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Eight grounds for insolvency: Be aware!

Be aware of Eight grounds for insolvency.

Insolvency means being unable to pay the money owed on time.

Under current South African Insolvency Law, a person can be sequestrated either voluntarily or involuntarily.

For clarity, insolvency is the state of being unable to pay the money owed, by a person or company, on time. To be sequestrated means that your assets are sold in order to pay your debt.

Voluntary and involuntary sequestration

A person can apply to have him- / herself sequestrated (voluntary), or the application can be brought by a creditor (involuntary).

In both instances, the person seeking the order will have to prove to the court that there will be some form of benefit to the creditors of the debtor.

In order to aid creditors who apply for the sequestration of a debtor’s estate, certain “acts of insolvency” are contained in the Act. Should the debtor commit one of these acts, a rebuttable presumption that the person is insolvent is established.

What does the law say about insolvency?

In terms of current South African Insolvency Law, a debtor commits an act of insolvency if:

(1)          He leaves the Republic or otherwise absents himself with the intention of evading or delaying the payment of his debts;

(2)          He fails to satisfy a judgment by the court, or fails to point out sufficient disposable property to satisfy it, or where a nulla bona return has been made by the officer responsible for the execution of the judgment; (Nulla bona is a Latin legal term meaning “no goods” – a sheriff writes this when he can find no property to seize to pay off a court judgment.)

(3)          The debtor disposes, or attempts to dispose of property, which has, or would have the effect of prejudicing his creditors, or of preferring one creditor above another;

(4)          He removes, or attempts to remove, any of his property with the intent of prejudicing his creditors or of preferring one creditor above another;

(5)          He makes, or offers to make, an arrangement with any of his creditors in order to release him wholly, or in part from his debts;

(6)          After having published a notice of his intention to bring an application for voluntary surrender, he fails to comply with the formal requirements, or to bring such application, or where he lodges an incorrect statement of affairs;

(7)          He gives notice in writing to any one of his creditors that he is unable to pay certain, or all of his debts; or

(8)          He sells his business without following the advertising procedures in terms of the Insolvency Act.

For frequently asked questions about insolvency and sequestration, please see our Insolvency law page.

Please don’t hesitate to contact one of our expert attorneys with any queries.

Abrahams & Gross Attorneys

t   021 422 1323  |  e  info@abgross.co.za



The articles on these web pages are provided for general information purposes only. Whilst care has been taken to ensure accuracy, the content provided is not intended to stand alone as legal advice. Always consult a suitably qualified attorney on any specific legal problem or matter.


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