Financial Rehabilitation

What is Financial Rehabilitation?

Financial rehabilitation is required after an individual has become insolvent and their estate has been sequestrated. It is the process, which may be automatic or the result of a court order, by which an individual’s insolvent status is removed. Sequestration due to an order of the High Court results in several consequences, some of which are not beneficial to the individual whose estate has been sequestrated.

One of the most limiting consequences is that the insolvent has limited contractual capacity and is treated similarly to a minor in this regard. They are required to disclose that they are insolvent when entering into any agreement for credit. The written permission of their curator is required before they may enter into a credit agreement.

financial rehabilitationThe rationale behind this limitation is that the insolvent is considered unable to take proper care of matters relating to their estate, in particular with regard to certain financial aspects. It also prevents the insolvent from selling off assets which could be liquidated to pay creditors. Financial rehabilitation removes these inhibitions on the insolvent’s freedom to transact and allows them to begin a new life. The Insolvency Act 24 of 1936 (the Insolvency Act) provides for a sequestrated person to be rehabilitated in certain circumstances so that they may continue their lives free of the insolvent status.

 

How is Financial Rehabilitation Achieved?

An insolvent person may either be rehabilitated automatically or by an order of the Court. Automatic rehabilitation occurs in terms of Section 127A of the Insolvency Act, once ten years from the date of granting the provisional sequestration order has lapsed. Automatic financial rehabilitation is not a foregone conclusion as the ten-year period may be extended should an interested party make an application to the High Court providing sufficient grounds for an extension.

An insolvent person may elect not to wait the ten-year period for automatic financial rehabilitation to occur but may make an application for rehabilitation to the same division of High Court that granted the order for sequestration. There are several instances stipulated in the Insolvency Act where such an application can be brought forward. Briefly stated, these include:

  • An agreement by the majority of the estate’s creditors to a statutory composition. Section 124(1)
  • Twelve months have elapsed from confirmation provided by the Master of the High Court, of the first trustee’s account in the estate. Section 124(2)(a)
  • Six months have elapsed from the date of sequestration and no claims have been proven against the insolvent’s estate. Section 124(3)
  • Where, on three weeks’ notice to the curator of the sequestrated estate and the Master of the High Court, all proven claims, and the interest on them have been paid in full. The sequestration costs must also have been fully covered. Section 124(5)

The above summary is by no means comprehensive and does not encompass all the formal requirements that accompany the circumstances in which applications for financial rehabilitation may be brought. Contact a qualified attorney for comprehensive, professional advice and guidance should you need assistance with financial rehabilitation.

 

The Effects of Financial Rehabilitation

Financial rehabilitation ends the sequestration. All the debts of the insolvent are discharged and their status as an insolvent also ends. Any limitations on the legal capacity of the insolvent imposed by their status as insolvents are relieved with the proviso that the discretionary nature of the remedy allows the Court to grant the order with certain conditions which may curtail some rights.

 

Consult with Qualified Legal Professionals

Financial rehabilitation is an important legal process by which an insolvent is relieved of the limitations of being insolvent and is re-instated as a credit-worthy member of society. Being rehabilitated allows individuals to take an active and independent role in the economy once more by clearing their credit records.

There are formal requirements and time-sensitive stipulations for financial rehabilitation applications to the High Court. Restoring your creditworthiness is extremely important. Consult with Francois Uys Inc Attorneys for professional advice based on years of experience with insolvency cases.

 


Disclaimer: This article is for information purposes only. It does not constitute legal advice and cannot be used to make any decisions. For advice on the topic of sequestration, contact Francois Uys Inc. The information is relevant as of the date of publishing.