Godknows Hofisi

In an insolvent estate that is being liquidated a creditor has to prove his or her claim in order to be considered for payment. Many people may be familiar with the liquidation of insolvent companies. This articles focusses on creditors’ claims and the distinction between proving (proof of) and examination of claims.

Proof of claims by creditors

Section 66 of the Insolvency Act (Chapter 6:07) applies. The following key points are worth noting.

In terms of section 66(1) any person who has a liquidated claim (claim fixed or determinable in value) against an insolvent estate, the cause (origin) of which arose on or before the date of liquidation of the estate, may at any time before the final distribution of the estate, subject to examination of the claims by the liquidator in terms of section 67, prove (submit or tender as required) that claim against the estate. For example a creditor who is owed money by an insolvent company may prove its claim against the company.

Section 66(2) stipulates that a claim by a creditor against the insolvent estate must be admitted (received) at a meeting of creditors of the estate if it has been proved to the satisfaction of the presiding officer (usually the Master of the High Court for first creditors’ meetings) on the face of the claim form, documents in connection with the claim submitted by the creditor or another person, if any, and other evidence by the creditor. A claim not proved in this manner must be rejected by the presiding officer. According to section 66(5) the rejection of a claim does not in itself disqualify a creditor or claimant from proving the claim at a later meeting of creditors or by action at law.

In terms of section 66(4) a creditor who holds security for his or her claim must place a monetary value on the security, or have his or her voting rights limited in terms of section 54(5) – voting by number.

Many creditors ask how one may prove a claim in a liquidation. According to section 66(6) every claim must be proved (submitted) by an affidavit in a form corresponding substantially with Form B or C of the First Schedule of the Insolvency Act, and subject to sections 66(10) and 66(11), no oral evidence may be received in support of any claim. The affidavit contemplated in section 66(6) and all documents submitted in support of the claim or a copy thereof must be lodged with the person who is to preside at (chair) the meeting in terms of specified timelines for it to be admitted at that meeting.

In terms of section 66(8) where appropriate the amount of a claim may be expressed in a foreign currency, but all claims in foreign currency must be paid in its equivalent in functional currency and the conversion date is the liquidation date.

A claimant who has proved a claim that is deficient in any respect may at a subsequent meeting of creditors prove a corrected claim.

Documents relating to claims may be perused at the office of the person who is to preside over the creditors meeting. The liquidator, debtor or creditor may submit motivated objections to the proof of a claim at the meeting where the claim is lodged for proof or to the presiding officer before the meeting.

Any person who has an unliquidated claim against an insolvent estate may tender such claim for proof at a meeting of creditors but such claim may not be admitted to proof until it has been accepted by the liquidator by way of compromise or proved in an action at law.

In terms of section 66(13) the presiding officer may call upon any person present at the meeting who wishes to prove a claim or who has proved a claim against the estate to submit to examination by the presiding officer, liquidator or creditor, or their representatives, in regard to such claim. 

Liquidator shall examine claims

Section 67 applies. 

Examination is done after a creditor has proved (submitted) a claim. In terms of section 67(1) every claim proved against the insolvent estate at the meeting of creditors and every document submitted in support of the claim shall be delivered to the liquidator. According to section 67(2) the liquidator must examine the claims and supporting documents used to prove a claim, and all available books, documents or records relating to the insolvent estate for purposes of ascertaining whether the estate in fact owes the claimant the amount claimed. 

The liquidator may require the claimant to submit additional proof of the claim and where the claim is based on an estimate, the basis on which the estimate was arrived at.

Section 67(3) stipulates that if the liquidator disputes a claim after it has been proved at a meeting of creditors, he or she may, with the authority of the Master or creditors in terms of section 49(4) and after having afforded the claimant the opportunity of substantiating his or her claim or part thereof, reduce or disallow the claim, and he or she must forthwith notify the claimant and the Master of such reduction or disallowance of the claim. The claimant can still establish his or her claim by means of an action at law.

Late proof of claims

Subject to certain considerations this is permissible in terms of section 68 of the Act.

This simplified article is for general information purposes only and does not constitute the writer’s professional advice. 

Godknows Hofisi, LLB(UNISA), B.Acc(UZ), CA(Z), MBA(EBS,UK) is a legal practitioner / conveyancer with a local law firm, chartered accountant, insolvency practitioner, registered tax accountant, consultant in deal structuring, business management and tax and is an experienced director including as chairperson. He writes in his personal capacity. He can be contacted on +263 772 246 900 or [email protected].