Insolvency
The Insolvency Act 24 of 1936 is the primary statute that governs insolvency law in South Africa. In South African law, insolvency refers to a state of diminished legal capacity (capitis diminutio) imposed by the courts on people or businesses who cannot pay their debts or whose liabilities exceed their assets. Due to the insolvent’s weakened legal capacity, they are stripped of their most essential legal capacities and rights to safeguard other people, particularly existing creditors and potential creditors. Insolvency also benefits the insolvent because it relieves him of some obligations.
Insolvency can lead to insolvency procedures, in which the insolvent individual or company faces legal action and assets are liquidated to pay off outstanding debts. Creditors can be contacted directly by business owners or individuals to restructure debts into more affordable instalments. Creditors are usually sympathetic to this strategy because they want to be paid, even if delayed.
What are the complications of insolvency?
The interrelationship between general insolvency laws, as applicable to natural persons, and those laws in the Insolvency Act, the Old Companies Act, and the regulation of further aspects of insolvency in the New Companies Act make South African insolvency law extremely complex.
The interaction and operation of the High Court, the Master of the High Court’s Office, and the profession of insolvency practitioners, from whose ranks liquidators are appointed, is similarly complicated. Because of the complicated nature of insolvency law, your best option would be to seek legal aid from one of the best attorneys at Pamela Waters-Oosthuizen.
Types of insolvency
The sequestration of personal estates, the winding-up of firms, and the winding-up of close corporations are the three primary types of insolvency processes regulated by South African insolvency legislation. In addition, the legislation governs actions aimed at rescuing firms in financial distress.
Criteria for insolvency
A person or business is commonly deemed insolvent when unable to pay debts. Under South African law, the legal test of insolvency is whether a debtor’s reasonably assessed liabilities outweigh the debtor’s assets, fairly valued. Inability to pay obligations is thus only evidence of insolvency at best. Even if a person meets the insolvency criteria, a person who has insufficient assets to pay his debts is not considered insolvent for legal purposes unless a court order has sequestrated his estate.
