Rehabilitation after Insolvency

Why do I need to rehabilitate after Insolvency?

Insolvency lasts for 10 years

Most people are under the impression that once the administration process has been finalised, they can continue as before. Unfortunately, the Insolvency Act states that:

"Any insolvent not rehabilitated by the court within a period of ten years from the date of sequestration of his estate, shall be deemed to be rehabilitated after the expiry of that period..."  - section 127A(1)

This means that unless you apply to be rehabilitated, your insolvency will continue until your automatic rehabilitation after 10 years have lapsed from your sequestration date. 

What is the implications of remaining insolvent?

We will first look at only four specific sections of the Insolvency Act and then discuss the effects and disadvantages these sections might have, do note that there are numerous other sections as well, but we consider these to be the most significant for rehabilitation. The Insolvency Act states that the effects of a sequestration of an insolvent shall be:

• "to divest the insolvent of his estate and to vest it in the Master until a trustee has been appointed, and, upon the appointment of a trustee, to vest the estate in him;" - section 20(1)(a)
• "The trustee shall be entitled to any moneys received or to be received by the insolvent in the course of his profession, occupation or other employment which in the opinion of the Master are not or will not be necessary for the support of the insolvent and those dependent upon him" - section 23(5)
• "Whenever an insolvent has acquired the possession of any property, such property shall, if claimed by the trustee of the insolvent’s estate, be deemed to belong to that estate unless the contrary is proved;" - section 24(2)
• "The estate of an insolvent shall remain vested in the trustee until the insolvent is re-invested therewith pursuant to a composition as in section 119 provided, or until the rehabilitation of the insolvent" - section 25(1)

The implication are far-reaching as your estate (assets) belong to, and remain the property of your trustee for the duration of your insolvency. Your trustee also becomes entitled to any money your earn, which in the opinion of the Master, is not necessary for the support of those dependent on you. If you acquire any property, your trustee may lay claim to it as often happens with insolvents when they receive an inheritance. So - even if the administration period has come to and end, it can start anew if your income increases substantially, or if you acquire any assets of substantial value.

When may an Insolvent apply to be rehabilitated?

Although there are some directives and case law that apply and certain criteria must be met, an Insolvent may apply for rehabilitation in terms of section 124 of the Insolvency Act, if:

• 6 Months have lapsed since the sequestration date and no claims has been proved against his estate. - section 124(3)
• If a composition with creditors results in a dividend of 50c per Rand being paid, the Insolvent may apply for rehabilitation as soon as a certificate has been issued by the Master in terms of section 119 of the Insolvency Act.  - section 124(1)
• As soon as the Liquidation and Distribution Account of the Trustee has been confirmed, provided that it made provision for the payment in full of all claims proved against the insolvent estate, with interest thereon from the date of sequestration. - section 124(5)
• If claims were proven against the insolvent estate and they received only partial or no payment, a period of 12 months must first elapsed from the date of confirmation of the Liquidation and Distribution Account of the Trustee, in addition to 4 years from the date of sequestration. - section 124(2)(a)
• If previously sequestrated a period of 3 years must first elapsed from the date of confirmation of the Liquidation and Distribution Account of the Trustee. - section 124(2)(b)
• If conviction of any fraudulent act in relation to his insolvency, or of a contravention of the Insolvency Act, a period of 5 years must first elapsed from the date of conviction. - section 124(2)(c)

Advantages of rehabilitation after sequestration 

An Sequestration Order really only has temporary disadvantages which will disappear once you are rehabilitated. The three main effect of rehabilitation in terms of section 129 will be:

• of putting an end to the sequestration;
• of discharging all debts of the insolvent, which were due before the sequestration (which did not arise out of fraud on his part);
• of relieving the insolvent of every disability resulting from the sequestration.

How to apply for rehabilitation after insolvency 

The process involves an application in a prescribed form, which we prepare on behalf of our clients.

If you are married in community of property, the application must be supported by your spouse and include all their details as well. Once the application and required documentation has been prepared, it will be submitted. You do not need to attend the proceedings at the High Court, but may do so if you want to. Our appointed counsel (advocate) will attend the proceedings and argue the case for the order to be granted.  

At the stage of writing this article, we have zero failed applications, an only two postponed pending applications, despite the fact that officials of the Master of the High Court opposed quite a number of our applications on various grounds, that according to us, had no merit.  

Effects of a Rehabilitation Order

Once granted, the Rehabilitation Order must be sent to the Master of the High Court and Trustee to ensure they are aware of the rehabilitation.

Unfortunately, the Rehabilitation Order does not automatically clear your name at any credit bureau and needs to be manually submitted along with any disputes regarding adverse listings of creditors. We usually recommend submitting the Rehabilitation Order to the four main credit bureaus, being ITC Transunion, Experian, XDS and Compuscan, from which the others get the information

Costs of a Rehabilitation Application

Unfortunately, our costs will depend on the following three factors:

1. The relevant section of the Insolvency Act under which you qualify;
2. The relevant division of the High Court and Master of the High Court;
3. The appointed trustee that dealt with the estate and the progress of their administration.

Apart from the costs of the application itself, which we bill according to the prescribed tariffs of the High Court, a deposit will be required to cover the initial disbursements.

If you wish to pursue this option, contact us for a free telephonic assessment of your situation based on an online search. We will email you a copy of our findings at no charge, together with a detailed no-obligation quotation in the event that you wish to make use of our further services. 

For your free online assessment simply send an email to info@gmilaw.co.za 

or 

Phone us on 087 057 1790 during office hours.

_{Copyright © 2023 Rohan Lamprecht. Disclaimer: The information in this article is of a general nature for educational purposes only, relevant to the publishing date. Any opinions expressed are solely those of the author and do not necessarily reflect the views or opinions of Grobler Malope Inc. The content is not intended to constitute professional or legal advice, and you are encouraged to call and consult with our attorneys to discuss your specific situation before making any decisions. Grobler Malope Inc - 087 057 1790 - info@gmilaw.co.za}