Effect upon the Insolvent and his Property (ss 20-24)

20.     Effect of sequestration on insolvent's property

            (1) The effect of a sequestration order shall be-

     (a)     to divest the insolvent of his estate and to vest it in the Master until a trustee has been appointed, and, upon the appointment of a trustee, to vest the estate in him;

     (b)     to stay, until the appointment of a trustee, any civil proceedings instituted by or against the insolvent except such proceedings as may, in terms of this Act, be instituted by the insolvent for his own benefit or be instituted against the insolvent:

                      Provided that if any claim which formed the subject of legal proceedings against the insolvent which were so stayed, has been proved and admitted against the insolvent's estate in terms of this Act, the claimant may also prove against the estate a claim for his taxed costs, incurred in connection with those proceedings before the sequestration of the insolvent's estate;

     (c)     as soon as any sheriff or messenger, whose duty it is to execute any judgment given against an insolvent, becomes aware of the sequestration of the insolvent's estate, to stay that execution, unless the court otherwise directs;

     (d)     to enable the insolvent, if in prison for debt, to apply to the court for his release, after notice to the creditor at whose suit he is so imprisoned.

            (2) For the purposes of subsection (1) the estate of an insolvent shall comprise-

     (a)     all property of the insolvent at the date of the sequestration, including property or the proceeds thereof which are in the hands of a sheriff or a messenger under writ of attachment; and

     (b)     all property which the insolvent may acquire or which may accrue to him during the sequestration, except as otherwise provided in section 22: Provided that any moneys or policy of life insurance or asset or, as the case may be, any moneys or proceeds in realization of any policy of life insurance or of any asset in respect of which protection is afforded by virtue of any provision of Part VIII of the Insurance Industry Act to the extent of that protection, shall be excluded from the estate.

            (3) The additional effect of the sequestration of the separate estate of one of two spouses who are not living apart under a notarial deed of separation or a judicial order of separation shall be to vest in the Master, until a trustee has been appointed, and, upon the appointment of a trustee, to vest in him all the property of the spouse whose estate has not been sequestrated (hereinafter referred to as "the solvent spouse") as if it were property of the sequestrated estate, and to empower the Master or trustee to deal with such property accordingly, but subject to the following provisions of this section.

            (4) The trustee shall release any property of the solvent spouse which is proved-

     (a)     to have been the separate property of that spouse immediately before the marriage to the insolvent;

     (b)     to have been acquired by that spouse under a marriage settlement;

     (c)     to have been acquired by that spouse during the marriage with the insolvent by a title valid as against creditors of the insolvent;

     (d)     to be protected by section 27; or

     (e)     to have been acquired with any such property or with the income or proceeds thereof.

            (5) The trustee of the insolvent estate shall not, except with the leave of the court, realize property which ostensibly belonged to the solvent spouse, until the expiry of six weeks' written notice of his intention to do so, given to that spouse.

            (6) Such notice shall also be published in the Gazette and in a newspaper circulating in the district in which the solvent spouse resides or carries on business, and a copy of such notice shall be published at the office of a magistrate in the district in which such solvent spouse resides and shall call upon all separate creditors for value of that spouse to prove their claims as provided in subsection (8).

            (7) The solvent spouse may apply to the court for an order releasing any property vested in the trustee of the insolvent estate under subsection (3) or for an order staying the sale and releasing the property and at any time before distribution of the proceeds thereof for an order declaring the applicant to be entitled to those proceeds; and the court may make such order on the application as it thinks just.

            (8) Subject to any order made under subsection (7) any property of the solvent spouse realized by the trustee shall bear a proportionate share of the costs of the sequestration as if it were property of the insolvent estate but the separate creditors for value of the solvent spouse having claims which could have been proved against the estate of that spouse if it had been the estate under sequestration, shall be entitled to prove their claims against the estate of the insolvent spouse in the same manner and, except as is otherwise provided in this Act, shall have the same rights and remedies and be subject to the same obligations as if they were creditors of the insolvent estate; and the creditors who have so proved claims shall be entitled to share in the proceeds of the property so realized according to their legal priorities inter se and in priority to the separate creditors of the insolvent estate, but shall not be entitled to share in the separate assets of the insolvent estate.

            (9) If any property of the solvent spouse has been released by virtue of subsection (4) or (7) the separate creditors of that spouse shall only be entitled to a share in the proceeds of any property of the solvent spouse which has been realized by the trustee, after the property so released and any property of that spouse acquired by him since the sequestration, have been excussed.

            (10) Before awarding any such creditor a share in such proceeds, the trustee may require the creditor to lodge with him, within a period to be determined by the Master, an affidavit, supported by such evidence as may be available, setting forth the result of such excussion and disclosing the balance of his claim which remains unpaid, and he shall then be entitled to share as aforesaid in respect of that balance only:

            Provided that any creditor who has incurred costs in excussing the separate property of the solvent spouse and has been unable to recover those costs from the proceeds of that property shall be entitled to add the amount of those costs to the amount of his claim as proved.

            (11) If, during the period determined by the Master, any such creditor has failed either to lodge with the trustee such an affidavit as aforesaid, or to excuss any separate property of the solvent spouse available for the satisfaction of his claim, he shall be debarred from sharing as aforesaid unless the court otherwise orders.

            (12) A creditor of the solvent spouse who has proved a claim as provided in subsection (8) shall not be liable to make any contribution under section 92 and shall not be entitled to vote at any meeting of the creditors of the insolvent estate; but any direction of the creditors of the insolvent estate which interferes with the just rights of any such creditor may be set aside by the court on application of such creditor.

            (13) If the solvent spouse is carrying on business as a licensed trader apart from the insolvent spouse or if it appears to the court that the solvent spouse is likely to suffer serious prejudice through the immediate vesting of the property of that spouse in the Master or the trustee, and the court is satisfied in either case that the solvent spouse is willing and able to make arrangements whereby the interest therein of the sequestrated estate will be safeguarded without such a vesting, the court, either when making the sequestration order or at some later date, but subject to the immediate completion of such arrangement as aforesaid, may exclude that property or any part thereof from the operation of the order, for such period as it thinks fit.

            (14) During that period the solvent spouse shall lay before the trustee the evidence available in support of his claim to such property and within that period the trustee shall notify the solvent spouse in writing whether or not he will release such property in accordance with subsection (4).

            (15) If the property has not been so released, then upon the expiry of the said period that property shall vest in the Master or in the trustee, but subject to the provisions of this section.

            (16) If application is made to the court for the sequestration of the estate of the solvent spouse on the ground of an act of insolvency committed by that spouse since the vesting of his property in the Master or the trustee of the insolvent estate, and the court is satisfied that the act of insolvency alleged in that application was due to such vesting, then if it appears-

     (a)     that an application is being or, if necessary, will be made under subsection (7) for the release of any property of the solvent spouse; or

     (b)     that any property of the solvent spouse has been released since the making of the sequestration order, and that the solvent spouse is now in a position to discharge his liabilities,

the court may postpone the hearing of the said application or may make such interim order thereon as to it may seem just.

            (17) If the trustee has in accordance with the preceding provisions of this section released any property alleged to belong to the solvent spouse, he shall not be debarred thereby from proving that it belongs to the insolvent estate and from recovering accordingly.

21.     Payment of debts after sequestration

            Every payment or other satisfaction in whole or in part of any debt or claim which was due or the case of which arose before the sequestration shall, if made to the insolvent after such sequestration, be void, unless the debtor proves that the same was made in good faith and without knowledge of the sequestration.

22.     Powers, duties and privileges of the insolvent during sequestration

            (1) Except as is provided in this section the insolvent shall not be able during the sequestration to enter into any contract without the consent in writing of his trustee.

            (2) The insolvent shall be entitled for the support of himself and those dependent upon him to follow any profession or occupation or to enter into any service, but he shall not, during the sequestration of his estate, be entitled, without the consent in writing of the trustee, either to carry on, or to be employed or engaged in any capacity in, the business of a trader:

            Provided that-

      (i)     any of the creditors or the insolvent may, if the trustee gives or refuses such consent, appeal to the Master, whose decision shall be final; and

      (ii)     the insolvent shall keep a detailed record of all assets received by him from whatever source and of all disbursements made by him in the course of his profession, occupation or employment and, if required thereto by the trustee, shall transmit to the trustee in the first week of every month a statement verified by affidavit of all such assets and of all disbursements whatsoever made by him. The trustee may inspect any such record at all reasonable times and may demand the production of reasonable vouchers in support of any item in such accounts of the expenditure of the insolvent for the support of himself and those dependent upon him. Such moneys received or to be received by the insolvent in the course of his profession, occupation or other employment as in the opinion of the Master are not or will not be necessary for the support of the insolvent and those dependent upon him shall vest in and be paid by the employer to the trustee.

            (3) The insolvent shall be entitled to sue or be sued in his own name for any claim due to or against him under subsection (2) but no cession of the insolvent's salary or earnings thereunder made either before or after the sequestration of his estate shall be of any effect so long as his estate is under sequestration.

            (4) The insolvent shall also have the right in his own name to sue for and for his own benefit to receive any pension to which he may be entitled for work and services:

            Provided that, notwithstanding anything contained in any law governing the pensions of public or railway servants, any portion of a pension paid to or for the benefit of an insolvent and those dependent on him, which in the opinion of the Master is not necessary for the support of the insolvent and those dependent on him, shall vest in the trustee.

            (5) The insolvent shall also be entitled in his own name to sue for and receive for his own benefit any damages claimable by him by reason of any insult or personal injury, and he may continue in his own name and for his own benefit any action which may have been commenced by him in respect of such claims previous to the sequestration; and all goods purchased with the moneys so received shall be free from the control of the trustee.

            (6) The insolvent shall also be entitled in his own name to sue for and receive for his own benefit, subject to this section, the wages or reward for work or labour done or for professional service rendered by or on his behalf after the sequestration of his estate.

            (7) The insolvent may also be sued in his own name for any delict committed by him after the sequestration of his estate.

            (8) All moneys or property claimable by the trustee under this section may be recovered from the insolvent by writ of execution to be issued by the Registrar upon the production to him of a certificate by the Master as to the amount so claimable.

23.     Power of Master to have movable property sold when not over P400 in value

            If it appears to the Master that the value of all the movable property of an estate under sequestration vested in him does not exceed P400 and that it is in the interest of the creditors that such property or any part thereof be sold forthwith, he may direct the sale thereof to take place on such conditions and in such manner as he may think fit:

            Provided that, if he has received timely notice that any such property or any portion thereof is subject to any right of preference, it shall not be sold without the consent in writing of the person in whose favour such right of preference exists.

24.     Estate to remain vested in trustee until rehabilitation

            (1) The estate of the insolvent shall remain vested in the trustee until the insolvent is reinvested therewith pursuant to a composition under section 107, or until the rehabilitation of the insolvent:

            Provided that any property which immediately before the rehabilitation was vested in the trustee shall remain vested in the trustee after rehabilitation for the purposes of realization and distribution.

            (2) On the death or removal of a trustee the estate shall vest in the remaining trustee if any; otherwise it shall vest in the Master.

Effect upon Antecedent Transactions (ss 25-38)

25.     Dispositions without value

            (1) Every disposition of property not made for value may be set aside by the court where such disposition was made by the insolvent-

     (a)     more than two years before the sequestration of his estate, if it is shown that, immediately after the disposition was made, the liabilities of the insolvent exceeded his assets;

     (b)     within two years of the sequestration of his estate, if the party claiming under or benefited by the disposition is unable to prove that, immediately after the disposition was made, the assets of the insolvent exceeded his liabilities:

                      Provided that if it is shown that the liabilities of the insolvent at any time after the making of the disposition exceeded his assets by less than the value of the disposition, it may set aside only to the extent of the excess.

            (2) A disposition of property not made for value shall not, if set aside under this section or if uncompleted by the insolvent, give rise to any claim in competition with the creditors of the insolvent.

26.     Antenuptial contracts

            (1) No immediate benefit under a duly registered antenuptial contract given in good faith by a person to his wife or child to be born of the marriage shall be liable to be set aside as a disposition without value, unless the sequestration of his estate took place within two years of the registration of that antenuptial contract.

            (2) For the purposes of this section an "immediate benefit" means a benefit given by transfer, conveyance, delivery, payment, cession, pledge, or special mortgage of property completed within three months immediately after the date of the marriage.

27.     Life insurance policies

            (1) When a person before or during marriage has effected in favour of or ceded to or for the benefit of his wife any policy or policies of life insurance, the policy or policies to an amount not exceeding P4000, together with any bonus claimable in respect thereof, shall be excluded from her estate, if she become insolvent.

            (2) When a person before or during marriage has in good faith effected in favour of or ceded to or for the benefit of his wife or child, or both, a policy or policies of life insurance at any time more than two years before the sequestration of his estate, the policy or policies, if they are not an immediate benefit within the meaning of section 26, whether to a wife or child or both, shall to an amount not exceeding P4000, together with any bonus claimable in respect thereof, be excluded from his insolvent estate, and, if the insolvent is married in community of property, from the joint estate of the insolvent and his wife:

            Provided that-

      (i)     every policy which, at the time of the sequestration of the estate, was ceded or pledged to any person (other than the wife or child of the insured, or a trustee for such wife or child) shall not, to the extent of the cession or pledge, fall under the protection of this section;

      (ii)     when any policy is protected as to a part only, the person entitled to the protected part may apply to the company by whom such policy was granted for the issue of two policies in the place of such policy, one for the unprotected part and the other for the protected part, in favour of the parties respectively entitled thereto; and the company shall thereupon issue such policies at the expense of the applicant, and the original policy shall thereupon become void; and

     (iii)     for the purposes of this section, the expression, "policy of life insurance" includes a contract for securing an insurance endowment, bonus, or annuity upon the death of the insured, or on the expiration of any period, or on the happening of any event, as well as a fully paid-up policy granted for the surrender or exchange of a policy of an equivalent value, but does not include any other property acquired in consideration of the surrender, pledge or cession of a policy.

            (3) A policy of life insurance effected by a person on his own life which has endured for three years from the date of payment of the first premium shall not, during the lifetime of the insured, vest upon the sequestration of the estate of the insured or the assignment thereof under this Act in the trustee or assignee of the estate:

            Provided that-

      (i)     the protection afforded to a debtor under this section shall not exceed P4000 together with any bonus claimable in respect thereof;

      (ii)     a policy which is pledged, to the extent to which it is pledged, and the proceeds of a policy which is surrendered shall not be protected by this section,

but nothing in this Act shall be construed as preventing the insured from agreeing with an insurance company for the surrender or exchange of his existing policy to the extent to which it is protected by this section for a fully paid-up policy, and such last-mentioned policy shall be wholly protected.

            (4) A policy protected under subsection (3) shall, to the extent to which it is protected, not be available on the death of the insured for the payment of creditors as against the claims of-

     (a)     the surviving spouse of the insured, if the marriage was in community of property, to one-half the protected portion of the policy;

     (b)     the surviving spouse or any parent, child or step-child of the insured, under the will of the insured; or

     (c)     any parent or child of the insured by right of succession ab intestato.

            (5) Notwithstanding anything in this section, if in any case it is proved that any policy was effected, or that the premiums upon any policy were paid, with intent to defraud creditors, the court may order a sum equal to the premiums so paid, with interest thereon, to be a charge upon the policy and to be payable out of the proceeds of such policy.

28.     Voidable preference

            (1) Every disposition of property made by an insolvent within six months of the sequestration of his estate, which has had the effect of preferring one creditor above another, may be set aside by the court if it is shown that immediately after the making of such disposition the liabilities of the insolvent exceeded his assets, unless it is shown by the person benefited by the disposition that the disposition was in the ordinary course of business and that it was not intended thereby to prefer one creditor above another.

            (2) Every disposition of property made under a power of attorney of the insolvent, whether revocable or irrevocable, shall for the purposes of this and section 29, be deemed to be made at the time at which the transfer or delivery or mortgage of such property takes place.

29.     Undue preferences

            (1) Every disposition of his property made by an insolvent at a time when his liabilities exceeded his assets with the intention of preferring one creditor above another, may be set aside by the court.

            (2) A disposition which may be set aside under this section is called "an undue preference".

            (3) For the purposes of this section and section 28 the expression "creditor" shall include a surety for the insolvent and a person in a position by law analogous to that of a surety.

30.     Collusive dealings

            (1) Every collusive dealing with his property between the insolvent and any other person, having the effect of prejudicing his creditors or by preferring one creditor above another, may be set aside by the court; and the person so dealing collusively with the insolvent shall be liable for damages in respect of any loss thereby caused to the estate.

            (2) Any person who was a party to such collusive dealing shall be liable to pay for the benefit of the estate, by way of penalty, such sum as the court may adjudge, not exceeding the amount by which he would have benefited by such dealing if it had not been set aside; and if he is a creditor he shall also forfeit his claim against the estate.

            (3) Such penalty may be recovered in any action to set aside such dealing; and, if no such action has been instituted, the trustee or any creditor may recover such penalty by action.

31.     Liability of the legal representative of an estate

            The legal representative of an estate who has been a party to any collusive dealing referred to in section 30 shall be jointly and severally liable with the estate represented by him for the damages suffered by the insolvent estate by reason of such collusive dealings.

32.     Proceedings to set aside antecedent transactions

            (1) Proceedings to set aside any disposition under section 25, 28, 29 or 30, or for the recovery of damages under section 30, shall be taken by the trustee.

            (2) If the trustee refuses or neglects to take such proceedings they may be taken by any creditor in the name of the trustee upon his indemnifying the trustee against all costs thereof.

            (3) In any such proceedings the insolvent may be compelled to give evidence on a subpoena issued on the application of any party to the proceedings or he may be called by the court to give evidence.

            (4) When giving such evidence he may not refuse to answer any question on the ground that the answer may tend to incriminate him or on the ground that he is about to be tried on a criminal charge and may be prejudiced at such a trial by his answer.

            (5) When any disposition of property is set aside under any of the said sections, the court by which it is set aside shall declare the trustee entitled to recover any property alienated under the said disposition or in default of such property the value thereof at the date of the disposition.

33.     Indemnification by trustee of creditors

            (1) No person who, in return for any disposition by the insolvent which is liable to be set aside under this Act has parted with any property or security that he held or who has lost any rights or recourse against third parties, shall, if he acted in good faith, be obliged to restore any money or property or other benefit received under such disposition, unless the trustee has indemnified him for parting with such security or for losing such rights, property, security, or recourse.

            (2) Nothing in section 25, 28, 29 or 30 shall affect the rights of any person acquiring property in good faith and for value from any person other than the insolvent.

34.     Sales of a business

            (1) Every sale or alienation by a trader of any business or of the goodwill, book-debts, or assets of that business other than sales of stock in the ordinary course of his trade, shall upon the sequestration of his estate within six months after the sale or alienation be void against the trustee, unless the seller had previously given 14 days' notice of such intended sale or alienation by advertisement twice in the Gazette and twice in a newspaper circulating in the district in which that business is carried on.

            (2) On the first publication of that notice in the Gazette every liquidated claim against the business shall become payable at the option of the payee, subject in the case of such amounts, as would otherwise not have become payable until some later date to a rebate of six per cent per annum as from such later date.

35.     Contracts to buy immovable property

            (1) If the insolvent, before the sequestration of his estate has contracted to buy or receive in exchange any immovable property, transfer of which has not been effected in his favour, the trustee may elect to adopt or to abandon the contract.

            (2) If the trustee does not make his election within six weeks after being required in writing to do so, the person entitled under the contract may apply by motion to the court for the cancellation of the contract and delivery of the possession of the immovable property and the court may make such order as it thinks fit:

            Provided that nothing in this section shall affect any concurrent claim against the estate for damages for non-fulfilment of the contract.

36.     Sales for cash

            (1) When any person has, before the sequestration of the insolvent's estate, sold and delivered for cash to the insolvent any movable property and has not received full payment for the same, the seller may only reclaim that property if within 30 days after the delivery thereof he gave notice in writing to the insolvent or the legal representative of the estate that he reclaims that property:

            Provided that if the trustee disputes the seller's right thereto, the seller shall take proceedings to enforce that right within seven days after the trustee has given notice that he disputes such right.

            (2) The trustee shall not be obliged to restore that property, unless the seller refunds all moneys received by him on account of the purchase price.

            (3) A sale shall be deemed to be for cash, unless the seller has expressly or tacitly agreed that any part of the purchase price shall not be claimable at the time of delivery of the property sold.

            (4) Except as aforesaid, no seller shall be entitled to redelivery or retransfer of any property sold and delivered or transferred to the insolvent by reason only that the insolvent has failed to make due payment of the purchase price.

            (5) When property belonging to any person other than the insolvent is in the possession of the insolvent at the time of the sequestration of his estate, that person shall give notice in writing thereof to the legal representative of the estate within 14 days of the sequestration, and, if he fails to do so, shall lose all right to recover that property, if the same has in good faith been sold as part of the insolvent's estate, but shall be entitled to recover the net proceeds of that property from the trustee.

37.     Leases

            (1) No lease entered into by the insolvent as lessee shall be terminated merely by reason of the sequestration of his estate but the trustee may determine the same by notice in writing to the lessor, subject to a concurrent claim by the lessor against the estate for any damages he may have sustained by reason of the non-performance of the terms of such lease.

            (2) If the trustee does not within three months of his appointment notify the lessor that he is prepared to continue the lease on behalf of the estate, he shall be deemed to have determined the lease at the end of such three months.

            (3) The rent due under any lease so determined, from the date of the sequestration of the estate of the lessee to the determination or the sale thereof by the trustee, shall be included in the costs of administration.

            (4) The fact that a lease has been determined by the trustee shall deprive him of any right to compensation for improvements made during the period of that lease.

38.     Effect of sequestration on apprenticeship agreements

            (1) The sequestration of an estate shall be a complete discharge of the indenture of apprenticeship or articles of agreement of any person then apprenticed or articled to the insolvent if that person gives notice in writing to the trustee to that effect.

            (2) Upon application made by that person the trustee may consent to his proving a concurrent claim against the estate for such of any money paid by him or for him to the insolvent as a fee as the trustee, subject to an appeal to the court, thinks reasonable, regard being had to the amount of the fee, the unexpired term of the indenture or articles, and the other circumstances of the case.