The Process of Financial Rehabilitation after Sequestration in South Africa

 Financial rehabilitation after sequestration in South Africa is a legal process by order of the court, whereby the insolvent party’s status of “bankrupt” or “insolvent” is removed. Rehabilitation, according to the Insolvency Act of South Africa, is automatic after a period of ten years, if the insolvent party does not apply to the court before the end of the 10-year period.

The legal requirements of financial rehabilitation include that the insolvent party’s credit bureaux record states that they are rehabilitated. This status remains on the person’s credit bureaux record for a period of five years, after which it is automatically removed. The rehabilitated person can again hold a director’s position in a company, can apply for a liquor license (unless they have a criminal record related to alcohol usage), and can again hold certain career positions that would have been prohibited before rehabilitation. In effect, the party can, after financial rehabilitation, resume full control over their financial affairs. The general period that must lapse after sequestration, and before a person can apply for financial rehabilitation, is four years. However, specific requirements must be met before the court allows this. It is also possible to apply for financial rehabilitation as soon as the final account has been settled, but once again, specific requirements must be met, some of which are discussed below.

How the Process Works

 The insolvency attorneys bring an application for rehabilitation on behalf of the applicant. The application must be made to the High Court. The High Court sets a date for the granting of the provisional rehabilitation order. Once the order is granted the Court postpones the application for one month to a return date. During this period the creditors can lodge objections. If no objections are lodged, the Court grants the order of financial rehabilitation on the return date. The applicant’s attorneys draft the relevant affidavit, which must be signed by the insolvent party. The affidavit is submitted to court and a case number is issued. The applicant does not have to appear in court.

Proposal for Creditors

 The insolvent party can, at any time after completion of the sequestration process, approach the trustee with a proposal to the creditors. In this proposal, the insolvent party states that they will pay a minimum of 50 cents in the rand to all the creditors, including the ones without proven claims against the surrendered estate. The proposal must also include the tender for the administrative costs in the surrendered estate. Once the applicant has provided the required security to the Master of the High Court for payment of the creditors, the Master issues a certificate regarding the proposal. The certificate also indicates the security for the intention to make payment.

The insolvent party must advertise the intention to rehabilitate in the Government Gazette and must submit a notification of the intention to the Master of the High Court. The applicant’s attorneys obtain permission from the relevant trustee for rehabilitation of the insolvent estate. The trustee or curator may refuse to give permission for rehabilitation if the insolvent applicant did not cooperate with them when the court ordered the sequestration. The curator or trustee may also refuse to give permission if the applicant, during the time of being sequestrated, acted financially irresponsibly by, for instance, applying for credit or incurring further debt without permission from the curator or trustee.

When can one apply for rehabilitation?

 The application can be submitted as soon as a period of 12 months has lapsed since confirmation of the first liquidation and distribution account, where creditors have proven claims against the estate, and a period of four years has passed since the date of sequestration. Early financial rehabilitation is possible if the first liquidation account has been confirmed by the Master of the High Court, a period of 12 months has lapsed, and the Master of the High Court has recommended rehabilitation. However, it is only allowed where the insolvent applicant can prove that rehabilitation is in the best interest of the general wellbeing of the country.

What to do next?

Call on our attorneys to help you determine whether you can apply for financial rehabilitation and to assist you with the entire application process.

Disclaimer: Information is relevant to 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 – November 2017.