Professional Documents
Culture Documents
Debenture:-
Is an acknowledgement of debt by the company to
the shareholders or creditors.
DIRECTORS
They are quasi – trustees of the assets of the
companyThey manage the company. Duties to
the company
1) Fiduciary Duties
Secret profits and benefits from office – generally- A
director must account to the company for any
personal profit he may make in the course of his
dealing with the company‟s property.*The rationale
for this is that there has been a conflict of interest.- A
director is supposed to negotiate for the company‟s
benefit. He can not obtain a contract for himself in
the course of employment.- He should also account
for any gifts received (either of money or shares)
from promotions, or persons selling property to it or
commission received from persons who supply goods
to the company.***Nkala and Nyapadi4 – A person
possesses fiduciary duties when he is in a position of
trust, or occupying a position of power and
confidence with respect to another person, such that
he is obliged by law to act solely in the interest of
that person whose rights he is to protect.NB Strictly
speaking, directors cannot be trustees because the
legal ownership of the property they administer is not
vested in them but in the company. The position of
trust emanates from the agency-principal relationship
between them and companies.- R V Milne and
4
in their book entitled “Company Law in Zimbabwe.”
Erleigh5, Centlivres CJ summed up the position in
these words:“It is, of course, clear that the duty of all
agents, including directors of companies, is to
conduct the affairs of their principals in the interests
of the principals and not their own benefit”.
CASES
- Industrial Dvt consultants V Cooley [1972] 2 All
ER 162.Facts – the Defendant was an architect of
considerable distinction and attainment in his own
sphere. He was appointed Managing Director of the
Plaintiff‟s construction company to help the company
obtain contracts in the public sector. He negotiated
to obtain for the company 4 contracts tentatively
planned by the Eastern Gas Board. The Board firmly
indicated that it was not prepared to award the
contracts to the company, but the company was
determined to pursue negotiations. Later, the Gas
Board decided to go ahead with the work in a
modified form and to undertake a new project. It
approached the Defendant privately in respect of one
of the contract provided he properly obtained his
release from the company. He was also given firm
details of the other contracts. The Defendant did not
inform the company of these talks, but obtained his
release from his position as Managing Director by
stating falsely that he was ill. He told the Gas Board
that he was very interested, not only in the contracts
5
1951 (1) SA 791 @ 828D
offered to him, but also in the others. Whilst still
Managing Director of the company he submitted
detailed proposals for undertaking the work. One
week after his release as Managing Director he
obtained the contracts. The company sought to make
the Defendant account for the profits from the
contract on the basis of his breach of fiduciary duty.
The Defendant denied any fiduciary duty as the
contracts had not been obtained by virtue of his
position as the Managing Director. The Gas Board
had approached him, not qua Managing Director of
the Plaintiff Company, but in his own capacity, and
consequently he was under no duty to pass the
information on to the company.Held – that the
Defendant should account. The Defendant had one
capacity, that of Managing Director.He was under a
fiduciary duty to pass on information acquired in his
dealings with the Gas Board which was of concern
to the Plaintiff. Further, in pursuing this contract for
himself, he had allowed his duty to the company and
his own interest to conflict.Roskill J held:-
“Therefore it can not be said that it is anything like
certain that the Plaintiffs would ever got the contract
… on the other hand, there was always the possibility
of Plaintiffs persuading the Eastern Gas Board to
change their minds and ironically enough, it would
have been the Defendant‟s duty to try and persuade
them to change their minds.It is a curious position
under which he should now say that Plaintiffs
suffered no loss because he would never have
succeeded in persuading them to change their
minds”.
1. Regal (Hastings) Ltd V Gulliver6 Held:by the
house of Lords – that directors were liable to account
to the company once it was established:-*That what
the directors did was so related to the affairs of the
company that it could properly be said to have been
done in the course of their management and in
utilization of their opportunities and special
knowledge as directors and.*That what they did
resulted in a profit to themselves.NB However, a
director may take advantage of a corporate
opportunity on his own account if his company has
considered the same proposition and rejected it in
good faith.Pesso Silver Mines V Cropper7Facts –
Pesso Company was offered an option on mineral
claims. The Board of Directors sat, considered the
opportunity and turned it down on reasonable
grounds. Subsequently, three Directors acquired the
claims personally and they made a profit. After a
change in the company management, the new
management sought to make the Directors account
for the profits they made.Held – that the Directors did
not take a corporate opportunity and therefore they
6
[1942] 1 ALLER 378.
7
[1967] 30 mlr 450
were not obliged to account.Master this – Nkala and
Nyapadi convincingly contend that it‟s not possible
for a director to contract out of his fiduciary duty.
Directors are not allowed to make secret
profits.Directors should exercise their independent
discretion and make decisions according to the best
interests of the company as his principal to the
exclusion of the interests of any such nominator,
employer etc.
2. Duty of care and skill
Directors should not act negligently in managing the
company‟s affairs. The degree of skill is that of a
reasonable person of their knowledge and skill and
experience In re City Equitable Insurance
CompanyHeld – (i) A director is not bound to give
continuous attention to the business of the company.
Neither is he obliged to attend all meeting though he
ought to attend when reasonably necessary. (ii) He is
not obliged to see to the security and efficiency of the
company personally. (iii) the test for negligence is
subjective.Re Brazillian RubberFacts – Directors
agreed to be directors of a Company where they had
no knowledge of the business itself. The court found
that one of the directors was ignorant in business
generally. The other director was of an advanced
age. The company made huge loses through
speculation of directors. The liquidator argued that
the directors were liable. *The court used the
subjective test of negligence and found the directors
not liable. NOTE – What can be concluded from the
common law position is that the fewer a director‟s
qualifications for the office are, the less time he
devotes to the business, the greater reliance he places
on others and the less legal responsibility he attracts.
Worse still, our Companies Act, unlike the English
Act, does not make any director unfit for office
because of glaring incompetence. This results in
companies incurring great losses because of too much
relaxation on the test for negligence. There is
however, great need at law to impose stricter
standards on directors to provide incentives for them
to perform their legal duties for the benefit of the
company, shareholders and the general public.
Duties of directors towards shareholdersDirectors do
not owe any contractual or fiduciary duties to
individual members of their company unless there is
an agency principal contract to this effect. They owe
them duties as a collective group.*Percival V Wright8
Facts – certain shareholders wrote to the secretary
enquiring if he knew anyone wishing to purchase
their shares. Negotiations ensued between the
shareholders and the chairman and the two other
directors. The Plaintiffs subsequently discovered that
the board had been approached by a 3rd party who
offered a very favourable price for the shares. At the
8
[1902] 2 Ch 421.
time Plaintiffs‟ discovery, they had already sold the
shares to the directors. The Plaintiffs requested that
the sale of their shares be put aside on the ground that
the Defendants should have disclosed the takeover to
them.Held – that the directors were not under a duty
to the shareholders to disclose this information even
though they knew that the shares were more than the
shareholders‟ selling price. It was stressed in the
judgement that there was no unfair dealing. The
court found that the directors did not approach the
shareholders with the view of obtaining their shares.
Instead the shareholders approached the directors,
and named the price at which they were desirous of
selling, hence there was no question of unfair dealing
in this case. Allen V Hyatt9Facts – directors
induced the shareholders to give them options for the
purchase of their shares so that the directors might
negotiate a sale of the shares to another company.
The directors used the options to buy the shares
themselves and then resold them at a profit to the
other company.Held - Privy council that the directors
had made themselves agents for the shareholders and
must consequently account for the profit which they
had obtained.Directors do not owe members any
duties because they are not servants of the
shareholders but of the company.Section 189 states
that “In the exercise of their functions, directors may
9
[1914] 30 TLR 444.
have regard to the interests and welfare of the
company‟s employees, the dependants of those
employees as well as the interests of the company‟s
members”.NB The use of the word „may‟ indicates
that this duty is discretionary. It is dependant on the
decision of an individual director.
Qualifications of Directors
The Companies Act does not give any qualifications
for directors. However, the following people are
disqualified from being directors:-- Unrehabilitated
insolvents.- Minors or any people under legal
disability.- Women married in community of
property need written consents of their husbands.- A
body corporate eg a company cannot be the director
of another company.- A person convicted in
Zimbabwe or outside for any case of commercial
immorality eg forgery, fraud, theft and uttering.- Any
person who is removed by a competent court from
the office of trust on account of his
conduct.*Directors are responsible for the
management of the company. Each company should
have not less than 2 directors, one of which should be
ordinarily resident in Zimbabwe.Every company
should also have a company secretary who is
ordinarily resident in Zimbabwe.
Meetings of members
The statutory meeting
Not less than one month and not more than 3 month
after it‟s entitled to commence business every public
company must hold a general meeting of members,
which is called the statutory meeting (S124(1)).The
object is to enable members to review, the initial
progress of the company. Company affairs should be
discussed fully (S124(7)).
Annual General Meeting
Must be held within 18 months of the company‟s
incorporation and thereafter within 6 months of the
end of each financial year and not more than 15
months after the previous AGM. The registrar is
empowered to extend these periods on good cause
shown or to arrange a meeting (even of one person)
which shall be deemed to be the AGM (S125).21
days‟ notice in writing of the meeting must be given,
but short notice may be accepted by all the members
entitled to attend and vote (S127).
Issues to be discussed include “declaring a dividend,
the consideration of the accounts, balance sheets and
reports of the directors and auditors, the election of
directors in the place of those retiring and the
appointment of and the fixing of the remuneration of
the auditors and any special business the general
nature of which has been given in the notice
convening the meeting.”
Extraordinary General Meetings
Deal with special business, the general nature of
which must be given in the notice convening the
meeting. This is to enable a member to attend the
meeting and to prepare himself to deal with the
special business.
S126 requires an extraordinary general meeting to be
convened by the directors.S127 requires 14 days‟
notice in writing to be given (7 days in the case of
private company) and permits this notice to be
waived by the holders of 95% of the shares giving a
right to attend and vote at the meeting.*An EGM
may also be requisitioned by notice to the company
from members holding not less than 5% of the paid-
up capital carrying the right to vote. The requisition
must state the objects of the meeting, and within 21
days the directors must issue a notice convening a
meeting not less than 14 days (21 days if a special
resolution is to be proposed) or more than 28 days
ahead.
If the directors do not act, half or more than the
requisitionists may convene the meeting, being
reimbursed by deductions from the fees of the
delinquent (or stubborn) directors: S126.
Conduct of meetings- Common law requires fair
warnings to be given to members of matters to be
considered at meeting.- There should be a quorum of
2, with an automatic adjournment of a week if the
quorum is not present.- The chairman of the Board
should chair meetings and should have a casting
vote.*Under common law, the chairman has a duty to
enable members to discuss the matters before them
fairly and reasonably – should keep order and prevent
time-wasting. He should exercise his powers in good
faith and with fairness.- Minutes of every meeting
must be kept in a minute book, if signed by the
chairman of the meeting or the next meeting, are
evidence of the proceedings and prima facie evidence
of their regularity (S138).
VOTING AT MEETINGS
The Act leaves it open to the articles to allocate
voting rights in any way. It‟s generally by show of
hands unless a poll is demanded.*S129 provides for
proxy voting. A proxy is entitled to speak as well as
vote on behalf of the member(s) appointing him and
need not himself be a member. Thus it‟s sometimes
convenient to appoint a lawyer, accountant or other
expert.
RESOLUTIONS- refers to decisions that are
reached at meetings.*All decisions at meetings of
members are taken by ordinary resolution i.e. a
simple majority of the votes cast. On the other hand,
a special resolution requires at least 75% of the total
number of votes cast at a meeting.
The Act requires a special resolution for the
following purposes: alteration of the memorandum
(S16(1)), alteration or the articles (S20), change of
name (S25(1)), conversion of public into private
company (S33(3)), issuing shares at a discount
(S75(1)), placing uncalled capital to reserve (S86),
alteration of share capital (S87(1)), reduction of
capital (S92), investigation of company affairs
(S158(a)(1)), winding up by the court at (S206(a)),
voluntary winding up (S242(b)), sale of bus or
property in voluntary winding up (S250),
arrangement with creditors in voluntary winding up
(S260), instructions of liquidator in voluntary
winding up (S263(1)), making provision for
employer and employees and their dependants on
cessation or transfer of the company business (S287).
SPECIAL 21 days notice should be given, specifying
the terms of the resolution and the intention to
propose it as a special resolution. The holders of not
less than 25% of the votes of the company must be
present in person or by proxy, the resolution must be
passed by not less than a 75% majority of the
members present (S133(1)). The resolution must be
transmitted of the registrar for registration within 1
month (S136).A resolution requiring special notice is
required for the removal of a director before
expiration of his term of office (S175) or for
replacing an auditor (S151) or for any other purpose
specified in the articles (S135(1)). 28 day‟s notice
must be given to the company, which must then give
21 days‟ notice of the resolution and send a copy to
any person whose status will be affected by the
resolution (S135).
WINDING UP
Is a process by which a company‟s existence is
brought to an end and may take the form of winding
up by the court or voluntary winding up.
Grounds for winding up by the courtS206 sets up
grounds on which a company may be wound up by
the court namely:- If the company has by special
resolution resolved that it be wound up by the court.-
If default is made in lodging the statutory report or in
holding a statutory meeting.- If the company does not
commence its business within a year from its
incorporation or suspends its business for a whole
year.- If the company ceases of have any members.-
If 75% of the paid-up share capital of the company
has been lost or has become useless for the business
of the company.- If the company is unable to pay its
debts.- If the court is of the opinion that it is just and
equitable that the company should be wound up e.g.
where the main objects have become impossible to
achieve and where the company is commercially
insolvent and winding up is the only means by which
credit can obtain payment.Ebrahimi V West bourne
GallariesFacts – Ebrahimi and Mr Nazar carried out a
partnership business where they had equal shares.
They converted this partnership into a private
company and were appointed its first directors. Soon
Mr Nazar‟s son was admitted into the company
through a donation of shares by both parties.
However, the father and son colluded to kick out
Ebrahimi from the company using a general
resolution. Mr Ebrahimi then petitioned the court to
make a winding up order. Held- Winding up was
ordered on just and equitable grounds because Mr
Nazar and his son had oppressed Ebrahimi.
Who may apply for winding up by the courtS207(1)
provides that an application for winding up by the
court may be made by the company, a creditor, a
contributory or the minster.S207(2) adds the master
of the High Court to the list if the application is to
convert a voluntary winding up into winding up by
the court.*Contributory – a person liable to
contribute to the assets of a company in winding up
(S202).
ProcedureThe applicant must proceed by way of
petition (S207) which must comply with companies
(winding up) rules S1841 of 1972 rule 5. It should be
served on the company and the court should grant an
order allowing the company ample time to prepare
and present its case. Upon presentation of evidence,
the court will consider the matter and decide whether
or not to grant a winding up order.Winding up is
deemed to commence at the time of presentation of
the petition (S210(2)) which means when it is filed
with the registrar of the High Court.
Effect of winding up order Its immediate effect is to
freeze the company‟s affairs in a number of respects -
legal proceedings, attachments and executions are
stayed, disposition of property, share transfers and
alterations in the status of members may no longer be
made, the company‟s property is deemed to be in the
custody or control of the master until a liquidator or
provisional liquidator is appointed, the powers and
duties of the directors also cease etc.LiquidatorHis 1st
duty is to recover and reduce into possession all the
company‟s property and open a bank account (S224).
He should take into account directions given by
meetings of creditors or contributories. He should
identify creditors and contributories and how much
they are owed by and owe the company
respectively.In the event of a company being unable
to pay its debts, creditors may proceed against
sureties of a company being wound up, without 1st
excusing the company.The process of liquidationThat
liquidation should ascertain the total of the
company‟s liabilities from the proofs of creditor‟s
claims (S220). He should sell company‟s assets with
the authority of a joint meeting of creditors and
contributories with leave of the court keeping a
proper account of all transactions.*He can calculate
the shortfall, and name the contributories that are able
to compensate the shortfall, if any.*He can open a
liquidator‟s account. He will then prepare the
necessary documents and hand them over to the
master. The master then applies to the court for
dissolution.
Voluntary winding up*Is by special resolution which
should be advertised and sent to the master. Winding
up commences from the passing of the resolution,
when the company is required to cease business
except in so far as may be necessary for its beneficial
winding up (S245).*If, before the special resolution,
the directors give security for payment of the
company‟s debts or furnish the master with the
prescribed proof that the company has no liabilities,
the winding up becomes a member‟s voluntary
winding up. Otherwise it‟s the creditors‟ voluntary
winding up (S246).*Since directors have no interest
in a members‟ voluntary winding up, the liquidator is
appointed, empowered, remunerated and if necessary
replaced (S249) by the company in a general
meeting.*In a creditors‟ voluntary winding up, the
special resolution must be followed by a creditors‟
meeting organised by the company to receive a
statement of the company‟s affairs and to nominated
a liquidator.*The liquidator must give notice of his
appointment to the master. Calling meeting between
the company and creditors every six months or
whenever necessary.On application by a creditor or
contributory (S265) or by the liquidator the court
may convert the voluntary winding up into a winding
up by the court.There appear to be 3 circumstances in
which a creditor can proceed against a company in
voluntary liquidation. These are:-- Where the action
was instituted prior to liquidation.- Where the claim
arose from expenses incurred in winding-up.- Where
despite the presentation of a claim of the liquidator,
he refuses to make a decision upon it.
CHAPTER 15
INSOLVENCY
Is governed by the Insolvency Act [Chapter 6.04]. As
was mentioned in Chapter 2, an insolvent is a person
who accrues more liabilities than what his assets can
pay for. Early Rome saw a debtor who was unable to
pay his debts surrendering himself to his creditor,
hoping for slavery rather than death1. But today, due
to the advent of human rights, a person now retains
his freedom but hands over his property in
accordance to the Insolvency Act [hereinafter
referred to as the Act. ***In a nutshell, the Act
provides that a debtor who cannot pay his debts may
be ordered by the High Court (either on his
application or that of the creditor) to hand over his
property to a trustee for sale and distribution among
his creditors. The debtor is relieved of liability for his
debts, but remains under certain legal disabilities
1
Scott – The Civil Law vol 1, pages 63-4
unless he successfully applies to court for
rehabilitation.
SEQUESTRATION AND ATTACHMENT OF
PROPERTY
The Act applies to every debtor except a company or
other association which may be wound up under the
Companies Act. According to section 2 of the Act,
the Act applies to individuals, partnerships or
associations of not more than 7 members, trusts
which are capable of owning property and clubs
which do not carry on business for profit2.
FORMS OF INSOLVENCY(1)
Voluntary surrender – this ensues when the debtor or
his agent surrenders his estate for sequestration (see
Section 3). Usually, this is done by way of petition to
the Master of the High Court [s 3(4)]. Ex Parte
Marais3 convincingly held that the information in the
petition must include “…the nature of the business,
the cause of insolvency and other matters connected
with the estate, as well as the financial position of the
applicant apart from the business and the prospect of
obtaining remunerative employment. It was
important to state whether he was now in a salaried
position or not and whether he had other sources of
income.” It should also include a statement of the
debtor‟s affairs.The petition must satisfy the court on
2
see Ex parte Milton 1959 (1) R &N 377 / 1959 (3) SA 347 and Ex Parte Matabeleland Club 1962 R
&N 4
3
1939 SR 25
the following 4 matters:- That the estate contains
sufficient free residue (i.e assets over which no
creditor has a particular right of preference) to meet
the costs of sequestration [s 4 (1)(a)].- That the estate
is insolvent [s 4(1)(b)] – ie that it has more liabilities
than assets.- That the surrender will be for the
benefit of creditors generally.- That the debtor has
made a full and honest disclosure of all relevant
facts4.*If the court is prima facie satisfied on all
these, it may grant a provisional order of
sequestration and issue a rule nisi calling on
interested parties to show cause why the provisional
order should not be made final [s 4(1)].The petitioner
must publish the rule nisi in the Government Gazette
and a circulating newspaper [s 5] and on the return
day the court may (if satisfied on all points including
publication) grant a final order of sequestration [s 6].
This procedure is not rigid. In Ex Parte Spence5, the
court held that any irregularity in procedure may, in
the court‟s discretion, be condoned is there could be
no prejudice of any interested party.
(2) Compulsory Sequestration – occurs when a
creditor(s) petition the High court to sequestrate the
debtor‟s estate owing to either non-payment of debts
or that the debtor‟s estate is insolvent or that he is
„commercially insolvent‟ in the sense that he cannot
4
Ex Parte Berman 1972 (1) RLR 230.
5
1959 (3) SA 933.
pay his debts without selling his assets. The
procedure is akin to that of voluntary surrender.
However, the creditor should satisfy the court that
sequestration will be to the advantage of
creditors.The provisional trustee.Should be appointed
by the High Court upon being petitioned by a creditor
who feels it desirable that the debtor‟s estate should
be placed under immediate control.Effect of
sequestration- It imposes legal disability on the
debtor. R v Etberg6 held that the status of insolvency
stops at international boarders and a person who is
insolvent or bankrupt in any foreign country will not
be regarded as insolvent in Zimbabwe.- The insolvent
is deprived of ownership of all his property, which
vests in the trustee [ss 23 & 39].- The insolvent is
also deprived of the power of acquiring ownership of
property [s 23 (2)(b)], but he may retain his clothes
and bedding and such furniture and tools as the
Master may decide to leave him. However, the High
Court has special jurisdiction at times to order the
insolvent to pass ownership to a 3rd party who
acquires property from him in good faith and for
value.- The insolvent is also disqualifies from
holding positions of trust like that of a Company
director.- The insolvent‟s contractual capacity is
unaffected. However, if the contracts affect estate
property, the insolvent must get the consent of the
6
1932 AD 142.
trustee.- The debtor‟s existing contracts at the time of
sequestration can be terminated. However, the trustee
has the discretion to either abide by the contracts
(which involves performance of the insolvent‟s
obligations) or to terminate them.Procedure up to the
2nd meeting of creditors.The 1st meeting of creditors –
one of the reasons why notice of every order of
sequestration must be given to the Master is to enable
him to call the 1st meeting of creditors of the
insolvent, which he does by notice in the Government
Gazette. The object of the meeting is to enable
creditors to prove their claims and elect a trustee [s
53(1)]. It will be presided by the Master or hs deputy
[s 52]. The insolvent is obliged to attend the 1st
meeting unless excused [s 67(1)] and may be
subjected to examination.Election of a trustee – no
professional qualification is required but the
candidate must not be:- Himself an insolvent- A
minor or other person under legal disability- Resident
outside Zimbabwe.- A body corporate.- Have been
once convicted of a commercially immoral crime
etc.He is elected by the creditors present at the 1st
meeting. If they do not, then the Master may appoint
one. If the trustee is appointed by the creditors, he
does not take office until he has given security to the
satisfaction of the Master and received from him a
certificate of appointment. He must then advertise his
appointment together with address in the Government
Gazette, calling upon debtors of the insolvent to pay
their debts to him [sections 75 and 91]. The
insolvent‟s property vests in him. He also opens a
bank account and safeguards the insolvent‟s books of
account.
Duties of the trustee- Taking necessary steps to
recover debts owed to the insolvent.- Paying off
creditors (with the permission of the Master) using
the proceeds of the insolvent‟s estate.- To uphold
some of the insolvent‟s contracts.- Performing legal
transactions on behalf of the insolvent.Impeachable
transactionsRefer to the power given to the trustee to
set aside certain transactions carried out by the
insolvent before he was sequestrated. Such
transactions include:
(a) Disposition without value – is any transfer or
abandonment of the insolvent‟s rights to property not
made for value, such as a gift7.
(b) A voidable preference – is any disposition of his
property made by the insolvent less than 6 months
before sequestration which has the effect of
preferring one creditor (in a surety) above another.
(c) An undue preference – is a disposition of his
property made by the insolvent at any time when his
liabilities exceeded his assets, with the intention of
preferring one creditor above another.
7
see Huizenga v Zwinoira 1987 (2) ZLR 276.
(d) A collusive dealing – is a transaction entered into
by the insolvent before sequestration in collusion
with another person for the disposal of any property
belonging to the insolvent which had the effect of
prejudicing his creditors or of preferring one creditor
above another.The 2nd meeting.Here, the trustee must
give a report of all the transactions carried out. The
report should include:- All matters relevant to
sequestration- The assets and liabilities- The cause of
the debtor‟s insolvency- The books relating to the
debtor‟s affairs- Whether the insolvent appears to
have contravened the Act or has committed any other
offence, with full particulars- Whether he has made a
subsistence allowance to the insolvent under section
93 and why- Whether he had carried on the
insolvent‟s business, with a list of purchases and the
trading results.- Whether any legal proceedings were
suspended by the sequestration and are pending or
threatened.- Whether the contract to buy immovable
property or any lease was affected by sequestration,
and what action he has taken.- Any matter in regard
to the administration or realization of the estate
requiring the directions of the creditors. The object
of this meeting is not only to give the fullest
information to the creditors but to enable them to
give instructions to the trustee on items (f) to (j).
Creditors may vote on any matter concerning the
administration of the estate, but not on matters
concerning its distribution. The insolvent should
attend either the 1st or 2nd meeting or both meetings,
failure of which attracts a criminal offence. The
insolvent should be examined especially on the 2nd
meeting.Procedure after the 2nd meeting.Composition
– the insolvent may submit to the trustee an offer of
composition anytime after the 1st meeting, the object
of which is to prevent the normal sale of all the
insolvent‟s assets and distribution of the proceeds
among creditors. The offer can come in the following
forms:*A scheme whereby the insolvent is allowed to
continue his business under the trustee‟s supervision
and a committee of creditors in exchange for regular
monthly payments to be paid to the trustee for
distribution.*Cash payment (provided by the
insolvent‟s friends and relatives) in return of all the
insolvent‟s assets to him.Sale of goods – where no
composition has been agreed, the trustee‟s primary
duty after the 2nd meeting is to proceed as rapidly as
possible with the selling of the estate‟s property and
the distribution of the proceeds.The Trustee‟s
accounts – must be produced within 6 months of
appointment [s 118] unless the Master grants him an
extension [s 119]. Sections 121-124 provide that the
nature of the accounts include:*A liquidation account
– showing the trustee‟s receipts and
disbursements.*A trading account – showing opening
and closing stock, daily totals of receipts and
payments and trading result.*A plan of distribution –
showing the amounts awarded to secured, preferent
and concurrent creditors or a plan of distribution
showing the amount each creditor is liable to
contribute.
REHABILITATION
Is a process whereby an insolvent applies to return to
normal. The application to the High Court for
rehabilitation may be made in 5 circumstances
namely:- If the insolvent has obtained a certificate
from the Master that his creditors have accepted a
composition [s 141(1)].- If 12 months have elapsed
since the confirmation of the trustee‟s 1st account or 2
years from the final sequestration order, whichever is
the earlier [s 141(2)(a)].- If the insolvent has been
sequestrated on a previous occasion and 3 years have
elapsed from the confirmation of the trustee‟s 1st
account, unless the insolvent has been convicted of a
fraudulent act in relation to the existing or any
previous insolvency [s 141(2)(b)].- If the insolvent
has been convicted of a fraudulent act in relation to
his existing or any previous insolvency and 5 years
have elapsed from the date of conviction [s
141(2)(c)].- At any time after confirmation of a plan
of distribution providing for payment in full of all
proved claims, with interest, and the costs of
sequestration [s 141(4)].A partnership cannot be
rehabilitated but individual partners can [s 145]. The
effect of a rehabilitation order is to put an end to
sequestration, to discharge all the insolvent‟s pre-
sequestration debts which did not arise out of any
fraud on his part and to relieve the insolvent of every
disability resulting from the
sequestration.Rehabilitation does not affect rights and
duties relating to a composition or to property not yet
distributed, nor the liability of a surety for the
insolvent nor any liability to pay a penalty or suffer
punishment under the Act [s 146].
ASSIGNMENTA debtor who wishes to obtain the
advantages of insolvency without the
corresponding disadvantages may agree with his
creditors to hand over his estate to a person
(called the assignee) to be administered for the
benefit of the creditors through a contract known
as a deed of assignment.The debtor must publish
the notice and registration of the assignment in
the Government Gazette and local newspaper. It
should be signed by at least ¾ of the majority of
creditors. The Master of the High Court
supervises whatever the parties agree to in the
Deed of Assignment.