Things You May Not Have Known About Filing for Bankruptcy in South Africa

Basic information on filing for bankruptcy in South Africa is available on the Internet. But rather than relying on hearsay or generic articles, seek legal advice from experienced insolvency attorneys. Voluntary sequestration is governed by the Insolvency Act and is a legal process. You need professional legal help throughout the process. We discuss some of the lesser-known issues regarding filing for bankruptcy in South Africa, helping you to understand why you need legal guidance to get out of debt.

 

Application for A Friendly Sequestration

Though a less-used way to get rid of debt, a debtor can have a creditor, such as a friend, file for sequestration of the debtor’s estate. The debtor does not file for bankruptcy, as with voluntary sequestration. However, the process is less hostile than when creditors, not friends or familiar with the debtor, bring a compulsory sequestration application against the debtor. The debtor can arrange for the friend to bring an application for sequestration against the debtor for a debt not paid. The debtor commits an act of insolvency, giving the creditor friend the right to bring a compulsory sequestration application against the debtor. Instead of the debtor having to make sure the cost of sequestration can be covered, such as when filing for bankruptcy in South Africa, the creditor friend must do so.

However, with the high incidence of people abusing the legal system to get rid of their debt, the court will carefully review the application. The debtor must really be insolvent. This implies that the debtor’s liabilities must far exceed their assets and that they are unable to pay their due debts. Since sequestration is to the benefit of creditors, the court must decide whether the debtor is working with the creditor for filing bankruptcy in South Africa in order not to pay their debts. The two parties may very well be colluding to suppress important facts, inflate the so-called debt owed, overvalue the assets, or underestimate costs to create the impression that high dividends will be payable. The parties may also be colluding by including assets that are protected. They may even try to create a claim for non-existent debt.

There is thus a risk of parties colluding when filing for bankruptcy in South Africa in order to help the one party become free of debt or to stay an execution of sale. The court is mindful of this risk and to prevent abuse of the legal system, the court requires the creditor to provide comprehensive details of the claim and evidence of performance, in addition to a full list of the debtor’s assets. If the creditor, for instance, has no proof of trying to collect on the debt or attempting to solve the issue through the Small Claims Court, this will sound the alarm bells.

 

Voluntary Sequestration

To avoid falling foul of the law when filing for bankruptcy in South Africa, the debtor should seek voluntary sequestration. The process is also less hostile than normal, compulsory sequestration. A debtor has to prove that they are insolvent and that the sale of assets can realise enough funds to pay the minimum required benefit to the creditors. Filing for bankruptcy in South Africa should not be done simply to get rid of debt. Instead, it should be considered when the debtor is drowning in debt and creditors are threatening with legal action. Only when the debtor is truly insolvent should sequestration be considered.

The process is handled by insolvency attorneys. One advantage is that interest on the debt is frozen. The debtor has to cease payments to creditors once the notice of the intention to sequestrate has been published. Truthful listing of all the creditors, the amounts payable, and the debtor’s assets must form part of the statement of affairs. Apart from the requirements for insolvency and minimum benefit to the creditors, the formalities of the process must also be adhered to for the application to be successful. Experienced insolvency attorneys help the debtor to understand the benefits and disadvantages of sequestration. They help the applicant meet the formality requirements and to avoid pitfalls that can jeopardise the chances of rehabilitation as soon as legally possible after sequestration.

Call our attorneys for legal advice and help in determining whether filing for bankruptcy in South Africa is the best solution for your debt problems.

 


Disclaimer: This article is for informational purposes only and does not constitute legal advice. Call our attorneys rather than relying on the information herein to make any decisions. The information is relevant to the date of publishing: October 2019.

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