A Closer Look at Insolvency in South Africa

The laws regarding insolvency in South Africa differ from other countries’. It is recommended that you make use of the services offered by experienced insolvency attorneys in South Africa, rather than relying on information shared on the Internet for other countries. We take a look at some of the terminology and questions regarding insolvency in South Africa to get you started.

How does statutory composition work if a person wants to apply for rehabilitation?

If you have already been sequestrated you can, after the sequestration, apply to the trustee of the surrendered estate to accept a proposal in which you undertake to pay 50 cents in the rand to all your creditors. The proposal must be for all the creditors and not just creditors with claims against the estate. This should be done with the help of your insolvency attorneys in South Africa. You will be required to submit sufficient proof of the required security to the Master of the High Court, who will issue a certificate to the effect. You must include the certificate in your offer for the administrative cost regarding the insolvent estate to cover the disbursement and handling fees of the trustee. The proposal doesn’t affect any creditors that have security against the debt. Once you have made the payment or given the security, you can apply for rehabilitation. Many factors must be considered, best discussed with lawyers specialising in laws related to insolvency in South Africa.

How does voluntary distribution work?

It is a process in which you negotiate an agreement with the creditors to have a certain amount voluntarily distributed amongst them. It is best to get legal assistance in this regard, even though you don’t need to make an application for this to court, as it is often a difficult agreement to reach.

Why not just wait for creditors to bring an application for compulsory sequestration?

Insolvency law in South Africa states that there must be sufficient benefit for the creditors to have an application for sequestration awarded. Creditors are thus not eager to apply for compulsory sequestration, because they find the process too expensive for what they will receive. It is more cost-effective to take legal steps and execution of the judgment order through a sheriff. Only if you have a very large estate will they bring the compulsory sequestration application after conducting an insolvency enquiry against your estate.

If you thus wait for this to happen, you may lose all your assets and, should a hostile sequestration be awarded, it will be difficult to negotiate to buy back movable property like furniture from the insolvent estate. It is better to be proactive and apply for voluntary sequestration than to wait and see how things work out.

How are insurance policies affected by a debtor’s insolvency in South Africa?

Retirement annuities are excluded from insolvent estates, in addition to any funds paid in terms of a personal injury claim. However, any policies that you have ceded to a creditor will become their property and they can do with them as they see fit. Any policies not ceded and not considered as pensions will form part of the insolvent estate. That said, experienced insolvency lawyers in South Africa can help you take the legal steps to protect the policies, if they meet specific criteria.

Are firearms included in the insolvent estate?

Yes, firearms are included, but with the strict laws regarding their possession and storage, it is difficult for the trustee to sell them. If the trustee attaches the firearms, they must, according to law, have adequate storage facilities. It is easier for the trustee to sell the firearms back to you at a very low price to minimise the burden of storage on the trustee. Our attorneys, experienced regarding matters of insolvency in South Africa, will assist you in keeping your firearms.

Disclaimer: Information is relevant on the date of publishing and is not intended as any form of legal advice. Please call on our attorneys for legal guidance rather than relying on the information herein to make decisions – September 2017.