Revision of Unit 8: Debt recovery and bankruptcy

Problem questions

Here are some problem questions for you to attempt.

Before you proceed you may wish to refer to your textbook, in the introductory chapter, and read the section on “answering problem questions”.

Alternately, you can apply the format set out below to assist you in setting out an answer to the problem questions that follow.

How to answer a legal problem question
A suggested short formatsuitable for use in examinations.
1. ISSUE: Identify the main legal issue.
(perhaps one sentence or a paragraph at most)
2. LAW: Briefly set out the relevant legal principle/s from either case law and/or legislation.
3. APPLICATION: Apply the law to the facts given in the question and state your conclusion or give your advice.

2.

What is meant by the term “act of bankruptcy”? In your answer also explain why a debtor’s first available act of bankruptcy is important with relation to the Relation Back period.

3.

Regina is an undischarged bankrupt. A sequestration order was made against her on 1 July 2005.

Which of the following property will be available to her trustee in bankruptcy?

  1. A Lotto win of $300,000.00 on 3 August 2005.
  2. Her motor car valued at $2,000.00 ?
  3. A life insurance policy, owned by Regina, on her own life ? (Note: The policy has been in force for nine years and has a surrender value of over $15,000.00)
  4. A bank savings account with a balance of $10,000.00 which Regina holds in trust for her grand daughter Dimity?

Download the question and write your answer in a document (Word 42 KB).

4.

On 1 June 2005 Joe committed an act of bankruptcy by failing to comply with a Debt Agreement. On 1 July 2005 Joe committed another act of bankruptcy by failing to comply with a Bankruptcy Notice.

On 10 September 2005 a creditor presented a Creditor’s Petition to the court and on 15 August 2005 a sequestration order was made against Joe.

  1. What was the commencement date of Joe’s bankruptcy?
  2. Under the doctrine of relation back, when does the period of relation back begin?

Download the question and write your answer in a document (Word 42 KB).

Feedback to question 2

An act of bankruptcy is a test of the debtor’s insolvency. A creditor must base a creditor’s petition on an act of bankruptcy. Section 40 of the Act lists 14 different ‘acts of bankruptcy’, eg. failure to comply with a bankruptcy notice.

Feedback to question 3

  1. The Lotto win is after acquired property and would be available to the Trustee.
  2. As the car is worth less than the prescribed amount, it will not be available to the Trustee.
  3. Life Insurance policies that have been in force for at least two years are not available to the Trustee.
  4. Property held on trust for the benefit of another party is not available to the Trustee.

Feedback to question 4

  1. The date of bankruptcy is the date of the sequestration order (or in the case of debtor’s petition, the date of acceptance of the petition). Section 115 of the Act determines the commencement date of bankruptcy. It says that if a person becomes bankrupt on a creditor’s petition “then the bankruptcy is taken to have relation back to, and to have commenced at, the time of the commission of the earliest act of bankruptcy committed by the person within the period of 6 months immediately before the date on which the creditor’s petition was presented.” The petition against Joe was presented on 10 September. 1 June is the date of the first act of bankruptcy in the six month period before 10 September. Joe’s bankruptcy ‘relates back’ to 1 June.
  2. The general rule is that all property owned by the bankrupt at the commencement of the bankruptcy is available to the trustee. The importance of the date of commencement is that it makes it possible for the trustee to recover property disposed of by the bankrupt before the sequestration order is made.

Commercial law revision questions unit 8: Debt recovery & bankruptcy1

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