The Meaning of Advantage to Creditors under Voluntary, Compulsory and Friendly Sequestration in South Africa

AuthorHoward Chitimira - Thabang Terrance Mabina
PositionProfessor, Faculty of Law, North-West University, South Africa - LLM Candidate, Faculty of Law, North-West University, South Africa
Pages62-83
ACTA UNIVERSITATIS DANUBIUS Vol. 15, no. 2/2019
62
Howard CHITIMIRA
1
, Thabang Terrance MABINA
2
Abstract: The article discusses the advantage to creditors’ requirement in voluntary surrender,
friendly and compulsory sequestration in South Africa. This is done to, inter alia, examine the
meaning and application of the advantage to creditors’ requirement in sequestration proceedings in
South Africa. It is also done to comparatively discuss the burden of proof and th e court’s discretion in
relation to the advantage to creditors’ requirement in voluntary surrender, friendly and compulsory
sequestration proceedings. To this end, the article provides an overview analysis o f the meaning and
interpretation of the advantage to creditors’ requirement, the burden of proof and the po ssible
differences in the application of this requirement in the relevant sequestration proceedings.
Accordingly, the article provides a discussion of the possible challenges and the court’s discretion in
the adjudication and application of the advantage to creditors’ requirement in all sequestration
proceedings in South Africa.
Keywords: Voluntary surrender; compulsory sequestration; friendly sequestration; advantage to
creditors; court’s discretion
1. Introductory Remarks
Insolvency-related matters and all sequestration proceedings are regulated by the
Insolvency Act 24 of 1936 (“Insolvency Act”, see ss 3-25) in South Africa. No
application for the sequestration of the debtor or insolvent’s estate will be granted
unless if it is to the advantage of all creditors (ss 3; 6(1); 10(c) and 12(1)(c) of the
1
Professor, Faculty of Law, North-West University, South Africa, Address: Private Bag X2046,
Mmabatho, 2735, South Africa, Corresponding author: howard.chitimira@nwu.ac.za.
2
LLM Candidate, Faculty of Law, North-West University, South Africa, Address: Private Bag
X2046, Mmabatho, 2745, South Africa, Corresponding author: terrancemabina@gmail.com. This
article was influenced in part by Mabina’s LLB dissertation entitled LLB mini-dissertation entitled An
Analysis of the Malpractices Associated with Friendly Sequestration in South Af rica. In this regard,
he wishes to acknowledge the expert input of Prof H Chitimira.
AUDJ, Vol. 15, No. 2/2019, pp. 62-83
The Meaning of Advantage to Creditors
under Voluntary, Compulsory and
Friendly Sequestration in South
Africa
JURIDICA
63
Insolvency Act). This clearly shows that the advantage to creditors’ requirement is
crucially applicable to all sequestration proceedings in South Africa. Put
differently, the debtor in voluntary surrender and the sequestrating creditor or
friendly creditor in compulsory or friendly sequestration respectively, are obliged
to prove that the sequestration of the debtor and/or insolvent’s estate will be to the
advantage of creditors before the sequestration is granted by the courts (ss 6(1);
10(c); 12(1) (c) read with s 9 of the Insolvency Act). This indicates that the
advantage to creditors’ requirement plays a pivotal role in the preliminary
consideration and final adjudication of any application for the sequestration of the
debtor’s estate in South Africa (Loubser, 1997, p. 325; Amod v Khan 1947 2 SA
432 (N) 438, “Amod case”). Thus, the courts will not grant a sequestration order
that is inspired by other ulterior motives on the part of the applicant (Cohen v
Mallinick 1957 1 SA 615 (C) 621; R v Meer 1957 3 SA 641 (N) 619A).
In voluntary surrender, the debtor must prove to court that the sequestration will
actually be to the advantage of creditors (s 6(1) read with ss 3(1); 10(c) & 12(1)(c)
of the Insolvency Act; Burdette, 2002, p. 218). On the other hand, the sequestrating
creditor only needs to furnish proof to the court that there is a reason to believe that
the sequestration will be to the advantage of the general body of creditors in
compulsory sequestration (s 9(1) read with ss 8; 10(c) & 12(1)(c) of the Insolvency
Act; see further Pepler, 2013, pp. 15; 2126; Lynn & Main Inc v Naidoo 2006 1 SA
59 (N) (Naidoo case)). Likewise, under friendly sequestration, the debtor usually
commits an act of insolvency and request a family member, friend or an amicable
creditor to apply for its compulsory sequestration. Accordingly, the applicant or
petitioning creditor in friendly sequestration needs only to prove that there is a
reasonable belief that the sequestration will be to the advantage of creditors (s 9(1)
read with ss 8; 10(c) & 12(1)(c) of the Insolvency Act; Klemrock (Pty) Ltd v De
Klerk 1973 3 SA 925 (W) 927 (Klemrock case); Epstein v Epstein 1987 4 SA 606
(C) 610; Streicher v Viljoen 1999 3 All SA 257 (NC) 258; Van Rooyen v Van
Rooyen 2000 2 All SA 485 (SE) 490; Asheela, 2012, pp. 33-37). It is evident that
the advantage to creditors’ requirement is similarly applied in compulsory and
friendly sequestration (Asheela, 2012, pp. 33-37; Pepler, 2013, pp. 15, 19, 2126).
It is further indisputable that the advantage to creditors requirement is more
stringently applied in voluntary surrender than it is in compulsory and friendly
sequestration (Asheela, 2012, pp. 23-37; Temperman, 2014, p. 21; Pepler, 2013,
pp. 11-21; Boraine, & Roestoff, 2000, pp. 241-270). For instance, the debtor is
required to establish that there is actual advantage to creditors before the
application for voluntary surrender is accepted by the courts. On the contrary, the

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