Civil Procedure
Insolvency
Insolvency is the state of being unable to pay debts as they fall due. Personal insolvency is dealt with by sequestration. Business insolvency may result in liquidation.
Legal Definition
A person or entity is insolvent when their liabilities exceed their assets (factual insolvency) or when they cannot pay their debts as they fall due (commercial insolvency). Personal insolvency leads to sequestration under the Insolvency Act 24 of 1936. Company insolvency leads to winding-up or business rescue under the Companies Act 71 of 2008.
📖 Constitutional / Statutory Basis: Section 34, Constitution of the Republic of South Africa, 1996; Insolvency Act 24 of 1936; Companies Act 71 of 2008
Practical Example
A company cannot meet its financial obligations. Creditors apply for liquidation. The court appoints a liquidator to wind up the company's affairs and distribute assets proportionally among creditors.
Frequently Asked Questions
What is the difference between sequestration and liquidation?
Sequestration is for individuals (natural persons). Liquidation is for companies and close corporations. Both result in assets being administered for creditors' benefit.
What is business rescue?
An alternative to liquidation for companies in financial distress. A business rescue practitioner attempts to restructure the business to allow it to continue — under Chapter 6 of the Companies Act.
Can I apply to be sequestrated voluntarily?
Yes — a debtor can voluntarily surrender their estate to the Master of the High Court if it is insolvent and sequestration would be advantageous to creditors.
Related Terms
Know the law. Know what to say.
Get the free South African rights checklist — 10 real scenarios, exact words to use, constitutional references. No card needed.