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

• Author: Howard Chitimira - Thabang Terrance Mabina
• Position: Professor, Faculty of Law, North-West University, South Africa - LLM Candidate, Faculty of Law, North-West University, South Africa
• Pages: 62-83

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; 21–26; 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, 21–26).

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