February 20, 2019
Proving Your Claim in a Liquidation or Sequestration – When You Should, and When You Shouldn’t
“A small debt produces a debtor; a large one, an enemy” (Publilius Syrus, Roman writer)
You are owed money by a debtor, whose “insolvent estate” is “sequestrated” (in the case of an individual or trust) or “liquidated” (in the case of a company or other corporate).
The Master of the High Court appoints a “trustee” (in the case of a sequestration), or a “liquidator” (in the case of a liquidation) to sell all the debtor’s assets and to distribute the sale proceeds between proved creditors.
When you learn of your debtor’s sequestration/liquidation, ensure firstly that the trustee/liquidator knows that you are a creditor so that you receive reports on the financial position of the estate and on progress towards its finalisation.
You will have an opportunity to lodge and prove your claim in the sequestration/liquidation, which you do by completing a formal “claim form” for proof at a meeting of creditors.
The question is – should you prove your claim or shouldn’t you?
Adding insult to injury – contributing to costs
Note: For simplicity we’ll refer below only to “insolvent estate”, “sequestration” and “trustee”, but the principles apply equally to corporate liquidations.
If you don’t prove your claim as above, you won’t receive any dividend and will effectively have to write off your debt entirely.
But the other side of the coin is that by proving your claim you may be exposing yourself to an even worse fate –
- When the costs of sequestration of an insolvent estate exceed the funds in the estate available to pay them, the trustee of the estate recovers a “contribution” from proved creditors to cover those costs.
- In that case you as a proved creditor risk adding insult (having to pay a contribution into the estate) to injury (having to write off your original debt). That’s why, as a creditor, you should be very wary of formally proving your claim against an estate until you are satisfied that no danger of contribution exists.
The special case of the “petitioning creditor”
Now the rub here for the “petitioning creditor” (the creditor who applied for the debtor’s sequestration in the first place) is this – whether or not you formally prove your claim in the estate, you must still contribute to the shortfall.
That’s why, although applying for sequestration can be an excellent way of recovering debt from a recalcitrant debtor, it is essential to consider the danger of contribution before making any such application.
What if you hold security for your claim?
Note that we are only talking here about holding security over a debtor’s asset/s. If you hold outside security – a surety from a company director for example – you can recover that separately, entirely outside the sequestration/liquidation process.
- If you hold some form of security for your claim, like a mortgage bond over the debtor’s property for example, you are a “secured creditor”.
- You need to prove your secured claim to be awarded the net proceeds of the property. In practice the trustee sells the “encumbered” property, pays out of the proceeds all costs directly related to that property – maintaining it, selling it, paying rates and taxes to pass transfer, the trustee’s fees and so on – and then pays out the balance to you as secured creditor in an “encumbered asset account”.
- On the other hand the proceeds of all unencumbered assets fall into the “free residue” account, and if after being paid your secured dividend as above there is still a shortfall on your claim, that shortfall ranks in the free residue as a “concurrent” claim.
- And that’s where your danger comes in – you are now in line to pay a contribution based on the concurrent portion of your claim.
- The good news is that you can largely protect yourself from having to contribute by “relying on the proceeds of your security” in satisfaction of your claim. That means you waive your concurrent claim for any shortfall, but equally by removing your shortfall claim from the free residue account you no longer contribute together with other proved (or petitioning) creditors.
- In some very restricted circumstances even relying on your security won’t protect you from a contribution (for example when no one else has proved claims or other contributors are unable to pay their share), but relying on your security is the best protection you have.
Note that there are grey areas in some of these provisions, so there is no substitute to asking your lawyer for advice on your specific circumstances.
© LawDotNews
September 21, 2018
Drunk Driving Arrest: Damages for Sexual Assault in Cell
Here’s one more reason to never ever allow yourself or anyone else to drive when over the legal limit (for non-professional drivers, a breath alcohol content of 0.24mg per 1,000ml or a blood alcohol limit of 0.05g per 100ml).
If you are caught by the police (statistically, a regular offender will be caught sooner or later – there are 75,000 such arrests in SA every year) your life could be destroyed even before you see the inside of a courtroom.
Of course the police are duty bound to protect your fundamental rights whilst in their custody, but we’ve all heard the many nightmare stories of abuse and assault in police cells. A recent Supreme Court of Appeal decision dealt with one such case.
Gang raped in the cells
- A family man was arrested and charged with a number of very serious offences – driving under the influence of alcohol, reckless and negligent driving and failure to stop after an accident. This after, at 2.30 a.m. on a Saturday morning, he allegedly drove into a house’s fence/wall and then attempted to drive away from the scene, leaving his injured passengers behind.
- After charging him, senior police officers authorised the driver’s release from custody on R500 bail because he had a fixed home address and employment; was married with a 5 year-old child; had no previous convictions and no outstanding warrants of arrest; was not on bail on another case; and had not committed an offence while on bail.
- Before his release however he was transferred to another police station, and when his wife arrived to pay the bail she was laughed at and told no bail had been allowed.
- The driver accordingly spent the rest of the weekend in a police cell, where he was attacked and raped by an unknown number of cellmates, losing consciousness during the assault and scared to report the attack for fear of reprisals. He was unable to prove his allegations of a lack of cell inspections and of police failure to transfer him to another cell after he reported being warned of an impending attack on him, but there was no denial by the police of the sexual assault itself.
- In court the driver was released on bail and the charges against him were ultimately withdrawn.
- He then sued for damages, and as in every civil liability claim, needed to prove wrongful conduct by the police that had caused him harm, plus some form of fault or blameworthiness (like intention or negligence).
- In the end result the Court ordered the police to pay damages to the driver on the basis that –
- The conduct of the police and its wrongfulness were not in dispute,
- The police had been negligent both in failing to release him on bail and in failing to separate him from violent offenders also in custody, and
- There was a “direct and probable chain of causation” between those failures and the attack.
Police liable; but what consolation damages?
So the driver has been vindicated but the Court’s award to him of R200,000 in “general damages” is unlikely to go far in consoling him for the ordeal’s impact on his life. Our courts are deliberately conservative in assessing general damages, but the clinical psychologist’s evidence as to the serious psychological impact on the driver of his experience (as reported in the judgement) makes for harrowing reading.
Intense trauma, Post-Traumatic Stress Disorder, ongoing treatment with anti-depressants (six years down the line), deep humiliation, intense fear of amongst other things contracting HIV, sexual problems, a broken marriage, problems relating to his child, poor self-image, personality changes, flashbacks – the list goes on. Ultimately problems at work (including being unable to work in teams and being mocked by his colleagues) led to his employment being terminated, after which he attempted suicide and spent five days in a hospital ICU.
Of course none of this means that we should supinely accept vindictiveness or negligence from those appointed to serve and protect us. Media reports suggest that large claims against the police (and other government services) are regularly settled out of court for millions. Just remember that legal advice as soon as possible after the incident is essential!
Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.
© LawDotNews