Preliminary Formalities to Meet with the Application for Insolvency
An application for insolvency entails a legal process whereby the debtor applies to Court to have their estate surrendered and to be declared bankrupt. It is called voluntary sequestration.
An application for insolvency can only be successful if the formalities are also met. In addition, the applicant must, indeed, be cash-flow and capital insolvent. This means the liabilities of the debtor must far exceed their assets, and the debtor must be unable to pay debts when due. The sequestration must be to the benefit of the creditors and all the costs surrounding the sequestration must covered by the voluntary sequestration.
Formalities to Be Met with The Application for Insolvency
Though it is possible for the application for insolvency to be successful even if all the preliminary formalities have not been met, it is recommended that the debtor not default on such as to avoid risking the approval for the voluntary sequestration.
Publication of The Notice of Intention to Voluntary Sequestrate
The debtor’s attorneys publish a notice of the intention to apply for insolvency in the Government Gazette and a relevant newspaper within the Magisterial area in which the debtor has a business or lives. The notice must include the details of the debtor, such as full names, occupation, and address. It must state the date when the application will be heard and in which division of the High Court the application will be heard. The notice must also state where the statement of affairs can be inspected.
This notice is important, as it serves to alert creditors to the application for insolvency and thus to give them sufficient time to oppose the application. The notice must be published in a language that caters to the general language preferences of the creditors. It cannot be published in a specialised publication and thereby be hidden from creditors.
If the debtor has moved to another province while the creditors are still in the original province where the debt was made, then the notice must be published in a newspaper circulating in the area of the creditors. The attorneys of the debtor draft the affidavit and copies of the relevant paper and Government Gazette as proof of publication.
The notice of the application for insolvency must be published in the newspaper and the Government Gazette not less than 14 days and not more than a month before the date for the hearing of the application for voluntary surrendering of the debtor’s estate.
The idea behind the time limits it to eliminate the risk of the debtor applying for voluntary sequestration without giving the creditors enough time to inspect the statement of affairs and to take steps in opposing the application. The time limit of no longer than 30 days before the stated court hearing date is to minimise the risk of a debtor using the process to stay legal action from creditors for months, as they cannot approach the debtor during the time for payment of the debts owed.
The creditors must be notified within seven days of the publication of the notice. They must receive copies of the published notice. The debtor’s attorneys prove this by means of the affidavit as stated earlier. A copy of the notice must be sent to SARS by means of registered post.
Requirements for the Statement of Affairs
The attorneys prepare the statement of affairs to include a balance sheet and list of the immovable assets. This list must include the estimation of value for each of the assets on the list. The statement of affairs must include a list of debtors with their details and statement as to the status of the debts, as well as a list of creditors and their details and security for each debt. The list of movable assets that have been pledged must also be included, as well as such assets under attachment. The statement, furthermore, includes the reasons for the application for insolvency and list of all the accounting books used during the period of notice to surrender and personal information of the debtor, including details about previous insolvencies and rehabilitation.
This statement of affairs and the supporting documents must be submitted to the Master. This must be done in duplicate.
Make sure you understand the requirements and formalities of voluntary sequestration by making use of our legal expertise for the application for insolvency in South Africa.
Disclaimer: This article is for information 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 as at the date of publishing.