Insolvency and Liquidation

 

 

 

Yes, an individual can be declared insolvent if their liabilities exceed their assets. The legal process for this is known as voluntary sequestration. 

Yes, while insolvent, you cannot serve as a director of a company or a member of a close corporation without special permission from the trustee. Certain positions are restricted, and legal advice is recommended to clarify which roles require permission and which are entirely excluded. For example, during sequestration, you may not hold office as a trustee of an insolvent estate, a business rescue practitioner, a member of parliament, a registered liquor distributor, or the executor of a deceased estate.

1. Apply to Court: You must apply to the court to be declared bankrupt.  
2. Surrender Your Estate: Hand over control of your assets to the court.  
3. Asset Distribution: A court-appointed trustee will sell your assets and distribute the proceeds to your creditors.  

The court will assess your statement of affairs to confirm insolvency. If approved, your legal status will be changed to "sequestrated".  

- Loss of Assets: Your assets may be sold to repay creditors.  
- Credit Record Impact: Insolvency negatively affects your credit rating.  
- Limited Credit Access: You may have restricted access to credit for up to 10 years.  

It’s important to seek legal advice to fully understand the insolvency process and its implications. Contact us for professional guidance tailored to your situation.  
 

Once the notice of intention to surrender your estate is published in the Government Gazette, you immediately stop making payments to creditors. Any garnishee orders against your salary are cancelled, and creditors are no longer allowed to approach you or demand payment. After the court finalises the sequestration order, your estate is placed under the control of a trustee. The trustee sells your assets, and the proceeds are used to pay the minimum required benefits to creditors. Up to 80% of your debt can be written off, as the law only requires repayment of 20 cents for every rand owed. The costs of sequestration, including legal fees, are also covered. Once the process is complete, you are debt-free and able to start fresh financially.

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Overview of Insolvency and Liquidation 

Facing insolvency or liquidation can be overwhelming, but understanding these legal processes is vital for both individuals and businesses experiencing financial distress. Our legal firm provides expert guidance and assistance, ensuring a structured and compliant resolution to financial challenges.

Insolvency and Liquidation

What Is Insolvency?

Insolvency occurs when an individual or business cannot meet their financial obligations as they become due or when liabilities exceed assets. It is not the same as liquidation; a company can be insolvent without being liquidated.

Types of Insolvency 

  •  Balance-Sheet Insolvency This occurs when liabilities exceed assets, resulting in a negative financial position.
  • .Cash-Flow Insolvency This happens when there is an inability to pay debts as they fall due, even if assets exceed liabilities.

Common Causes of Insolvency

  • Reduced cash flow
  • Rising expenses
  • Ineffective financial management
  • Economic downturns

What Is Liquidation?

Liquidation is the legal process of closing down a company by selling its assets to pay creditors. Once the process is complete, any remaining funds are distributed to shareholders, and the company ceases to exist.

Types of Liquidation

  • Voluntary Liquidation This is initiated by the company’s directors or shareholders, often when they recognize insolvency or choose to dissolve the company.
  • Involuntary Liquidation This is initiated by creditors or ordered by a court when a company cannot meet its financial obligations.

Who Can Apply for Liquidation?

  • The Company Directors or shareholders may file for voluntary liquidation.
  • Creditors Creditors can apply to the court for involuntary liquidation when debts remain unpaid.
  • The Court A court can order liquidation if a company is deemed insolvent and unable to meet its obligations.

The Liquidation Process

  1. Appointment of a Liquidator A liquidator, typically an attorney or business rescue practitioner, is appointed to oversee the process.
  2. Investigation of Affairs The liquidator assesses the company’s assets, liabilities, and financial status.
  3. Asset Sale Company assets are sold to generate funds for creditors.
  4. Creditor Payments Funds are distributed in the following order
    • Secured creditors
    • Unsecured creditors
    • Stakeholders (e.g., employees)
  5. Closure of the Company Once creditors are paid, the company is officially dissolved.

Insolvency vs. Liquidation vs. Bankruptcy 

  • Insolvency The financial state of being unable to pay debts.
  • Liquidation The process of selling assets to repay creditors and dissolve a company.
  • Bankruptcy (Sequestration) Refers to personal insolvency, where an individual’s estate is managed to settle debts.

The Importance of Legal Assistance

Insolvency and liquidation require compliance with South African laws, including the Insolvency Act and the Companies Act. Our experienced attorneys ensure

  • Proper handling of insolvency declarations.
  • Full compliance with liquidation requirements.
  • Fair and efficient management of creditors’ claims.
  • Guidance for directors and stakeholders on their legal obligations.

Why Choose Our Firm?

If you or your company is facing financial difficulties, don’t navigate these complex processes alone. We are here to assist with

  • Insolvency declarations
  • Liquidation applications
  • Creditor negotiations
  • Legal representation in court

Expertise Our team specializes in insolvency and liquidation, providing solutions tailored to your circumstances.

Support We offer compassionate guidance during stressful financial situations.

Efficiency We streamline the process to avoid delays and minimize errors.

Compliance Our in-depth knowledge of South African insolvency and liquidation laws ensures all actions meet legal standards.

Contact us today for a confidential consultation. Let us help you manage your financial challenges with professionalism and care.