Insolvency occurs when businesses or individuals are no longer able to meet their financial obligations to lenders as debts become due. Insolvency can arise for various reasons, including financial mismanagement, increased costs, reduced cash flow, or a combination of these factors. Affected parties can no longer pay their financial obligations.
When facing insolvency, there are several avenues available to help navigate financial distress and regain financial stability. Insolvency law is governed under The Insolvency Act 24 of 1936. Under South African law, the process of insolvency is handled differently for individuals and companies. Individuals and trusts undergo the sequestration process, whereas companies are subject to liquidation.
In this guide, we will explore the various options and solutions for individuals facing insolvency. As always, our financial experts are ready and available to answer your questions and utilise their legal expertise to achieve the best possible outcome.
Options for Insolvency Under South African Law
If you are facing insolvency and can no longer pay what you owe, there are several options you can explore. These include:
Debt Counselling: During this process, individuals work alongside a registered debt counsellor who has experience in insolvency law. These specialists will meticulously analyse your financial situation and negotiate with your creditors on your behalf. They can then create a repayment plan that considers both your income and expenses.
Debt Consolidation: Debt consolidation is a process where a financial professional helps you combine your debt into a single loan. Rather than paying multiple debts with varying interest rates, debt consolidation can often result in a single payment with a lower monthly interest rate. Additionally, this process can simplify debt management.
Debt Administration: Another option is debt administration whereby a debt administrator will distribute your money amongst creditors under a specialised court-approved plan. This process offers the insolvent legal protections from their creditors.
The options above will depend on the unique situation. It is always best to contact a financial specialist who can advise you on the best course of action for your specific case.
Understanding Sequestration as an Option for Insolvency
Another option for insolvency is sequestration. This is a complex legal process where an individual surrenders their estate so that their various assets can be managed, sold, and used to settle debts. This process is overseen by a court-appointed trustee who will work on behalf of the sequestered party to settle their debts. Under South African law, sequestration can be either voluntary or compulsory. Let’s explore the difference between each.
- Voluntary sequestration: This occurs when an individual decides to enter into the sequestration process on their own accord. They must apply to the court to do so and highlight how the sequestration process could benefit both the insolvent party and the creditors.
- Compulsory sequestration: This type of sequestration happens when creditors petition the court to have the insolvent party sequestrated because of unpaid debts.
There are pros and cons to sequestration, depending on your unique case. It can offer the insolvent party respite from aggressive creditors and help them reach a place where they can once again enjoy financial freedom. Nonetheless, it is a legally complex process and one that should be guided by specialists in insolvency law.
Reach Out to Our Dedicated Team
If you are navigating the stressful process of insolvency, our team of insolvency specialists can help you manage your affairs and achieve a better outcome. We have decades of experience in insolvency law, sequestration, and other debt-related matters and are always available to help you make better, more financially savvy decisions that will protect your financial interests. If you are ready to start the journey towards debt relief, contact our team today.
