When an entity cannot pay the debts they owe as and when they become due, or where their liabilities exceed their assets, such party is considered insolvent in South African law.
In the latter case this effectively means, even if the party were to liquidate all their assets to settle liabilities, it would still not be enough.
Declaration of insolvency status is done by the Courts.
Insolvency in South Africa is regulated by the Insolvency Act 24 of 1936 (the Act), which provides for two methods according to which a party may be declared insolvent.
Voluntary insolvency occurs when a party makes an application to Court to be declared insolvent, however, they must prove that such declaration will be to the benefit of creditors.
Involuntary insolvency occurs when any other party with a vested interest in the estate of the debtor applies to Court for the liquidation of the debtor.
Over and above the requirement that the debtor is unable to pay their debts on time and/or that their liabilities exceed their assets, Section 8 of the Act provides added grounds which such other party may base their application on in order to have the debtor declared as insolvent. These are known as Acts of Insolvency; we like to call them “the 8 in Section 8.”
A creditor needs at least one of any of the above to bring an application for involuntary surrender. We assist debtors and creditors alike with regards to Insolvency Law procedures. Make contact with us and our astute Insolvency attorneys will leave you with fond memories of the assistance you receive from our team.
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