WHAT IS AN ACT OF INSOLVENCY? HOW DOES IT AFFECT YOUR FINANCIAL STATUS?
If you are in financial trouble, it is essential to seek an answer on the question of “what is an act of insolvency?” Failure to understand what is seen as an act of insolvency can cause you to commit such an act without even realising it, giving a creditor the right to take legal action against you.
WHAT IS AN ACT OF INSOLVENCY?

It is one of eight actions that a debtor takes, giving the creditor sufficient reason to bring a compulsory sequestration application against the debtor. If a creditor wants to apply to court for the compulsory sequestration of a debtor, the creditor must be able to prove that the debtor has committed an act of insolvency. It is thus a legal presumption that if a debtor takes a particular action that it is proof that the debtor is indeed insolvent.
EIGHT INSTANCES THAT QUALIFY AS ACTS OF INSOLVENCY
Below are eight actions to avoid if you do not want a creditor to apply for your compulsory sequestration because you have committed an act of insolvency.
OFFER OF SETTLEMENT
It is a letter in which you admit that you owe the creditor a certain amount. You ask that a certain part of the amount be written off and put an offer on the table to settle the debt.
WRITTEN NOTICE OF INABILITY TO PAY THE DEBT
A common act of insolvency is if you put in writing that you are not able to pay the debt. Note that this is an admission of the inability to service your debt, and is thus an act of insolvency. Avoid signing a statement in which you admit to debt and not being able to pay it. Do not write a letter to your creditor to this effect either. Rather seek legal guidance from our team on how to handle the situation.
ABSCONDING FROM DEBT PAYMENT
If you leave your home or the country with the intention to avoid paying debt, then you abscond, and it is an act of insolvency. However, it is difficult for a creditor to prove the intent.
NOT SATISFYING A JUDGMENT BROUGHT AGAINST YOU
Should the creditor bring a judgment against you, and a Warrant of Execution is issued, but you do not have assets to attach, then the creditor can apply for your compulsory sequestration.
BENEFITTING A CREDITOR OVER OTHER CREDITORS
It is an act of insolvency to pay off one creditor, but not the others, and the remaining creditors can then apply for your sequestration.
NOT PROCEEDING WITH SEQUESTRATION AFTER THE NOTICE OF INTENTION IS PUBLISHED
Once you have published your intention to voluntary sequestrate, you must proceed with the application, as a creditor can then apply for your compulsory sequestration.
SALE OF BUSINESS ADVERTISED, BUT YOU DO NOT PAY THE DEBT OWED
If you have advertised the sale of business, but fail to pay the creditors, then they can assume that you are unable to do so. They can apply for the liquidation of the business, and if it is a sole proprietorship, apply for your sequestration.
HIDING ASSETS
If you hide or sell your assets in an attempt to prevent attachment, what is happens is that you disadvantage creditors. It is an immediate act of insolvency.
Seek legal guidance on how to proceed in handling debt problems. Call our attorneys for assistance.
Disclaimer: This article is for informational purposes only and does not constitute legal advice. Call on our attorneys for legal advice, rather than relying on the information herein to make any decisions. The information is relevant to the date of publishing.