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Rehabilitation after Sequestration

Rehabilitation – How and when can I rehabilitate myself after being sequestrated?

What is rehabilitation?

The insolvency of a party comes to an end when he is rehabilitated. Rehabilitation enables a person who has been sequestrated to make a fresh start, free from his pre-sequestration debts and from the restrictions placed on him by the sequestration.

When and how can I be rehabilitated?

There are many instances when one qualifies for rehabilitation, namely:

1     Automatic rehabilitation after 10 years

An insolvent is automatically rehabilitated 10 years from date of sequestration of his estate. The 10 year period runs from date of provisional sequestration. However, this will not be the case if the court issues an order that the insolvent will not be automatically rehabilitated.

2     Composition of not less than 50 cents in the Rand

An order of rehabilitation can be sought if an insolvent has obtained a certificate from the Master stating that the creditors have accepted an offer of composition in which payment or security for payment has been made of not less than 50c in the rand for every concurrent claim proved against the estate.

3     Lapse of the prescribed period of the first account

An insolvent can apply for his rehabilitation after 12 months have elapsed from the confirmation by the Master of the first account in the estate if:

  • the insolvent’s estate has been previously sequestration then the above applies only after 3 years; and
  • the insolvent has been previously convicted of a fraudulent act in respect of his previous or current insolvency then the above applies only after 5 years.

4     No claims proved after six months

 An insolvent can apply for rehabilitation after a period of 6 months has lapsed from date of sequestration if:

  •  at the time of making the application, no claim has been proved against his estate;
  •  he has not been convicted of any fraudulent act in relation to his insolvency; and
  •  his estate has not been sequestrated before.

5      Full payment of all proved claims

At any time after confirmation by the Master of a plan of distribution providing for the payment in full of all proved claims with interest calculated in terms of the Act and all the costs of sequestration, the insolvent may apply for his rehabilitation.

It is of utmost importance to note that even where the provisions of the Act have been complied with, the court is not obliged to grant rehabilitation. An insolvent does not have a right to rehabilitation and therefore the court has a discretion.

What is the effect of being rehabilitated?

“The effect of rehabilitation of an insolvent is to restore him fully to the marketplace and, more importantly, to the obtaining of credit. The Court is accordingly as concerned with the probable future behaviour of the applicant as it is with his past.” Ex Parte Le Roux 1996 (2) SA 419 (C)

Basically, rehabilitation has the effect of putting an end to sequestration by relieving the insolvent of his debts which were due or the cause of which arose before sequestration.

FREQUENTLY ASKED QUESTIONS

Must I repay my debts before I can apply for rehabilitation?

No, when you are sequestrated, your debt vests in a trustee who must realise the assets and distribute the yield of the sale of the assets amongst creditors in accordance with the Insolvency Act. None of your old creditors can force you to pay back the “old debt”.

How do I apply for rehabilitation?

The insolvent must give 6 weeks’ notice of his intention to apply for rehabilitation by advertising in the Government Gazette, and by written notice to the master and his trustee. The insolvent must also provide security of R500. 00 (Five Hundred Rand) for the payment of the costs of any opposition which the insolvent may be ordered to pay. A substantive application is then launched at the High Court depending on where you are situated.

When I am rehabilitated, am I reinvested with my former estate?

No, except in two cases if any of it remains:

  • Where a composition provides that the estate will reinvest in the insolvent; and
  • Where the reason for the rehabilitation is the fact that no claims were proved within the 6 months of sequestration.

For legal assistance or more information, please contact:

Vera Kruger |  Abrahams & Gross Attorney

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

 

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