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When an entity cannot pay the debts they owe as and when they become due, or where their liabilities exceed their assets, such party is considered insolvent in South African law.

In the latter case this effectively means, even if the party were to liquidate all their assets to settle liabilities, it would still not be enough.

Declaration of insolvency status is done by the Courts.

Insolvency in South Africa is regulated by the Insolvency Act 24 of 1936 (the Act), which provides for two methods according to which a party may be declared insolvent.

Voluntary Insolvency

Voluntary insolvency occurs when a party makes an application to Court to be declared insolvent, however, they must prove that such declaration will be to the benefit of creditors.

Involuntary Insolvency

Involuntary insolvency occurs when any other party with a vested interest in the estate of the debtor applies to Court for the liquidation of the debtor.

Over and above the requirement that the debtor is unable to pay their debts on time and/or that their liabilities exceed their assets, Section 8 of the Act provides added grounds which such other party may base their application on in order to have the debtor declared as insolvent. These are known as Acts of Insolvency; we like to call them “the 8 in Section 8.”

Acts of Insolvency - “the 8 in Section 8.”

1. The first one is where the debtor leaves the Republic of South Africa, having an intention to avoid or delay paying. Although it is not easy to prove intent, the Courts will consider all facts on a case by case basis.
2. Secondly, where the debtor cannot satisfy a judgment granted against them and the Sheriff finds no property to attach and execute to satisfy the judgment, this is also an act of insolvency.
3. The third is whereby the debtor attempts or actually disposes of any of his property to the detriment of any of the creditors. This includes where the debtor abandons a claim in their favour.
4. In the fourth instance and related to the third, where the debtor removes or attempts to do so, on any of his property with an intention to prejudice any of the creditors or preferring any over another.
5. Fifth, where the debtor offers or makes an arrangement with any of the creditors to be discharged from the debt in whole or in part.
6. Sixth, where the debtor gives notice to any of the creditors that they cannot pay any of their debts.
7. In the seventh instance, where the debtor publishes a notice of surrender but then does not proceed to satisfy the requirements for such procedure.
8. In the final instance, where the debtor being a trader sells or transfers their business without complying with advertising procedures as per the Insolvency Act.

Van Deventers and Van Deventers Inc. – Attorneys South Africa

A creditor needs at least one of any of the above to bring an application for involuntary surrender. We assist debtors and creditors alike with regards to Insolvency Law procedures. Make contact with us and our astute Insolvency attorneys will leave you with fond memories of the assistance you receive from our team.

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