Rehabilitation in all its shapes and sizes

INTRODUCTION

Being sequestrated by an order of the High Court has a myriad of adverse consequences that could have an inhibiting effect on an individual and his/her freedom to transact and build a new life. The Insolvency Act 24 of 1936 (“the Act”) makes provision for a sequestrated person to be rehabilitated under certain circumstances so that the insolvent person may continue with his or her life without the insolvent status. The effects of rehabilitation are as follows:

1. It puts an end to sequestration.
2. Discharges all debts of the insolvent.
3. Relieves the insolvent of every disability resulting from the sequestration order.

It is important to note that rehabilitation is a discretionary remedy and the court may thus attach certain conditions thereto, which could have an impact on the above-listed effects of rehabilitation.

AUTOMATIC REHABILITATION

An insolvent person is either rehabilitated automatically or by way of a court order. Automatic rehabilitation occurs by the effluxion of ten years in terms of section 127A of the Act. The 10-year period is calculated from the date on which the provisional sequestration order was granted. This 10-year period could potentially be extended if an interested person makes an application to the High Court in which sufficient reasons are set out for the extension.

REHABILITATION BY COURT ORDER

The Act makes provision for an insolvent person to make an application to the High Court for his/her rehabilitation under different circumstances. It is important to note that the application must be brought in the same division of the High Court as where the order for sequestration was granted. The different provisions of the Act dealing with rehabilitation applications are as follows:

1. Section 124(1)

An application for rehabilitation can be brought after the acceptance of a statutory composition by the creditors of the insolvent estate. In such a case the Master must certify that concurrent creditors whose votes amounted to three-quarters in number and value of the votes of all creditors who have proved claims against the estate, accepted a composition and that payment has been made or that satisfactory security for the payment has been furnished.

2. Section 124(2)

An application for rehabilitation can also be brought after 12 months have passed since confirmation by the Master of the High Court of the first trustee’s account in the estate. The 12-month period will increase if the insolvent person has been previously sequestrated or if he or she was convicted of a fraudulent activity relating to his/her insolvency. See section 124(2)(b) and (c) in this regard.

3. Section 124(3)

An insolvent person can also bring forward an application for his/her rehabilitation after 6 months have elapsed from the date of sequestration if no claims have been proved against his/her estate. A further requirement in terms of this section is that the insolvent person should not have been convicted of an insolvency offence or have been previously sequestrated.

4. Section 124(5)

An application for rehabilitation can also be brought on 3 weeks’ notice to the Master of the High Court and the trustee of the insolvent estate if all proved claims have been fully paid. The interest on all proven claims should also have been paid as well as the sequestration costs.

CONCLUSION

It is important to note that the above discussion is a very brief and simplified look at rehabilitation applications and certain further requirements may have to be complied with. It must also be noted that notice in the Government Gazette is needed in almost all of the above circumstances. You are advised to contact your legal advisor if you have been sequestrated and are considering bringing an application for your rehabilitation.

Reference List:

• LSSA LEAD NOTES
• Insolvency Act 24 of 1936

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)