ACTS OF INSOLVENCY

Article by listed Somerset West Attorney: Nanika Prinsloo

Acts of insolvency mean that a person does something that gives a creditor the opportunity to make application to the High Court to have the person that committed the act to be sequestrated. Without these acts of insolvency, a person cannot be sequestrated. (See our article on voluntary surrender)

Acts of insolvency are the following:

1. Letter to a creditor that the person would like to be released from the debt (offer of settlement)

   If you owe money to a creditor and you write a letter to that creditor to make an offer of settlement to pay a lesser amount than the outstanding debt, that is an act of insolvency. The creditor can bring a sequestration application against you upon receipt of that letter. For example, if you owe a creditor R100 000 and you offer him R50 000 in full and final settlement.

2. Letter to state inability to pay the debt

   If you write a letter (or sms) to a creditor to tell them that you cannot pay them, that is an act of insolvency. For example, if you write a letter or email to the bank to say that you cannot repay your loan, the bank can use that letter to sequestrate you with (because it shows that you are unable to pay your debt.

3. Leaving your house or the country with the intent to evade paying your debt

   If you leave the country with no intention to pay your debt, you are committing an act of insolvency. Problem for the creditor is to prove that you have the intent not to pay the debt.

4. If a creditor obtains a default judgment and the debtor does not pay the debt or does not have sufficient assets

   If a creditor issues summons and then obtains judgment against you and thereafter issue a Warrant for Execution for the attachment of your assets, only to find out that you do not have assets, the creditor can apply for your sequestration. 

5. If you sell or hide your assets

   See also: Insolvency - What happens to your assets

   If you sell or hide your assets and do not pay your debt, it is regarded as one of the acts of insolvency and a creditor can apply for your sequestration.

6. Paying (benefitting) one creditor over another

   If you have R5000 and pay Mr X the full R5000 and not also to Mr Y, Mr Y can bring a sequestration application against you.

7. If you publish a notice of sequestration in the Government Gazette but do not actually proceed with the application for sequestration

   Another one of the acts of insolvency is if you place a notice in the Government Gazette that you plan do apply for sequestration and then you don’t actually bring the application – a creditor can then apply for your sequestration.

8. Sale of business is advertised and after the advertisement does not pay debt

   Upon the sale of a business, one should place an advertisement in the newspaper in terms of Section 34(1) of the Insolvency Act of the sale of the business, so that all creditors can take note of the change of hands. If a person places such an advertisement and thereafter fails to pay one’s debt, then it is accepted that the debtor cannot pay any of his debts and that will be an act of insolvency.

This article written by Nanika Prinsloo of Prinsloo & Associates. It is a general discussion of the acts of insolvency and does not purport to be legal advice. Please contact writer for a consultation on your case as each case will receive the appropriate advice based on its merits.

To contact Nanika Prinsloo nanika@nanikalaw.co.za or tel:0728558106