Insolvency in South African law refers to a status imposed by the courts on people of “diminished legal capacity” (capitis diminutio), that is to say, whose liabilities exceed their assets, meaning that there is evidence that they are unable to pay their debts.
When an insolvent person is referred to as having diminished legal capacity, he/she is then deprived of certain important legal capacities and rights to protect the interests of other persons. These other persons are made up primarily of the general body of existing creditors, but also prospective creditors. Strangely enough, insolvency is also of benefit to the insolvent, because he/she gains relief in certain respects.
So how does insolvency compare with sequestration? A sequestration order is a formal declaration that a debtor is insolvent. The order is granted either at the instance of the debtor himself (voluntary surrender) or the instance of one or more of the debtor’s creditors (compulsory sequestration). The term “sequestration” is used only concerning a person’s estate. It is the debtor’s estate that is sequestrated, not the debtor himself. On the other hand, both the debtor’s estate and the debtor himself may properly be described as insolvent.
Joselowitz & Andrews Attorneys frequently act for creditors and liquidators who wish to pursue personal liabilities of directors of companies and members of close corporations. When taking on such cases, high-powered forensic auditors often need to be engaged to uncover assets that have been “salted away” or hidden by errant directors. This is especially vital since the provisions relating to the personal liability of directors of insolvent companies, who knowingly incur credit at a time when the company cannot pay its debts, is highlighted in the new Companies Act.
In addition to these services, we are also available to talk on any aspects of credit and insolvency law, giving companies and institutions insight into the various approaches issues and challenges that are often encountered in these situations and the techniques vital to overcome them. Use one of the contact options on the right of this page to make this request for your organisation.