Advantage To Creditors Essay

778 words - 4 pages

Section 6 (1) of the Insolvency Act requires the insolvent debtor to satisfy the court that sequestration will be to the advantage of the creditors. This onus is difficult to discharge, as many insolvent debtors do not have sufficient assets to provide for the benefit of creditors.

There are many fundamental rights in the Constitution that the Insolvency Act poses a threat to, including section 9, the right to equality. One must keep in mind that even if a right is being inflicted upon, it does not automatically make that legislation constitutionally invalid. Section 36 of the Constitution, the limitation clause, allows for limitation of certain rights, if it reasonable and justifiable.
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The Insolvency Act differentiates between rich debtors who are able to prove an advantage to creditors and the poor debtors who cannot. This places an unjustifiable limitation of those debtors unable to prove advantage to their creditors and it is therefore inconsistent with section 9, as these debtors are not treated equally.

Therefore a change to Insolvency law needs to be imposed. One possibility is the new Draft Insolvency Bill, which retains the advantage of the creditors but makes the onus the same for voluntary surrender and compulsory surrender. The debtors now only have to prove that there is a reasonable belief that there will be an advantage to the creditors and not an actual advantage. This makes it less strenuous on the debtor and allows for debtors, who are too poor to be able to prove the original requirement, the ability and right to be sequestrated and eventually rehabilitated. Therefore providing equality amounts those who are ‘too poor to be broke’.

This ensures that debtors who are too poor, will, for a change, be advantaged as opposed to being disadvantaged, and those who are being dishonest and that were advantaged previously, by being able to use voluntary surrender and friendly sequestration. Certain requirements need to be met to ensure that dishonest debtors do not abuse the new system; this would include paying...

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