TOPIC 2: VOLUNTARY SURRENDER
Introduction
As mentioned, there are two ways to sequestrate a person’s insolvent estate. The first is when the
insolvent person (debtor) voluntarily surrenders his estate. The debtor himself initiates the
procedure - he applies to court and requests that his estate be sequestrated. The second is
compulsory sequestration. Here sequestration is requested by the disgruntled creditors of the
insolvent debtor. That will be discussed under TOPIC 3.
VOLUNTARY SURRENDER
Section 3: Petition for acceptance of surrender of estate

This section sets out who may petition (apply to) the court to accept the surrender of the
debtor’s estate:
- S3(1) provides that the debtor himself can apply to the court, or the duly authorized
agent of the debtor, or an executor if the debtor is deceased, or a curator bonis if the
debtor is incapable of managing his own affairs;
- S 3(2)- ALL members of a partnership or an agent representing all members
- NOTE: In terms of s17(4) of the Matrimonial Property Act 88 of 1984, where spouses
are married in community of property, the spouses have a joint estate and BOTH
spouses must apply to surrender it.
Section 4: Notice of surrender and lodging at Master’s office of statement of debtor’s affairs

This section sets out the procedure the debtor must comply with BEFORE he even attempts
to apply for the voluntary surrender.
-
In terms of s4(1) the first thing that must be done is that the debtor must publish a
notice of surrender [precedent = Form A Sch1 of Act] in the Government Gazette and in the
newspaper circulating in the district where the debtor resides OR if the debtor is a
trader, then the notice must appear in the newspaper circulating in the area where his
principal place of business is situated.
The notice of surrender must not be published longer than 30 days or less than 14 days
before the date on which the application will be heard by the court.[Foe example if the
application is to be heard by the court on 31 July, count back 30 days and 1 July is longest/earliest
date the notice can be published. Count back 14 days and the notice cannot appear for a shorter
period than 17th July].
Why a 30 day limit? - so that debtors should not be able to give long notice, months
beforehand, and in that way keep creditors from levying execution on his assets and in
the meantime the debtor being able to dissipate (waste / alienate) his assets before the
hearing.
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The notice must contain various information, for example all the personal particulars of
the debtor, the specific court and date when the application for surrender will be made,
and where the debtor’s statement of affairs will lie for inspection etc.
The purpose of the publishing of the notice of surrender is to alert the creditors to the
intended application in case they wish to oppose it – as they are entitled to. It also gives
the creditors time to decide whether to oppose it. In addition, the statement of affairs,
a document which must be lodged with the Master, will give the creditors information
regarding the debtor’s financial position and this allows the creditors to view the
debtor’s position as a whole and it assists them in deciding whether to oppose the
application or not.
-
In terms of s 4(2)(a) within 7 days of publishing the notice of surrender, the debtor must
deliver or post a copy of the notice of surrender to every one of his creditors whose
address he knows or can ascertain. The purpose of informing individual creditors is to
afford even more protection in the event they wish to oppose the application, as it
cannot be expected that creditors constantly examine the Government
Gazette/newspapers.
-
In terms of s4(2)(b)(i) the debtor must post a copy of the notice to every registered
trade union that, to his knowledge, represents any of the debtor’s employees (clearly if
the debtor is not a trader then this provision would not apply to him).
-
In terms of s4(2)(1)(ii) the debtor must give notice to his employees themselves, either
by affixing a copy of the notice to a notice board to which the employees have access
inside the debtor’s premises or, if the employees do not have access to the premises, by
affixing a copy of the notice to the front gate of the premises or, failing this, to the front
door of the premises from which the debtor conducted any business immediately prior
to the surrender.
-
In terms of s4(2)(b)(iii) the debtor must post a copy of the notice to SARS.
-
In terms of s4(3) the debtor is required to lodge with the Master 2 copies of a statement
of affairs [following the precedent of Form B in Sch 1 of the Act] and the truth and
completeness of the statement of affairs must be verified by an affidavit. The statement
of affairs is exactly what the name implies – a statement setting out the debtor’s
financial affairs. The statement must contain information like the following:
 A balance sheet.
 A list of his immovable assets, the estimated value of those assets and details of
any encumbrances (burdens) on the asset (eg mortgage bond over property).
 A list of movable assets, the estimated value of those assets and details of any
encumbrances (eg pledges, liens attachments or if bought via an instalment sale
transaction, not yet paid in full). If movable assets are merchandise/stock in
trade, they must be valued at the cost price or market value, whichever is the
lower.
 A list of creditors, their personal particulars and details of their claims against
the debtor.
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 A list of the debtor’s own debtors (if he has any) – details of each debt owed and
an estimate of whether the debts are ‘good’, ’bad ‘or ‘doubtful’.
 A list and description of every account book used by the debtor at the time of
the notice of surrender or at the time he ceased to carry on business (if
appropriate)
 A detailed statement of the cause of the debtor’s insolvency.
 Certain personal information about the debtor eg any previous insolvency and
rehabilitation.
-
-
-
In terms of s4(4) upon receiving the statement of affairs, the Master may require that
any property mentioned therein be formally valued by a sworn appraiser or any person
designated by the Master for such a purpose.
In terms of s4(5) if the debtor carries on business in an area in which there is no
Master’s office, then the statement of affairs must be lodged with the magistrate of that
district.
In terms of s4(6) the statement of affairs lies open for inspection during office hours for
any creditor for the period of 14 days from the date stipulated in the notice of surrender.
It is during these 14 days where any creditor can lodge with the Master an objection to
the voluntary surrender which will be on the record when the application is heard by the
court. Although not expressly provided for in the Act, creditors also have the right to
oppose the debtor’s application in court when the matter is heard by the court.
Section 5: Prohibition of sales in execution of property after publication of the notice of surrender
and appointment of the curator bonis

This section of the voluntary surrender proceedings deals with the EFFECT of the notice of
surrender.
- In terms of s5(1), after the publication of a notice of surrender, it is unlawful to sell any
estate property which has been attached under a warrant (writ) of execution or other
process, unless the person organizing the execution of the warrant (eg the sheriff) could
not have known of the publication of the notice.
However, if the Master is of the opinion that the value of the property does not exceed
R5000 he may order that the sale of the attached property go ahead and direct how the
proceeds of the sale must be applied, OR if the value does exceed R5000, then the court
may order that the sale of the attached property go ahead nonetheless and at the same
time direct how the proceeds of the sale must be applied.
Further, although sales in execution are stayed(stopped), proceedings which attach
assets of the debtor are still allowed, so attachments can still be made after the notice
of surrender, but nothing can be sold in execution.
-
In terms of s5(2) after publication of the notice of surrender the Master may appoint a
curator bonis to the debtor’s estate. The estate does not vest in the curator bonis – he
only performs the functions of a caretaker. He takes custody of the estate and takes
control over it and assumes control of any business of the debtor as well (if the debtor
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was a trader), as if he was the debtor. S5 (2) is subject to s70 of the Act in that the
curator bonis is required to open a bank account and comply with the provisions therein.
S5(2) does not prevent the debtor from alienating his assets, or from encumbering
them. And the curator has no power to stop the debtor from squandering his assets. The
appointment of the curator does not really go that far in protecting the interests of
creditors.
The form and content of the APPLICATION for voluntary surrender
Once all the preliminary steps have been complied with, the application for voluntary
surrender can be made.
The application itself is brought by way of a notice of motion supported by an affidavit.
[Precedent = appendix 1 specimens 1.1 and 1.2]
The purpose of the affidavit is to convince the court that the 4 requirements for
voluntary surrender have been satisfied. The affidavit must be signed and sworn before
a commissioner of oaths who is a person NOT from the office where the affidavit was
drawn up (this thus excludes the debtor’s attorney).
The affidavit must contain the following information:
 Full personal details of the debtor.
 The court has jurisdiction to hear the application and that the debtor has locus
standi to bring the application.
 It should aver that the debtor is insolvent with facts supporting this eg the
information on the statement of affairs lying for inspection at the Master’s
office.
 An explanation as to how the insolvency occurred (needed to establish whether
the debtor is bona fide in his application).
 It should aver that the debtor owns enough property to defray (pay) the costs of
sequestration which will be payable out of the free residue of the state
resources (more about that later).
 It should aver that the sequestration is to the advantage of the creditors and
that each creditor will get a dividend (payment) that is not negligible.
 It should include details of any salary or income of the debtor.
 Any other information that may influence the court in granting OR refusing the
application must be included – the debtor must be truthful and honest and
disclose all material facts [an application may be refused on the grounds that the
debtor has not acted bona fide by not making a full disclosure of facts].
 It should aver that all the procedural steps have, prior to the application, been
duly followed and completed. Supporting documents should be attached to the
application to prove this eg newspaper and Government Gazette cuttings: a
certificate by the Master that the statement of affairs had duly lain for
inspection for the required 14 days: an affidavit by the debtor or his attorney
that the notice of surrender was sent to each of the known creditors etc.
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If one or more creditors oppose the application, they must each deliver to the Master’s office an
affidavit prior to the date of the hearing of the application. This affidavit must set out the grounds
for opposing the application. That ensures that on the date of the hearing, the court will have
documents both for and against the voluntary surrender and can make a ruling.
Lastly, note that if the debtor is also an employer, then according to s189 of the Labour Relations
Act 66 of 1995, he must provide a copy of the application to the ‘consulting party’. A ‘consulting
party in terms of the Labour Relations Act is any party(ies) with whom the debtor-employer would
have to consult before dismissing employees for operational requirements.
Section 6: Acceptance by court of surrender of estate

S6 lays down the consequences of making an application for voluntary surrender: either the
application is accepted - s6(1) OR it can be refused s6(2).
-According to s6(1) a court may accept the application of surrender and order that the debtor’s
estate be sequestrated provided that the 4 requirements contained in s6(1) are met:
 Firstly that all the provisions in s4 have been complied with (ie notice of surrender,
statement of affairs).
 Secondly that the debtor’s estate is indeed insolvent (the liabilities exceed the assets). The
court will use the information in the statement of affairs to determine this (see Ex Parte
Harmse), but the court is not bound by the statement of affairs and can take the common
sense approach by looking at the debtor’s situation as a whole (see Ex Parte Deemter).
 Thirdly, that the debtor owns realizable property of sufficient value to pay all the costs of
sequestration which is payable out of the free residue of the debtor’s estate.
o The cost of sequestration includes all the administrative costs of surrender such as
placing adverts, tax costs, fees charged by a curator bonis, trustee or Master,
sheriff’s charges et). All these get paid from the free residue part of the insolvent
estate.
o ‘Free residue’ is defined in s2 of the Act as ‘that portion of the estate that is not
subject to any right of preference by reason of any special mortgage, legal hypothec,
pledge or right of retention’.
Thus the ‘free residue’ is that part of the insolvent estate that is not encumbered in
any way. For example, if a house (an immovable asset in the insolvent estate) is
subject to a mortgage bond, it is an encumbered asset and when it is sold by the
trustee, the proceeds will go exclusively to the bank (a creditor) and the proceeds of
the sale of the house are thus NOT free residue.
However, if a positive balance remains after the claim(s) of any creditor(s) have been
discharged(paid), then the balance forms part of the free residue. For example, if a
house is sold for R500 000 and is the subject of a mortgage bond of R450 000, once
the bank as creditor has been paid the R450 000 owed to it, the balance of R50 000
forms part of the ‘free residue’ as no other creditor has any claim to it. If an asset is
wholly unencumbered, then 100 % of the proceeds of the sale of that
unencumbered asset falls into the ‘free residue’.
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o
“….property of a sufficient value to defray (pay) all costs….” The debtor must own
enough property so that if the court had to hypothetically sell all the debtor’s assets
and pay the encumbrances, there must be enough left (called the free residue) to
pay for the sequestration costs as listed above. In determining the sufficiency of the
free residue to pay the costs, there is no hard and fast rule. In each case it is a
question of fact as to what sum would cover the costs of sequestration. The nature
and value of the assets and the probable expenses of administering and distributing
the estate are the important considerations.
The onus of proving sufficient realisable property that can fall in the free residue
rests on the debtor and if he fails to discharge that onus the application to surrender
his estate must fail.
 Fourthly, that the sequestration of the debtor will be to the advantage of the creditors (see
Ex Parte Henning). This requirement is somewhat linked to the third requirement as if there
are insufficient assets to pay the costs of the sequestration, there will be nothing left or too
little left to distribute amongst creditors who must also be paid out of the free residue, and
that is clearly NOT to their advantage. [Even worse, if there is not enough free residue the
creditors who prove their claims may even have to contribute to the costs of sequestration!].
For a long time, for “advantage to creditors” to be established, the courts demanded a
dividend of not less than 10c in the rand for creditors, although some courts have insisted on
20c in the rand (the number usually increases with inflation).
A court will also not generally see voluntary surrender as being to the “advantage of
creditors” if only one creditor would gain advantage from it. The general body of creditors
must gain advantage from the sequestration before it can be said that voluntary surrender
will be to the advantage of ‘the creditors’. (Who is the general body of creditors? – see the
discussion in Fesi and another v ABSA Bank).
[NOTE: for compulsory sequestration the standard requirement is ‘reason to believe’ that it will be to
the advantage of creditors (see next chapter) and NOT that it “will be” to the advantage of creditors.
The onus of proof is thus higher regarding ’advantage” in an application for voluntary surrender].
-In terms of s6(2)
-if the court refuses to accept the application for voluntary surrender the notice of surrender
will lapse, or
-if the debtor withdraws the notice of surrender is terms of s7 (and thus does not continue
with the application) the notice of surrender will lapse, or
-if the debtor fails to make the application timeously – ie within the 14 days from the date
specified on the notice of surrender as being the date on which the application will be
heard(ie the debtor has 14 days of grace) then the consequence will be that the notice of
surrender will lapse. (For example if the debtor indicated in his notice of surrender that he will
make an application for voluntary surrender on 1st February 2021, but fails to do so, he has 14 days
from this date to still make his application before his notice of surrender lapses. Thus, if he has not
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made his application by 15th February 2021, the notice of surrender lapses. If the debtor is truly
serious about sequestrating his estate he will simply have to start de novo – all over again).
Further, in terms of s6(2) if a curator bonis was appointed, then once the Master is satisfied
that payment to the curator bonis for any costs has been made, the estate can be restored
(returned) to the debtor.
NOTE: The court retains the ultimate discretion: Even if the debtor has followed all the
procedures correctly and none of the creditors has objected, the court may still refuse to
accept the application of voluntary surrender and issue an order of sequestration.
These are some of the following favourable and unfavourable factors the court will take into
account when exercising this discretion:
Favourable circumstances:
-a distinct advantage to the creditors (ie a sufficient dividend)
-relief to the debtor from constant demands/threats from his creditors
- to ensure an even and fair distribution of the debtor’s assets (ie if some creditors have
already attached assets to the detriment of other creditors)
Unfavourable circumstances:
-
-
If the court is of the opinion that the application for voluntary surrender is not a genuine
attempt to benefit the general body of creditors, but rather that the debtor has an
ulterior motive for making the application eg to avoid paying his debt or to
defeat/interfere with the rights of a particular creditor (see Fesi and another v ABSA
Bank).
If the debtor does not submit a complete and truthful disclosure of his financial position.
If the debtor’s documents were deficient in a number of aspects (see Ex Parte Harmse).
If the creditors are not, in reality, harassing the debtor as the debtor had led the court to
believe, and in fact the creditors are willing to give the debtor more time to pay off the
debt in monthly instalments.
Section7: Withdrawal of a notice of surrender
-
In terms of s7(1) a notice of surrender published in the Government Gazette cannot be
withdrawn without the consent of the Master.
-
According to s7(2) an application can be made to the Master for the withdrawal of a
notice from the Government Gazette. The Master shall give written consent for the
withdrawal (he is obliged) if it appears to him that the notice was published in good faith
AND if there is good cause for the withdrawal. A notice of withdrawal (and of the
Master’s consent thereto) is then published, at the expense of the debtor, in the GG and
in the newspaper that published the notice of surrender. Once this has been done, t he
notice of surrender is deemed to have been withdrawn.
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SUMMARY OF EFFECT OF NOTICE OF SURRENDER
 No withdrawal of a notice of surrender without the Master’s consent
 Prohibition of sales in execution
 Curator bonis may be appointed
 Can lead to compulsory sequestration (where debtor fails to lodge a statement
of affairs or lodges a statement that is materially incorrect or incomplete, or fails
to make application for surrender on the day he said he would his creditors can
then launch an application for compulsory sequestration)
 Lapsing of a notice of surrender (if court does not accept the surrender, or if the
notice is properly withdrawn, or where the debtor fails to make the application
for surrender on the advertised date or within 14 days grace period after the
advertised date)
OBSERVATION
Why would a debtor himself initiate the sequestration of his estate? There are two main
reasons why a debtor would apply for voluntary surrender:
o The debtor will no longer be liable for the debts he or she incurred before the estate
was sequestrated.
o The insolvent debtor will get the chance to be rehabilitated at some point on the
sequestration process. This means that after the rehabilitation application (only if
successful of course – more about rehabilitation later in the content), he or she will
be able to manage their own estate again.
o Can you add to this list of reasons?
TRACK YOUR UNDERSTANDING: Pause and make sure you are confident of the following key
issues:






The purpose of the notice of surrender.
Effect of the notice of surrender eg on sales in execution, withdrawal etc.
The purpose and content of the statement of affairs.
Form and content of the actual application.
Requirements to be met before the court will grant an order for voluntary surrender.
Ultimate discretion of the court (favourable and unfavourable circumstances that are
relevant for the discretion.
*Note: Some parts of these notes are an adaptation of:
R Sharrock 'Insolvency' in LAWSA 2ed vol1 1 (2008) Durban, LexisNexis Butterworths and Hockley’s
Insolvency Law 9th edition (your prescribed text book).
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