Insolvency, Liquidation, and emigration

Emigration has become part of South African’s lifestyle. It is not an easy process and causes many anxieties and worries. A big worry is what happens to the debt you leave behind in South Africa. A fear is that if you leave debt in South Africa, that you will be held liable in your new country. A worse fear is that if you liquidate or sequestrate before you go, how will that impact on your emigration. This article will set your mind at ease and explain how debt will impact on your emigration.

The benefits of insolvency stand firm. Insolvency may be a very important step as part of your emigration process. It is easy to walk away from debt if you are moving to another country, but if you leave debt in your country of origin, it remains an open door that may hinder you in establishing you fully in your new life. This is said from a psychological perspective.

What Is Insolvency?

Insolvency consists of either liquidation or sequestration. A business liquidates and an individual sequestrates. The consequence of insolvency is that the creditors come together, and they must share in the available proceeds (if any) in a certain order of preference.

Why is insolvency good for you?

There are several reasons that insolvency is good for you. First, liquidation brings a business that is not trading any longer to a close. It winds up the business’ matters and SARS is aware that there is no longer any trading. If there are assets in the business, then the creditors can share in the proceeds thereof. If there are no assets, then creditors will walk away empty-handed. They will not be able to take further legal action against the business after liquidation and the debt is considered written off.

Second, in the sequestration process where an individual sequestrates, creditors come together and as with a liquidation, they must share in the proceeds of any assets that were sold or any cash that is available. That which they do not get paid, they have to write off and they can never claim from the individual again.

Sequestration and liquidation writes off debt and blocks creditors from taking legal action

The insolvency process for both a business and an individual bring to a close the collection process and let’s be honest, the collection process as it is followed by the banks and other collectors are enough to threaten the mental health of even the strongest amongst us. The terrible tactics of intimidation and harassment that collecting agencies follow are disgraceful and unlawful. Even if you live overseas they can get hold of a telephone number or email address to contact you. The sequestration process writes off the debt and blocks creditors from taking any legal action against you.

Should I emigrate and leave debts behind or should I get rid of debt before leaving?

I give you the above information so that you can make an informed decision about whether to leave your debt in the country and emigrate, or whether you should go through the insolvency process to get rid of the debt.

The benefits of insolvency upon emigration

If you have debt in South Africa that you cannot pay, you can decide to go through the insolvency process before or even after emigration. Here are some pointers that may assist you in your decision-making process:

1. Insolvency before emigration

If you liquidate or sequestrate before emigration, it will not affect your emigration. If you liquidate or sequestrate in South Africa, the insolvency is only valid in South Africa. If we want it to be valid in another country, then we have to do what we call “cross-border” insolvency. Since the insolvency is only done in South Africa, you will not be affected in your new country.

2. Insolvency after emigration

You can still bring a liquidation or sequestration application in South Africa after your emigration, as you remain the owner of the company that is registered in South Africa and you remain the debtor who owes the debt in South Africa.

Will insolvency not impact on your visa application?

It will not and you can proceed with your visa application, even if you are liquidated or sequestrated.

Will they wait at the airport for me if I don’t go insolvent

If you do not liquidate your company that cannot pay its debt or sequestrate yourself to get rid of debt, then the next question is what happens to the debt? Will somebody wait for you at the airport?

The good news is that no, they won’t. Owing money is a civil matter and not a criminal matter, so nobody will have any reason to wait for you at the airport unless an over-zealous attorney decides to try and attach your suitcases while you are boarding a flight. Also, once you have left and return to South Africa for a holiday, nobody will be waiting for you at the airport either.

A civil matter means that a creditor can only act upon a court order. Unless a warrant for your arrest was issued because you did not make a court appearance at a Section 65 proceeding (a proceeding held by a Magistrate’s Court which is basically an enquiry into your financial position to determine how you can pay a debt), you cannot be locked up for debt at all.

Reasons to go insolvent before you leave

1. It is more practical because you are here to sign documentation. Some documentation that we need must be signed in front of a commissioner of oaths. In South Africa, a commissioner of oaths is free of charge (any police officer, bank official, attorneys, some auditors). Overseas it can become cumbersome and expensive to sign documentation in front of a commissioner of oaths, as commissioners charge a fee in most countries.

2. Courier costs – you will need to courier the signed documentation to us. If you courier it from South Africa, it is cheaper. If you courier it from overseas it can be expensive.

3. It closes the door on South Africa and leaves no loose ends that may bother you once you are overseas.

4. In insolvencies, timing is everything. If you wait until you have left, it may make your insolvency more expensive or more difficult.

5. You need expert advice on how you can deal with your assets legitimately in an insolvency. It is inevitable in most cases of emigration that assets are sold or shipped out and this can cause problems. I would advise you to rather talk to us before you leave or deal with assets than afterwards, as the assets before or during an insolvency must be dealt with subject to certain rules to avoid clawbacks.

6. Peace of mind. Dealing with an insolvent company or too much debt is just one of the steps that you have to take in the emigration process so that you can wrap up your affairs in South Africa and leave with a positive mind-set to look forward to a new future.

We specialise in insolvencies and would like to assist you with tying up loose ends before you leave. If you have already departed, we can also assist you from where ever you are. Contact us at nanika@nanikalaw.co.za or WhatsApp us on +27 72 8558 105 to find out more. Or fill in our contact form and we will get back to you.