What is insolvency?
Insolvency can help you or your business solve financial problems. Insolvency means that either a person’s or a company’s liabilities exceed the person’s or the company’s assets.
Individuals sequestrate and companies and close corporations liquidate. After sequestration, a curator is appointed to wind up the individual’s insolvent estate and after liquidation, a liquidator is appointed to wind up the insolvent estate of a liquidated company.
Can insolvency help me solve financial problems?
Indeed, it can. It is a solution to both individuals and companies to deal with debt if the debt cannot be paid.
How does insolvency solve financial problems?
When an individual or a company (let us refer to both of them for the purposes of this article as “a debtor) owes money which the individual or the company cannot pay, creditors will take legal action to collect the outstanding balances from the debtor.
The process of collection will involve that summons is issued, a default judgment is taken, a warrant for execution issued and the creditor will attach the assets of the debtor (if there are any assets to attach) and sell same at an execution sale auction. Usually, these type of auctions yield low proceeds and the creditor that issued the warrant for execution is usually left with a shortfall. In the case of the liquidation of a company, the shortfall is written off if the director did not sign surety for the debt of the company, because the director is ONLY liable for the debt of the company if surety was signed. In the case of an individual who is sequestrate, the creditor can take the debtor to court to obtain an order of a monthly payment by the individual if the individual can afford it.
The problem with the method of collection is that the first creditor who can issue summons and take the assets and sell them on an auction will be the first and last creditor to be paid as there will be no assets left for the other creditors that can be attached.
This means that the creditors will try their best to get payment of their debt and viciously harass the company or the individual to get paid.
Insolvency can help you solve financial problems is because in an insolvency (sequestration or liquidation) the creditors “come together” and they must share in the proceeds of any assets that can be sold in a certain order. That which they don’t get they must write off and cannot claim any shortfalls from the company or the individual.
A person does need assets or cash to sequestrate
A company does not need assets to liquidate, but an individual does need assets or cash to be able to sequestrate. If there are no assets in a liquidated company that can be sold to pay creditors, the creditors will get nothing, and they must write the debt off. If the director signed surety for the debt, then the creditor can collect the debt personally from the director. If the director did not sign surety then the creditor cannot claim the debt of the company from the director.
An individual does need assets or cash to sequestrate because in sequestration there must be a benefit to creditors. Once the proceeds from the assets or the cash available were paid to creditors, that which they don’t get must be written off and can never be collected from the sequestrated person. This will include any sureties that a director may have signed for a company.
You can be liable for a debt for thirty years if you don’t sequestrate!
If an individual does not sequestrate, the default judgment that creditors take against such an individual is valid for THIRTY YEARS or until the debt was paid in full. The individual will never recover financially unless the debt is paid.
If an individual sequestrates, all debt incurred up to date of sequestration is written off and can never be recovered from the sequestrated person. Sequestration stands for FOUR YEARS after which a person can apply for rehabilitation.
So yes, insolvency definitely helps you solve financial problems. Contact us to see how we can help solve your financial difficulties.