30 April 2021 | Stacy Saffy
What does rehabilitation mean?
The insolvency of a person comes to an end when an insolvent person is rehabilitated. The rehabilitation process allows a person who has been sequestrated to make a fresh start and relieves the insolvent from all debts which had arisen before the sequestration of the insolvent’s estate.
To whom does rehabilitation apply?
Rehabilitation applies only to individuals and not legal entities such as a company. It is therefore important to understand that a person is not sequestrated, and that only their estates are.
There are various instances when an insolvent person qualifies for rehabilitation, namely (discussed more fully below):
- Automatic Rehabilitation after 10 years;
- Rehabilitation by the court;
- Lapse of the prescribed period of the first Liquidation and Distribution account;
- No claims proved after six months; and
- Full payment of all proved claims.
- Automatic rehabilitation after 10 years:
Automatic rehabilitation is provided for in terms of Section 127A of the Insolvency Act 34 of 1936 (hereinafter referred to as the “Act”). An insolvent is deemed to be automatically rehabilitated after the expiry of 10 years from the date of the provisional sequestration order unless the court upon an application of an interested person orders otherwise.
- Rehabilitation by an application to court:
The ordinary time to make an application to the court is four years after sequestration.
Each case is dependent on certain circumstances such as:
- When the First Liquidation and Distribution account was confirmed;
- Whether the insolvent’s estate has previously been sequestrated;
- Whether the insolvent is convicted of certain offenses; and
- Whether the Master recommends rehabilitation.
- Lapse of the prescribed period of the first account:
An insolvent can apply for rehabilitation after 12 months have elapsed from the date of confirmation by the Master of the First Liquidation and Distribution account in the estate. However, if:
- the insolvent’s estate has been previously sequestrated, then the above will only apply after three years, or
- the insolvent has been previously convicted of a fraudulent act in respect of their previous or current insolvency – then the above only applies after five years.
- No claims proved after six months:
An insolvent can apply for rehabilitation after a period of six months has lapsed from the date of sequestration if:
- at the time of making the application, no claim has been lodged against the insolvent’s estate;
- the insolvent has not been convicted of any fraudulent act in relation to their insolvency; and
- the insolvent’s estate has not been sequestrated before.
- Full payment of all proved claims:
An insolvent may apply for rehabilitation at any time after the Master confirms the Liquidation and Distribution account which provides for payment of proved claims with interest calculated in terms of the Act.
It is ultimately the discretion of the court to grant, postpone or refuse the rehabilitation application. The test to be applied is whether the applicant is a fit and proper person to trade with the public on the same basis as any other person. The onus / proof is on the applicant to show why the court should grant the application, and in doing so honesty and full disclosure is expected from the applicant.