Insolvency is a term used for when an individual or Company can no longer meet their financial obligations to Creditors. Insolvency can arise from poor cash management, a reduction in cash inflow, or an increase in expenses. Before an Insolvent Company or Individual gets involved in the insolvency process, they will likely be involved in informal arrangements with Creditors, such as setting up alternative payment arrangements or seeking a Debt Counsellor / Business Rescue Practitioner for third party assistance.
Insolvency Process - Individual
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An Insolvency Practitioner will conduct an assessment to determine if an individual is insolvent.
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Once confirmed, documentation is drafted notifying Credit Providers of the application for Voluntary Surrender or Voluntary Sequestration.
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A court date is obtained in the High Court of the province the individual lives in.
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An advert is also placed in the Government Gazette one month before the court date, notifying all parties concerned of the Insolvency Application.
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An Advocate will appear on the individuals behalf to obtain a Voluntary Surrender Order or Voluntary Sequestration Order.
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Once granted, Trustees are appointed by the Master of the Court to distribute the percentage agreed upon to the Credit Providers. This is usually 25% of the outstanding debt.
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Once the funds are distributed the Trustees will complete a Liquidation and Distribution Account (L & D Account) of which the hard copy must lie with the Master of the Court for 12 Months.
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It is only only the L & D Account is completed and stayed with the Master of the Court for 12 Months that the individual can rehabilitate. This takes 24-48 months.
Insolvency Process - Company or Business
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An Insolvency Practitioner will conduct an assessment to determine if the Company or Business is insolvent.
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Once confirmed, an application is made in the Court having jurisdiction in the area where the Company operates for a Provisional Order of winding-up
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Once a Provisional Order is granted, the Provisional Order must be delivered to all parties concerned in the application.
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The Provisional Order be published in both an English and Afrikaans newspaper in the area.
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Once a Court grants a winding-up order, the commencement of the winding-up is backdated to the time that the application was presented to the Court
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The Master of the High Court (Master) will appoint provisional Liquidators. The Master appoints Liquidators based on Creditor support. As soon as possible after the final winding up order is granted, the Master will summon a meeting of Creditors in order for Creditors to, inter alia, lodge their claims, and nominate final Liquidators.
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The first meeting usually takes place within six to eight weeks of final Liquidation. Notice of the meeting is published in the Government Gazette.
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Creditors have a further opportunity to prove claims at a second meeting, which must be held within three months of the Liquidators’ final appointment.
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The Liquidator must sell all assets and distribute the proceeds to Creditors in their order of preference (see Ranking of Creditors). The entire process usually takes between six months and two years, depending on the complexity of the Company and the number and nature of assets.
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The Liquidators must lodge a first Liquidation and Distribution account (L & D Account) within six months of the date of their appointment as final Liquidators.
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If the assets (if any) have all been sold and there are no unresolved issues, it could be a first and final L & D Account. If it is not a final L & D Account, the Liquidator must submit a revised L & D Account every six months until the winding-up process is complete.
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Once the Master approves the L & D Account, the Liquidators are given permission to advertise that the L & D Account will lie open for inspection. It must lie open for inspection for a period of not less than 14 days. During this period Creditors may inspect the L & D Account and lodge objections. Assuming that there are no objections, the Master will usually confirm the L & D Account within a few days of the expiry of the advertising period. The Liquidator must give notice of the confirmation of the L & D Account by the Master in the Government Gazette.
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When the affairs of the Company have been completely wound-up, the Master transmits a certificate to this effect to CIPC and a copy to the Liquidator.
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Companies And Intellectual Property Commission (CIPC) records the dissolution of the Company and publishes a notice to this effect in the Government Gazette.
Types of Debts that can go into an insolvency application:
INDIVIDUALS (See Sequestration)
Pay Day Loans
Loans
Overdrafts
Credit Cards
Store Cards
SARS Penalties
Cell phone Contracts
Other third-party Contracts.
COMPANIES (See Liquidation)
Any credit agreements
Assets owned by the company to be sold off to settle debt owed.
SARS – VAT, PAYE, penalties, arrears.
Lease Agreements with extended terms
Contractual Agreements with extended terms
Employee Earnings and Company Benefits.