Abstract

The application of section 157(1) of the Insolvency Act 24 of 1936 (“the Act”) that concerns a formal defect or irregularity requires careful consideration. Many court cases have already been decided on this aspect and over the years there have been several endeavours to define “a formal defect”. In the Gauteng Division of the High Court and the KwaZulu-Natal Division of the High Court, there are currently different approaches to the application of this phrase in section 4(1) of the Insolvency Act, due to different interpretations of the term “formal defect”. In the first-mentioned division, it is the view that if section 4(1), read with section 157, means that a notice of surrender published more than 30 days before the relevant date is valid (provided that a court does not in due course find that a substantial injustice has occurred), it would create uncertainty. Effectively, a debtor will be able to secure and control a suspension of execution. That was clearly not what the legislature intended. In the KwaZulu-Natal division, the view is that the premature publication of a notice of surrender of an estate under section 4(1) is a formal defect or irregularity within the meaning of that phrase in section 157(1) of the Act. The publication itself is therefore not rendered invalid by the defect. The extent to which the applicant has complied with or deviated from the procedural requirements of the Act is a factor to be considered in exercising the court’s discretion in terms of section 6 of the Insolvency Act. However, the different approaches of the two divisions of the High Court create uncertainty. In the recent case of Swart v Starbuck, the Constitutional Court applied, among other things, section 157(1) to maintain the validity of an action by the Master. It is argued in this article that neither the majority decision nor the minority ruling has given sufficient consideration to the characterisation of “formal defect” in order to address the uncertainty about the application of this section.