Though all of them refers to a central theme, there are small, but crucial, difference between them:
- Bankruptcy – The process that describes both the sequestration of individuals and the liquidation of corporate entities in the United States and United Kingdom.
- Insolvency – The process that describes both the sequestration of individuals and the liquidation of corporate entities in South-Africa.
- Sequestration – The process whereby a natural person (or registered Trust) is declared insolvent through an application to the High Court (in the Province where the individual resides). It can be done through either Voluntary Surrender or Compulsory Sequestration.
- Liquidation – The process whereby a registered entity (Close Corporation or Company) is declared insolvent through an application to a relevant court) in the province where it has its registered address or main place of business).
A Sequestration order may be granted, if the court is satisfied that the applicant creditor has proved:
- That he has indeed established a claim against the debtor’s estate;
- That the debtor has committed an "act of insolvency;" and
- That there is reason to believe that it will be to the advantage of all creditors if his estate is sequestrated.
Benefit to Creditors
It is of the utmost importance that an individual, who is considering sequestration must either have:
- Immovable property, with enough equity (above the amount secured by a bond); and/or
- Movable assets, with sufficient inherent value, which can be paid towards the body of creditors; and/or
- Cash to the value of at least 20% of the total amount payable to Concurrent Creditors.
- If the “free residue” is insufficient to pay the basic costs and expenses (including the Master’s- and Curator’s fees and expenses, as well as the stipulated 20% to concurrent creditors, the court will unfortunately refuse the application.
- The 20% rule does not apply to the liquidation of Close Corporations or Companies.
When can a Business Entity be Liquidated?
- If the company has by special resolution resolved that it may be liquidated by the court.
- The company is unable to pay its debts.
- It appears to the Court that it is just and equitable that the Company should be wound up.
- Any creditor of a business may approach a relevant Court, seeking the liquidation of a Company / Close Corporation, if it can be proven that it cannot pay its debt obligation. This is normally only done where there is a large certainty that the said debtor has either funds (cash) or assets, which can be sold to pay the administration costs and expenses regarding the liquidation.
Circumstances In Which Rehabilitation May be Sought
- If an agreement has been reached (of not less than 50 cents in the Rand) with every concurrent creditor that has proved a claim against the insolvent estate.
- Lapse of the Prescribed Period of Time after Confirmation of the First Liquidation and Distribution Account (by the Master of the High Court).
- If no claims where proved against the insolvent estate after a period of six months (from date of sequestration).
- Full payment of all proved claims.