Article by listed Attorney Nanika Prinsloo

This article discusses what happens to contracts entered into by a person before sequestration (or a company before liquidation) and also what happens to legal actions that were instituted before insolvency. See also: Achieving Stability through Insolvency

IF THE CONTRACT WAS CONCLUDED BEFORE INSOLVENCY AND THE INSOLVENT COMPLETED HIS SIDE OF THE CONTRACT

In this case, where the other party must still perform in terms on the agreement, the other party’s performance will form part of the insolvent estate. For example, if my company (before it went insolvent) sold a service to you and already delivered the service before insolvency, and payment for the service is still outstanding, the money that you owe the company will go to the insolvent estate. 

CONTRACT NOT COMPLETED BY THE PERSON WHO IS SEQUESTRATED

If an insolvent person or company entered into an agreement with another party before insolvency and the insolvent has not performed his side of the agreement, certain principles apply. The liquidator of the insolvent company or the curator of the insolvent person has the authority to decide whether he wants to proceed with the agreement or not.

TO BUY IMMOVABLE PROPERTY

If, for example immovable property (like a house) was sold before liquidation or sequestration, the liquidator of the company or the curator of the person can decide whether he wants to proceed with the sale agreement or not.

LEASE AGREEMENTS

If there is an existing lease agreement on a property that the insolvent company or person owns, then the curator can decide whether he wants to allow the lease to continue until the property is sold. Usually it is preferred that the lease continues until the property is sold because it is not a good idea to leave properties vacant. The point being that the liquidator/curator has full authority to decide what to do with the lease.

EMPLOYMENT CONTRACTS

If a person or a company employed any staff under employment agreements, the insolvency effectively ends the employ of the employees. An employee can receive unemployment benefits (UIF) from date of sequestration if the UIF was paid by the employer. If, however, it is a business and the liquidator decides to continue with the business until it is sold, the employees will work and will be paid a salary until last day of work. They will be paid by the liquidator from the funds of the business and not by the employer.

HIRE PURCHASE AGREEMENTS (INSTALMENT SALE AGREEMENTS)

Any items, like vehicles and furniture (or other items) brought under instalment sale agreements before insolvency fall under special rules. Since the bank keeps ownership of the items until it has been paid in full, the items are returned to the bank upon sequestration.

LEGAL PROCEEDINGS AGAINST THE PERSON WHO IS SEQUESTRATED (INSOLVENT)

If, for example, the insolvent’s house was repossessed by the bank and a date of sale in execution set,th e execution sale will be cancelled and the warrant for execution will fall away – so will the judgment.

Any civil legal proceedings will be suspended upon a sequestration order and will fall away.

Criminal proceedings will continue as insolvency only affects civil proceedings and not criminal proceedings.

Traffic fines issued must still be paid and does not fall away.

This article is a general discussion and does not purport to be full legal advice. Each situation is unique and advice must be received on the merits of each case. Contact writer for further advice.