mahomed
Chairperson
23 February 2000

INTRODUCTION
The South African Law Commission was established by the South African Law Commission Act, 1973
(Act 19 of 1973).
The members of the Commission are -
The Honourable Mr Chief Justice I Mahomed (Chairperson)
The Honourable Madam Justice Y Mokgoro (Vice-Chairperson)
Adv JJ Gauntlett SC
The Honourable Madam Justice M L Mailula
Mr P Mojapelo
Prof RT Nhlapo
Ms Z Seedat
The members of the Insolvency Project Committee are:
Present members
The Honourable Mr Justice R H Zulman Previous members
(Chairperson)
Mr N Coetzer Mr G G Smit (Chairperson)
Dr E M de la Rey Mr T G Bell
Prof M M Katz Mr A J Esterhuyse
Mr N Matlala Mr A Hyman
Mr S S Moodley Mr G P Volschenk
Mr B C Nell
Mr L F Pereira
The project leader is the Honourable Mr Justice R H Zulman. The researcher responsible for the
investigation is Mr M B Cronje.
The Secretary is Mr W Henegan. The Commission's offices are on the 12th floor, Sanlam Centre, cor
Schoeman and Andries Streets, Pretoria. Correspondence should be addressed to:
The Secretary Telephone: [phone]
South African Law Commission Fax: [phone]
Private Bag X668 E-mail: [email protected]
PRETORIA 0001 Internet: www.law.wits.ac.za/salc/salc.html
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SUMMARY
For the convenience of the reader a summary of the changes proposed in the Bill appear on page 14
below. Many of the changes are technical. The following are the more substantive changes:
1. Only a person who is a member of a professional body recognised by the Minister of Justice
may be appointed as liquidator (clause 53(1)(a)).
2. The discretion of the Master of the High Court to appoint a liquidator of his or her choice has
been limited in cases where creditors nominate or vote for a liquidator (clauses 32, 52, 54, 55, 58 and
60).
3. Liquidators may preside at meetings unless questioning is to take place at the meeting or an
interested party requests that the Master or a magistrate should preside (clause 41(3).
4. Resolutions can be adopted at the first meeting which is now convened by the initial liquidator
as soon as possible after his or her appointment and not by the Master (clause 38).
5. A creditor under a financial lease agreement is treated as a secured creditor and must prove
a claim (clause 76).
6. Many of the preferent claims (for instance for taxes) are abolished in terms of clause 80.
7. In respect of dispositions before liquidation that may be set aside, wider provisions apply to
associates of the insolvent than to other persons (clauses 18 and 20) and it is presumed for all
dispositions, until the contrary has been proved, that a debtor's liabilities exceeded his or her assets at
any time within three years before the liquidation of the estate (clause 25(2A)).
8. A cap of R200 000 has been placed on the exclusion of pension benefits from the insolvent
estate (clause 15(4)) and certain extraordinary contributions to pension funds may be recovered for the
benefit of creditors (clause 22).
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9. Provision is made for a binding composition between a debtor and a majority of creditors
without an application to declare a debtor's estate insolvent (Schedule 4).
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REPORT ON THE REVIEW OF THE LAW OF INSOLVENCY
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1 Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2 Guidelines for reform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3 General guidelines proposed by commentators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Role of the Master and others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Liquidation before all the assets have been dissipated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Sequestration without diminution of status and other matters revisited . . . . . . . . . . . . . . . . . 13
4 Summary of changes proposed in the Bill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Generating interest by creditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Measures to curb unfair advantage to some creditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Debtor's opportunity for a fresh start and duty to act honestly and assist
in winding up of estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Measures against dishonest or incompetent liquidators . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Constitutionality of provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Expedition of administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Partnerships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Voidable dispositions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Criminal sanctions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Simplification of formalities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Modern technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5 Uniform provisions for corporate and individual insolvencies . . . . . . . . . . . . . . . . . . . . 22
6 UNCITRAL Model Law on Cross-Border Insolvency. . . . . . . . . . . . . . . . . . . . . . . . . . . 23
7 Statutory provisions outside the Insolvency Act that benefit creditors . . . . . . . . . . . . . 23
8 Commentators who commented on Discussion Paper 86:
Draft Insolvency Bill and Explanatory Memorandum . . . . . . . . . . . . . . . . . . . 30
Explanatory memorandum on the Draft Bill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
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See Volume 2 for an index to the Bill
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