Financial Rehabilitation: Requirements for application

Financial rehabilitation can either occur automatically after 10 years of sequestration or on filing an application prior to 10 years of sequestration.

Where the latter is chosen there are certain requirements which must first be met; one cannot simply just file an application and be done. Please note that there is a 4 year waiting period between the date of provisional sequestration and filing an application for rehabilitation. The following sections and requirements must be adhered to for a successful application of rehabilitation:

1) Section 119 of the Insolvency Act provides that the insolvent must first make an offer of composition to the creditors (essentially, this is an offer to pay the creditors what is owed based on what the debtor or insolvent has available). Such an offer may not amount to less than half of what is owed. Also, the offer must be accepted by at least three-fourths of the creditors to whom the application is made.

1. An offer of composition is essentially a plan in which the debtor (in this case the insolvent) makes a plan to repay his/her creditors.
2. Section 119(7) further provides that where such an offer is accepted by the creditors, the master of the High Court may grant the insolvent a certificate of acceptance of the offer.
   1. A certificate will not be issued in the event that:
      1. There is a condition in the offer that favors one creditor over another,
      2. There is a condition that the fulfillment of the composition will be subject to the consent of the creditors to the rehabilitation of the insolvent and
      3. Where security is provided, the nature of the security is outlined and where surety is provided, such a surety is named.
3. Section 124 of the Insolvency Act outlines the process which takes place once the composition is accepted and the certificate is received. The insolvent may apply to the High Court for a provisional financial rehabilitation with the provision that he/she:
   1. Not less than three weeks before making the application, has advertised the notice of intention to apply for rehabilitation in the government gazette,
   2. Delivered or sent by registered post a copy of the notice to the trustee of his/her estate.
   3. Must further provide the certificate of the acceptance of the composition outlining how the creditors will be paid.
4. The court will then grant the provisional rehabilitation subject to a rule nisi in which the return date takes up to a month. It’s in this time period that someone may object to the rehabilitation.
5. Once the final order is made, the insolvent is deemed to have been rehabilitated.

For more information and advice on the requirements and steps to apply for financial rehabilitation, contact Du Toit’s Attorneys on 012 742 0100 or 012 643 1882. Alternatively, you can send an email to: johan@dutoitsattorneys.co.za or hanja@dutoitsattorneys.co.za.