Department of Justice and Constitional Development

DEPARTMENT OF JUSTICE AND CONSTITIONAL DEVELOPMENT
DIVISION: MASTER OF THE HIGH COURT
POLICY:

STRATEGY ON/PROCEDURES FOR APPOINTMENT OF LIQUIDATORS AND TRUSTEES

(FIRST DRAFT)

1. STATEMENT OF INTENT

1.1 The Department of Justice and Constitutional Development aims to correct the imbalances that exist with the appointment of liquidators and trustees so as to actively advance/empower previously disadvantaged people in line with the Government's policy in this regard.

2. POLICY OBJECTIVES

2.1 The objectives of this Policy Document are to -

2.1.1 address the imbalances through a long and medium term strategy;

2.1.2 create a uniform procedure in all the Master's Offices for the appointment of liquidators and trustees;

2.1.3 make the industry accessible to the previously disadvantaged people; and

2.1.4 promote the image and confidence of insolvency practitioners and the Master's Division.

3. SCOPE

3.1 This policy document covers all employees of the Master's Offices. It shall be used as the foundation for the movement towards empowerment of previously disadvantaged people by advancing their appointment as liquidators and trustees.

4. DEFINITION OF TERMS

4.1 In line with proposed legislation, the term "liquidator" and "liquidation" has been preferred in this policy. Notwithstanding any reference to a liquidator it must be deemed to include a trustee and or judicial manager, where applicable and any reference to a liquidation must be deemed to include a sequestration, where applicable.
2.

5. LONG TERMS PROPOSALS

5.1 NEW INSOLVENCY BILL I COMBINED INSOLVENCY BILL

5.1.1 Section 32(2) of the Draft Insolvency Bill effectively removes the Masters discretion as regards the appointment of provisional liquidators, save for the appointment of an additional liquidator as provided in Section 32(2A). In addition, Section 32(3) provides for the appointment of a provisional liquidator by the Court when granting the first liquidation (provisional) order, in extremely urgent matters.

5.1.2 Likewise, in terms of Section 52 of the said Bill, the appointment of a final liquidator is determined by the majority of votes in number and value at the first meeting of creditors, the Masters discretion being limited to the appointment of an additional liquidator upon 48 hours notice to the appointed liquidators, or liquidators to be appointed.

5.1.3 Similar provisions are contained in Section 37 and Section 56 of the draft Insolvency and Business Recovery Bill ("Combined Insolvency Bill") save that the Masters discretion to appoint and additional liquidator is excluded.

5.1.4 The Draft Insolvency Bill ignores some of the important factors that need to be taken into account when making provisional appointments, e.g. sociol economic conditions, rights of workers, government policy, etc.

5.1.5 The aforementioned provisions, which entrench the will of creditors (including the workers), will be subjected to further public scrutiny and debate, to facilitate empowerment appointments and the extension of the 48 hour deadline to allow for sufficient time for creditors and workers to make their nominations.

5.2 CREATION OF A STATUTORY BODY TO REGULATE LIQUIDATORS

5.2.1 The following factors favour the creation of a Statutory Body to regulate the qualifications, conduct, training needs and standards of liquidators;

5.2.1.1
Significant support for the establishment of a Statutory Body by major role players such as the Association of Insolvency Practitioners of South Africa, The South African Institute of Chartered Accountants, The Institute of Commercial and Financial Accountants not excluding the Association for the Advancement of Black Insolvency Practitioners.

5.2.1.2 The need for a watchdog body to eliminate the incidence of corruption and unethical practices by liquidators.

5.2.1.3
The need for a governing body to promote the education, training and practical experience of liquidators entering the profession, especially the advancement of liquidators from disadvantaged groups.

5.2.2 The Statutory Body could be structured on similar lines to that of the Law Society to set relevant standards~ for the admission, qualifications and conduct of liquidators. Thorough research will have to be done by the Statutory Body to determine the qualification criteria. Such criteria could include -

5.2.2.1
passing of an examination similar to the current Association of Insolvency Practitioners in South Africa diploma coupled with a suitable period of articles of clerkship under an experienced liquidator as principal, who would be responsible to the statutory body for the proper training of his candidate (allowance could be made for experienced liquidators to be granted the right to apply for total or partial exemption from the qualifying examination or period of articles); or

5.2.2.2 formal educational training which includes practical training that could replace articles of clerkship.

5.2.3 Ideally, the Statutory Body should encompass an ethical and disciplinary committee with powers to apply to the court for the suspension or disbarment of a liquidator. The body could also assist the Master in a similar capacity to that of an assessor, to determine special fees and to mediate fee sharing disputes between joint liquidators. Time sheets should also be made mandatory for trustees/liquidators to resolve fee disputes particularly where disadvantaged liquidators are joined, aside from assisting the Master to consider the issue of special fees.

5.3 JUDICIAL MANAGEMENT (BUSINESS RECOVERY LEGISLATION)

5.3.1 Present legislation provides for the judicial management of companies to the exclusion of close corporations and individual estates (bar prodigals and persons incapable of managing their own affairs).

5.3.2 The implementation of "Business Recovery" legislation in line with the proposals contained in the Draft Insolvency and Business Recovery Bill should be contemplated with applicability to companies, close corporation and individual estates.

5.3.3 Such legislation would serve a three fold purpose:

5.3.3.1
To reduce the incidence of liquidations/insolvencies, which damage the economy! generate long term unemployment.

5.3.3.2
To provide employment opportunities for emergent liquidators from disadvantaged groups, many of whom are possessed with legal, business and forensic accounting skills and experience.

5.3.3.3
To assist the increasing number of entrepreneurs from disadvantaged groups who are unable to cope with the strains of business expansion.

6. MEDIUM TERM PROPOSALS

6.1 CREATION OF INTERACTIVE WEB SITE FOR MASTERS DIVISION TO PROMOTE TRANSPARENCY AND ACCOUNTABILITY WITH REGARD TO DISCRETIONARY APPOINTMENT OF PROVISIONAL LIQUIDATORS~ ETCETERA

6.1.1 Proposals have at this stage been forwarded 10 the Department of Justice by the Forum for Reform of Deceased Estate Administration and the Association for Insolvency Practitioners of South Africa for the establishment of a "Justice Resources Trust" in order to secure private funding for the establishment of the above web site.

6.1.2 The establishment of such a web site would serve to render the process of appointment of trustees/liquidators far more transparent and help to stem the incidence of corruption. Such a web site should contain full information of all requisitions lodged and bonds of security filed in each estate, along with a panel list of all trustees/liquidators. All appointments, including purely discretionary appointments, would then be open to public scrutiny once it has been logged onto the web site, along with reasons for each appointment.

6.1.3 The panel list of trustee/liquidators should contain full information on the qualifications and experience of each trustee/liquidator to enable creditors to make informed choices when nominating trustees/liquidators for appointments. Demands issued to liquidators (sole appointments only) must be noted against their names as this will explain why a liquidator may have been by-passed for an appointment. The panel list must also specify details of previous liquidations/sequestrations handled by the panellist and whether such appointments were administered in a joint or sole capacity. Further suggestions include a separate list of affirmative action panellists in order of seniority, alternatively a unified list which clearly identified liquidators from disadvantaged groups.

6.1.4 The added advantage of a web site will be to allow the Department and the Ministry as well as the head office of major creditors such as banks and the South African Revenue Service to monitor appointments on an ongoing basis.

6.1.5 The web site must receive wide publicity to encourage creditors to access the site in order to make an independent choice when considering nominations. Perhaps all current estates handled by each liquidator could be logged against his or her name against the panel to encourage an equitable distribution of work.

6.2 Touting

6.2.1 Touting is a practice which is not only commonplace, but widely accepted within the industry, notwithstandi~g that such practices are per se unlawful and expressly prohibited by governing legislation.

6.2.2 At present Black liquidators are largely dependant on the exercise of the Masters discretionary power to obtain appointments. Should draft insolvency legislation be promulgated in its present form, such discretionary power will be withdrawn, leaving Black liquidators at the mercy of creditors.

6.2.3 A full scale investigation is called for into the incidence of touting to the extent that it offends empowerment legislation, such as the Promotion of Equality and Prevention of Unfair Discrimination Act, No.4 of 2000 and the Competition Act, No.89 of 1998.

6.2.4 As the industry involves billions of rand, the idea of an ombudsman to monitor complaints from liquidators and creditors will be investigated.

6.2.5 Any statutory body established must be seen to be playing a vital role in promoting the profession of liquidators and creating an awareness campaign amongst creditors to promote a more equitable system of distribution of appointments. There is no reason why liquidators should not be allowed to advertise their services, subject to a strict advertising code of ethics, to make creditors aware of the services available and to allow creditors to decide on which liquidator to support, without inducement.

6.3 UNIFORM CODE

6.3.1 The practice of making appointments differs markedly between the various divisions of the Masters Office with regard to the making of urgent appointments and the "48 hours deadline". Some offices display a reluctance to consider liquidators from other provinces for appointments while others adopt the practice of making a joint appointment of such person with a local liquidator. The aforementioned underpins the need for a uniform code of practice to promote consistent practice. Such uniform code is to encapsulate all policy matters including guidelines for the exercise of discretionary powers in respect of all matters pertaining to the Masters Office. The said code must be published and distributed for the benefit of all practitioners.

6.4 PRACTICAL TRAINING COURSES AT UNIVERSITY

6.4.1 At many universities, insolvency law is accorded the status of a half course. Universities will be encouraged to introduce a practical supplementary course in insolvency law, including a two to three year diploma, to fast tract the induction of undergraduates from disadvantaged groups who intend entering the insolvency field. Theoretical education and practical training should be rendered at the same institution.

7. GUIDELINES FOR THE CONSIDERATION OF REQUISITIONS

7.1 REQUISITION SYSTEM

7.1.1 The following basic and uniform guidelines (not hard and fast rules) for the consideration 'of requisitions will apply with effect from the date of implementation of this Policy:

7.1.1.1 Requisitions to be forwarded to the Master.

7.1.1.2
Requisitions comprise only of liquid claims sounding in money.

7.1.1.3
Requisitions signed by Unions on behalf of workers be considered only in instances where such requisitions are supported by a letter from the registered trade union stipulating that it represents workers at a particular work-place. Priority should be given to a letter issued by the national office of a trade union, followed by a letter from a regional office, and lastly, a letter from the local office. In a case where there is no trade union at a given work place, the individual workers requisitions can be considered.

7 1.1.4
Requisitions in respect of Directors/members loan accounts be disregarded entirely in the case of companies/close corporations.

7.1.1.5
All incoming requisitions must be date stamped and endorsed with the exact time of submission to the Masters Office.

7.1.1.6
Requisitions which are duplicated, i.e. two or more requisitions in respect of the same claim which nominate different liquidators, be disregarded.

7.1.1.7
The "48 hour period" from the granting of the order, assumed to be granted at 12 noon, be regarded as a strict deadline, until such time as the Act can be amended.

7.1.1.8
All legal prescript must be adhered to.

7.1.1.9
A random inspection be conducted periodically and in cases of doubt, to verify the authenticity of requisitions transmitted by facsimile.

7.1.1.10 The right of a creditor to nominate a liquidator of his/her choice should not be interfered with.

7.1.1.11 Requisitions by companies are to be signed by a director of the company or by a person authorised to do so or in the case of a financial institution! close corporation by the manager/director/member or by any person authorised thereto. In the case of a partnership, the requisition is to be signed by a partner. Company and common law principles should be applied.

7.1.1.12 Requisitions need not contain reasons for a provisional appointment;

7.1.1.13 The amount of the claim must be reflected in words and numbers.

7.1.1.14 The full name, address and telephone number of the creditor must appear on the face of the requisition. An exception will be made in the case of individual workers requisitions as some of the workers might not have any telephone nor proper addresses.

7.1.1.15 The cause of debt must be specified.

7.1.1.16 The requisition must be signed and if signed in a representative capacity, such fact must be stated.

7.1.1.17 Conditional claims must be ignored.

7.1.1.18 In the case of workers it will suffice if the claim in the requisitions is estimated, as acurretly as possible, by the creditor and requisitions should not be ignored for this reason.

7.1.1.19 Requisitions which contain alternative nominations must be rejected.

7.2 PANEL OF PROVISIONAL TRUSTEES, LIQUIDATORS AND JUDICIAL MANAGERS

7.2.1 REGISTER

7.2.1.1
A register must be kept with the names of persons who the Master considers to be suitable for appointment to the said offices. This register is generally known as the "panel of provisional trustees/Iiquidatorsljudicial managers".

7.2.1.2
Before the name of a person is entered into the said register, his/her suitability to be appointed to such offices, will be considered. It is determined that a particular nominee is a fit and proper person and has the necessary qualifications, the said person is entitled to be on the panel. The criteria that should be met by an applicant for inclusion in the panel are set out below and will be revised to comply with changes effected through the long and medium strategy.

7.2.2 CRITERIA FOR INCLUSION IN PANEL

7.2.2.1
The procedures to determine whether a person (hereinafter called 'candidate') is suitable to be appointed to the said offices, are as follows:

- A candidate must apply for his/her name to be entered in the register and he/she must declare that he/she is prepared to serve in the said offices. This application to the Master must be on the candidate's official letterhead and personally signed.

If the candidate is not self employed and in the employment of a firm of liquidators/attorneyslchartered accountants, etc, the application must be made by the management/partners/members of that organization.

- The application must be supported by a comprehensive curriculum vitae of the candidate, duly supported with certified copies of relevant qualifications, testimonials, etcetera and signed by the candidate.

-If a candidate is/was employed by a principal whose name does in fact appear in the register the application must be accompanied by a report on each of the matters which the candidate administered on behalf of the principal, as well as a summary of the aspects of the administration which that candidate is/was responsible. The candidature must be supported by that principal.

-If the candidate is an practising attorney or accountant practising in a partnership/corpo ration/etc, his/her partners/co-members/etc. must agree to the application in writing and confirm that membership to the said register is not against any agreement between the parties.

-The candidate should declare all his/her business/occupational activities and declare that such activities will not put a strain on his/her ability to attend to his/her duties as appointee in insolvency and liquidation matters, especially when urgent attention is required.

-All candidates are required to prove that they have the necessary infrastructure at their disposal to properly attend to all duties attached to the said offices.

-If the name of the candidate already appears in the register of a Master of the High Court of another provincial division, the said Master must confirm that fact in writing. That Master should also support the candidate's candidature.

- -All candidates are required to submit proof that they are in a position to lodge security to the Master's satisfaction for the proper performance of his/her duties in the said offices.

- -Candidates must satisfy the Master that they command the necessary applicable knowledge and experience to execute their duties. Specialized knowledge and qualifications will act as a strong recommendation.

-Since a successful candidate will generally only be appointed in a cocapacity with an experienced practitioner for a time (depending on the candidate's proven record), the candidate must submit the name of an experienced insolvency practitioner, with his/her written confirmation, who is prepared to act jointly with him/her. It should be noted that the candidate must attend to the daily administration of the matters him-/herself in order to qualify for sole appointments at a later stage.

7.2.2.2. On receipt of the above the candidature of the candidate will be provisionally considered, where after the Master will call upon the candidate to appear before him/her for a final evaluation of the candidate's suitability.

7.3 MASTERS ROLE IN PROMOTING AFFIRMATIVE ACTION APPOINTMENTS

7.3.1 In order to assist Masters of the High Court to exercise their discretion properly and to implement the Government's policy of economic empowerment of the previously disadvantaged individuals, and in order to be consistent, fair to all creditors and transparent, the following guidelines should be followed:

7.3.1.1
Workers or employees are also creditors and their wishes as expressed by their representatives, should be given due weight. In order to achieve the said objective and not to contravene the letter and spirit of the Labour Relations Act, the Unions support should be considered. A letter from the Union indicating that it nominates a particular person as a provisional trustee or liquidator should suffice. As the Union represents all workers (whether the said workers are their members or not) no requisitions from individual workers should be considered. Priority should be given to a letter from national office of a union, followed by a letter from regional office and lastly by a letter from the local office. Individual workers requisitions should be considered only in instances where there is no union at the work-place or where there is no union at work-place which represents the majority of workers.

7.3.1.2
When exercising their discretion to appoint more than two provisional trustees or liquidators, the Master of the High Court must exercise such a discretion in favour of a person from the previously disadvantaged community.

7.3.1.3
In all matters where the estate is worth more than 5 million rands, the Master of the High Court must appoint at least one provisional trustee or liquidator from previously disadvantaged community.

7.3.1.4
Before any person can qualify for preferential treatment or qualify as a person from previously disadvantaged community for purposes of enjoying preferential discretionary appointment, the Master must be satisfied that the said person has equity in the company or legal entity in which he/she is involved, and that at least 30% equity in the said legal entity is held by people from previously disadvantaged community. In order to prove these facts, the Master of the High Court must obtain at least two affidavits signed by the person in question and the Chairperson or Managing Director or any director of the said legal entity.

7.3.1.5 When exercising his/her discretion in favour of people from previously disadvantaged communities, the Master of the High Court will take into account qualifications and experience.

7.3.1.6
The Master of the High Court must use a roster system when making discretionary appointments in order to make sure that every person who is entitled to preferential treatment is given a chance.

7.3.1.7
The Master of the High Court must keep a full list and statistics of all discretionary appointments made.

7.3.1.8
In all sequestrations and liquidations where there are no requisitions for the appointment of a provisional trustee or liquidator, the Master of the High Court must exercise his/her discretion in favour of a person from previously disadvantaged community.

7.3.1.9
The Master of the High Court must urge all appointed provisional trustees and liquidators to make use of the services of people from previously disadvantaged communities, e.g. lawyers, auditors, auctioneers, etc.

7.4
MONITORING MECHANISM

7.4.1
A monitoring mechanism will be developed and put into place in all Master's Offices in order to ensure that the Master of the High Court implements the guidelines and the Government's economic empowerment policy.