When a person or trust is sequestrated, or a company or close corporation is liquidated, creditors of that insolvent estate are sometimes a bit in the dark with regard to how they have to claim the monies that are due and payable to them from the Insolvent Estate. This article’s purpose is to answer some of these questions.
WHAT CLAIMS CAN BE PROVED AGAINST AN INSOLVENT ESTATE?
Only a liquidated claim that arose before and existed at the date of sequestration, and that did not prescribe at that date is capable of being proved. A liquidated claim is a claim for an amount which is determined, ie, certain, whether the determination is the result of an agreement, a judgment of a Court or otherwise.
An unliquidated claim may be tendered at a meeting of creditors. The claim is to be deemed to have been proved against the estate at such meeting where the trustee (with the permission of either other creditors or the Master of the High Court) has compromised or admitted it or it has been settled by a judgment of a Court.
Types of liquidated claims:
A aecured claim is one in respect of which a creditor holds security,i.e, has a preferent right over the property of an insolvent estate in respect of a lanlord’s legal hypothec, a right of retension or a special mortgage, i.e, a mortgage bond, hypothecating immovable property or a notarial mortgage bond hypothecating specially describes movable property.
Where he has a right to payment “out of” the property of the estate which is enforceable before other creditors’ rights, a creditor’s claim is preferent, for example a landlord’s legal hypothec or a holder of a general notarial bond who is not in possession of the debtor’s movable property. It ranks for payment out of the free residue before the claims of non-preferent, ie, concurrent, creditors.
In terms of The Insolvency Act various particular claims enjoy a preference, which preference ranks in priority to that under any general notarial bond. These are Funeral and death-bed expenses and Payment of salary and wages of insolvent’s former employees.
- Insolvency Act and other statutes or enactment having the force of law may assign a preference to a particular claim or a right akin to a preference. These are the Workmen’s Compensation Commissioner and SARS (in terms of the Insolvency Act) and Municipalities (in terms of Section 118 of the Municipal Systems Act, Act 32 of 2000.
A concurrent claim is one which is neither secured nor preferent in terms of the Insolvency Act.
A conditional claim is one which i dependant on a condition. A “condition” is one which has the result that, pending the fulfilment thereof, the claim is unforceable. The condition must be such that pending the fulfilment thereof there is no obligation at all for the insolvent. A claim is not a condition where it is one against an insolvent jointly with, and severally from, another or others,eg. where the insolvent was surety and co-principle debtor.?
A conditional claim may be proved provided it is a liquidated claim.
5. Prescribed claim
A claim which as at the date of sequestration has prescribed is incapable of being proved against the estate.
HOW SHOULD A CLAIM BE PROVED (PROSEDURE)?
A claim can be proved at any time before the final distribution of the estate. A creditor may delay proof of his claim whilst there exists a danger of a contribution being levied against creditors who prove claims.
The claim must be submitted by way of an affidavit, together with the documents supporting the claim, with the officer who is to preside at the meeting. A prescribed form is available and can be obtained from the Trustee or Liquidator of the estate.
At a meeting of creditors all submitted claims will either be admitted or rejected by the presiding officer. The presiding officer’s decision to reject a proved claim may be taken on review by the unsuccessful claimant.
WHAT EFFECT DOES THE LATE PROOF OF A CLAIM HAVE?
The confirmation of a Liquidation and Distribution Account has an influence on the proof of further claims, as well as on the dividend payable to creditors who proved their claims after the confirmation of a Liquidation and Distribution Account.
- Section 104(1) And (2) Of The Insolvency Act –
- Mars – The Law of Insolvency in South Africa, Seventh edition, under paragraph 17.21 titled “Late Proof” – “A creditor who has NOT proved his claim BEFORE the date upon which the trustee submitted to the Master a plan of distribution, is NOT entitled to share in the distribution of assets brought up for distribution in that plan. If, however, such creditor proves his claim BEFORE the actual confirmation of the plan of distribution, and the Master is satisfied that the creditor had a reasonable excuse for not proving the claim earlier, he may allow the creditor to share in the distribution. If the creditor is not allowed by the Master to share in that distribution, he is nevertheless entitled if he satisfies the Master that he had a reasonable excuse for not framing his claim earlier, to be awarded under any subsequent plan of distribution (if he proved his claim) the amount that would have been awarded to him under the previous plan of distribution if he had proved his claim in time to share in such previous distribution.”
- Meskin – Insolvency Law and its operation in winding-up, under paragraph 11.7.1 titled “Distribution under confirmed accounts – Insolvent Estate” – “A creditor whose claim is proved between the date on which a plan of distribution was lodged and the confirmation of the plan, is precluded from sharing in such distribution unless the Master, prior to such confirmation, permits him to do so on being satisfied that such creditor has a reasonable excuse for the delay in proving his claim. Where he is not permitted to share in the distribution, such creditor has no absolute right to an equalizing dividend under any subsequent plan of distribution: he is only entitled to such a dividend if, again, the Master is satisfied that he had a reasonable excuse for the delay in proving his claim.”
- Therefore, where more than one Liquidation and Distribution Account is drafted and a creditor proves his claim after the confirmation of the First Account, he is not entitled to share in the distribution of a First Account. He is subsequently also not entitled to receive an equalizing dividend in the Second and Final Account. He will only receive a dividend out of the funds that are available for distribution in the Second Account.
2. Sections 111 And 112 Of The Insolvency Act –
- The insolvent or any person interested in the estate may, at any time before the Confirmation of the trustee’s account, in terms of Section 112, lay before the Master in writing any objection, with reasons therefore, to that account.
- When no objection has been lodged, the Master shall confirm the account and his confirmation shall be final save as against a person who may have been permitted by the court before any dividends has been paid under the account, to reopen it.
- Therefore, of a creditor does not object to an Account before the confirmation thereof, the confirmation is final. He will only be able to set aside the confirmation by way of a court application and then only in the event that no dividends have been paid in terms of that Account.
By Suné Smit (B.Comm (Law, LL.B, AIPSA Ins. Law, Dipl. Fin. Plan.)