Insolvency and Liquidation

 

 

Yes, an individual can be declared insolvent if their liabilities exceed their assets. The legal process for this is known as voluntary sequestration. 

Yes, while insolvent, you cannot serve as a director of a company or a member of a close corporation without special permission from the trustee. Certain positions are restricted, and legal advice is recommended to clarify which roles require permission and which are entirely excluded. For example, during sequestration, you may not hold office as a trustee of an insolvent estate, a business rescue practitioner, a member of parliament, a registered liquor distributor, or the executor of a deceased estate.

1. Apply to Court: You must apply to the court to be declared bankrupt.  
2. Surrender Your Estate: Hand over control of your assets to the court.  
3. Asset Distribution: A court-appointed trustee will sell your assets and distribute the proceeds to your creditors.  

The court will assess your statement of affairs to confirm insolvency. If approved, your legal status will be changed to "sequestrated".  

- Loss of Assets: Your assets may be sold to repay creditors.  
- Credit Record Impact: Insolvency negatively affects your credit rating.  
- Limited Credit Access: You may have restricted access to credit for up to 10 years.  

It’s important to seek legal advice to fully understand the insolvency process and its implications. Contact us at VDM Attorneys for professional guidance tailored to your situation.  
 

Once the notice of intention to surrender your estate is published in the Government Gazette, you immediately stop making payments to creditors. Any garnishee orders against your salary are cancelled, and creditors are no longer allowed to approach you or demand payment. After the court finalises the sequestration order, your estate is placed under the control of a trustee. The trustee sells your assets, and the proceeds are used to pay the minimum required benefits to creditors. Up to 80% of your debt can be written off, as the law only requires repayment of 20 cents for every rand owed. The costs of sequestration, including legal fees, are also covered. Once the process is complete, you are debt-free and able to start fresh financially.

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Insolvency and Liquidation Attorneys

Insolvency is a financial state in which a business can no longer meet its debt obligations, while liquidation is the formal legal process of closing that business, selling its assets, and distributing proceeds to creditors. Insolvency may trigger liquidation, and liquidation is the final step in winding up an insolvent company.

Insolvency and Liquidation Attorneys

What is Insolvency?

Insolvency arises when a company cannot pay its debts when they become due or when its liabilities exceed its assets. It is a state of financial distress, not a legal process, and a company may be insolvent without yet being liquidated.

  • Indicates that a business is financially unstable
  • May result from poor cash flow, excessive debt, or market challenges
  • Can be temporary if addressed through business rescue or restructuring
  • If unresolved, it can lead to creditor action and eventual liquidation

Types of Insolvency

  • Balance-Sheet Insolvency – Occurs when liabilities exceed assets, resulting in a negative financial position.
  • Cash-Flow Insolvency – Happens when the company cannot pay debts as they become due, even if total assets exceed liabilities.

What is Liquidation?

Liquidation is the legal process of winding up a company that can no longer operate or pay its debts. It involves:

  • Appointing a liquidator to manage the process
  • Selling the company’s assets (property, stock, and equipment)
  • Paying creditors in the legally required order
  • Deregistering the company from the CIPC

Once liquidation is complete, the company ceases to exist as a legal entity.

Types of Liquidation in South Africa

  1. Voluntary Liquidation – Initiated by company directors or shareholders; can apply to both solvent and insolvent companies.
  2. Compulsory Liquidation – Brought by a creditor through a court application; triggered when the company cannot pay its debts.
  3. Business Rescue vs Liquidation – Business Rescue aims to restructure and save a company; Liquidation is the final process when recovery is not possible.

Who Can Apply for Liquidation?

  • The Company – Directors or shareholders can initiate voluntary liquidation.
  • Creditors – May apply to the court for compulsory liquidation if debts remain unpaid.
  • The Court – Can order liquidation if a company is deemed insolvent and unable to meet its obligations.

Key Differences Between Insolvency and Liquidation

  • Nature: Insolvency is a financial state; liquidation is a legal process.
  • Duration: Insolvency may be temporary; liquidation is permanent.
  • Focus: Insolvency focuses on debt distress; liquidation focuses on winding up and asset distribution.
  • Outcome: Insolvency can lead to recovery or liquidation; liquidation always ends the company’s existence.

If your business is facing insolvency, timely action is critical to protect both the company and its directors. VDM Attorneys assist with:

  • Evaluating whether business rescue or restructuring is viable
  • Managing voluntary or compulsory liquidation
  • Compliance with the Insolvency Act and Companies Act
  • Reducing directors’ risk of personal liability
  • Negotiating with creditors and SARS to manage exposure

VDM Insolvency and Liquidation Attorney Services

Choose VDM Attorneys

  • Expert insolvency and liquidation attorneys with proven results
  • Strategic guidance to protect businesses, directors, and stakeholders
  • Comprehensive support from assessment to final resolution
  • Efficient management of court procedures, creditors, and compliance

Contact VDM Insolvency and Liquidation Attorneys

If your business is facing insolvency or liquidation, acting fast is essential.
Our liquidation attorneys and insolvency lawyers can assess your situation, explain your options, and guide you through the process.

Book a Consultation today to protect your business and secure your future.