Let us not bankrupt our todays by paying interest on the regrets of yesterday and by borrowing in advance the troubles of tomorrow.1

Unfortunately, the Insolvency Act 1936 does not deal with moral and spiritual bankruptcy, but the more tangible world of money. A statute which, though having undergone substantial amendments, has stood the test of time,2 it still adequately provides for: the types of conduct which amount to acts of insolvency, as well as sequestration, remedies, procedures, rights, obligations, and the like concerning insolvent persons, their estates, and their creditors.

For the purposes of the Act, an ‘insolvent’3 is a person (or partnership) who is in debt to another and whose estate is under a provisional or final order of sequestration. There are certain obligations and limitations placed upon an insolvent. A trustee is appointed to oversee his financial affairs, and his property undergoes a type of embargo – in effect, it becomes vested in the trustee, and the insolvent may not dispose of it. It follows, of course, that the trustee also has significant duties and obligations.

A. The order for sequestration

  1. Any debtor who is unable to pay his debts may petition the High Court to approve the surrender of his estate, for the benefit of his creditors. Before presenting the petition, a ‘Notice of Surrender’ must be published in the Government Gazette and in his local newspaper, as well as be sent to all known creditors. It is a crime to make any false statement in this Notice.4

  2. It is an offence to attempt to induce anyone not to oppose your sequestration, or not to investigate your affairs, etc.5

B. Subsequent events

  1. A trustee gets appointed to manage the financial affairs of an insolvent. Once that has happened, a meeting is held, at which the insolvent must attend, together with his creditors.6 If the insolvent, or any person summoned to appear at a meeting of creditors fails to appear, he commits an offence.7

  2. If an insolvent (or his spouse) has been summoned to give evidence in any proceedings instituted by or against the trustee of the insolvent estate, he commits an offence if he:8
    • conceals himself;
    • quits the Republic;
    • without reasonable excuse fails to attend the proceedings; or
    • refuses to answer any question which may be lawfully put to him in the course of those proceedings.
  3. Within two weeks after the appointment of his trustee, the insolvent must do the following:
    • deliver, to the trustee, any property belonging to him which is in his possession or under his control;9
    • inform the trustee of the existence and whereabouts of any other property which is not fully disclosed in his Notice of Surrender, or the Statement of Affairs lodged with the Master upon his sequestration;10
    • deliver to the trustee all books and documents under his control relating to his affairs;11
    • inform the trustee of the existence, or whereabouts, of any book or document not under his control but which concern his affairs,12

    and it is a criminal offence if he fails to fulfil any of these obligations.13

  4. At the meeting with creditors, an insolvent can be interrogated.
    • If he fails to disclose, or to account for what has become of any property which was in his possession so recently that, normally, he ought to be able to do so, he commits an offence.14
    • It is a crime for any person to give any false statement when being interrogated on oath under the Act.15
  5. In addition, events preceding the insolvency will also be investigated. If, at any time during a two-year period before your sequestration, you made a verbal or written statement to any creditor,16 to the following effect, you will have committed a criminal offence:17
    • you conceal any present or future liability (that is, a financial obligation);
    • you disclose a liability, but conceal its full extent;
    • you pretend to have an asset which was not, in fact, an asset;
    • you pretend to have more assets than, in fact, you do have;
    • you misrepresent the amount, quality or value of your assets;
    • you disguise or conceal (or try to do so) any financial loss which you had suffered, or you give an incorrect amount of such loss.
  6. The insolvent must, if requested by the trustee, assist in collecting, taking charge of, and realising any property belonging to him (in other words, his insolvent estate). If he fails to do so, it is a criminal offence.18

  7. The insolvent commits a crime if he is called upon by his trustee to give a true, clear and detailed explanation of his insolvency, and/or to account correctly and in detail as to why his liabilities exceed his assets, and fails to do so.19

  8. If he knows or suspects that a claim against his estate is false, the insolvent must, within seven days of becoming aware, inform both the Master of the High Court and his trustee, and commits an offence if he fails to do so.20

  9. If, at any time, after his sequestration an insolvent is requested by his trustee to furnish information regarding property in his possession, custody and control (including when or how he disposed of it) and fails to do so completely and truthfully, he commits an offence.21

  10. The insolvent must keep his trustee informed of his residential and postal addresses, and commits an offence if he fails to do so.22

C. Documentation and assets

  1. When the deputy sheriff serves on you the court order of your sequestration, you must furnish to him all your books and records relating to your financial affairs.23 It is an offence not to do so.24

  2. Both you and your spouse must, within the next seven days, lodge with the Master of the High Court a statement, on affidavit, of all your respective financial affairs, as at the date of the sequestration order. It is an offence if either of you fails to do so.25

  3. If an insolvent does any of the following acts, he commits a criminal offence:
    • conceals, destroys, disposes, damages, erases, or falsifies any book or document relating to his business, property or affairs;26
    • permits anyone to do so;27
    • conceals, or allows the concealment of any asset which ought to be under the control of his trustee;28
    • in any way, other than in the ordinary course of business, disposes of any property which was obtained on credit, and is still not paid for;29
    • in any way disposes of, damages or removes any assets in his estate (or allows it) if this is likely to prejudice his creditors.30
  4. If your occupation prior to your sequestration was such that it is reasonable to expect that you would keep a record of your transactions,31 an offence is committed if you have not properly kept such a record for at least three years.32

  5. Whatever your occupation, if the nature of the transactions was such that it is reasonable to expect that, anyway, a record would be kept, it is an offence also not to have done so for a period of three years.33

  6. It is a crime to dispose of property prior to sequestration, with the intention of preferring one particular creditor over any other(s).34

  7. If any partner, administrator of estates or agent does anything in relation to the property of the partnership, or of an estate, or of his principal which, if done in relation to his own property would be an offence, then it is an offence.35

D. Trading before sequestration

  1. An insolvent person commits an offence if, prior to the sequestration of his estate he contracted any debt of fifteen pounds or more or debts to the aggregate of fifty pounds or more, without any reasonable expectation of being able to discharge such debt or debts.36

  2. It is also an offence if (or during the period of six months immediately preceding the sequestration of his estate) at a time when his liabilities exceeded his assets, he diminished his assets by gambling, betting, hazardous speculations or expenditure, not reasonably necessary in connection with his business, or vocation, or for the maintenance of himself and his dependants.37

  3. It is an offence if the insolvent was a trader and he alienated any business belonging to him, or the goodwill of such business, or any goods or property forming part thereof without publishing a notification of his intention to do so in the Gazette and in a newspaper as required by section 34(1).38

E. Trading during sequestration

  1. During the sequestration of your estate, it is a crime to obtain credit for an amount exceeding ten pounds39 without informing the person of the fact that you are insolvent (unless, of course, he already knows).40

  2. An insolvent may follow any profession or occupation, but he commits an offence if, without the written permission of his trustee, he is employed by, or trades as, or has any interest in the business of, either, a trader who is a general dealer, or a manufacturer.41

  3. An insolvent must keep a detailed record of all assets received by him (from whatever source) and of all disbursements made by him in the course of his employment, profession or occupation and commits an offence if he fails to do so.42

  4. He also commits an offence if he is called upon by his trustee to submit the record (verified by affidavit) on a monthly basis and fails to do so.43

  5. It is a crime to make any false statement or entry in these records.44

F. Trustees

  1. If a trustee has a duty to submit an account to the Master, or to pay money to the Master or to a creditor, and fails to do so within two months, he commits an offence.45

  2. Any person who obstructs a trustee, or a curator appointed under the Act, commits an offence.46

  3. It is an offence to fail to comply with a summons to give evidence in any proceedings instituted by or against the trustee.47

G. Third Parties

  1. The presiding officer at an insolvency enquiry can order that the proceedings be held in camera; that is, behind closed doors and not for the public. If any person contravenes that order, or publishes any information disclosed in that in camera hearing, he commits a criminal offence.48

  2. If any person accepts any benefit (or even the promise, or offer of a benefit) in exchange for any of the following, he commits an offence:49
    • discontinuing or stopping any proceedings for the sequestration of an estate;
    • agreeing to, or not opposing a composition50 in an insolvent estate;
    • agreeing to, or not opposing the rehabilitation of an insolvent;
    • not investigating any matter relating to an insolvent or an insolvent estate; or
    • not disclosing any information in regard to an insolvent or an insolvent estate.
  3. If any person (other than the insolvent) removes, disposes of, hides, deals with, or even receives any asset belonging to an insolvent estate in order to defeat an attachment, following an order of Court, he commits an offence.51

  4. Any person (other than the insolvent) who even merely has in his possession, or control, any property belonging to an insolvent estate, and knows this, commits an offence.52
  1. Attributed to Ralph W Sockman –

  2. There are some qualifications to this. Some penal provisions (for example: section 135(3), and section 137) refer to amounts of money in terms of pounds, and in miniscule sums. It cannot be that these provisions are capable of enforcement. 

  3. This term refers to someone who has been sequestrated by an order of the High Court. 

  4. Section 137(d) read with section 4. 

  5. Section 137(b). 

  6. A creditor is someone to whom you owe money. 

  7. Section 139(1) read with section 64 and section 66(2). 

  8. Section 140. 

  9. Section 136(b)(i). 

  10. Section 136(b)(ii) read with section 4 and section 16. 

  11. Section 136(b)(iii). 

  12. Section 136(b)(iv). 

  13. Section 136. 

  14. Section 138(c). 

  15. Section 139(2). 

  16. Including someone who, relying on such statement, became a creditor of yours. 

  17. Section 133. 

  18. Section 137(c) read with section 23(12). 

  19. Section 138(b). 

  20. Section 136(a). 

  21. Section 136(c). 

  22. Section 138(d) read with section 23(13). 

  23. Section 16(2)(a). 

  24. Section 137(c). 

  25. Section 137(c) read with section 16(2)(b) and section (3). 

  26. Section 132(a). 

  27. Section 132(a). 

  28. Section 132(b). 

  29. Section 132(c). 

  30. Section 132(d). 

  31. In other words, business dealings – buying, selling, renting, giving surety, etc. 

  32. Section 134(1). 

  33. Section 134(1). 

  34. Sectioin 135(1). 

  35. Section 143(1). 

  36. Section 135(3). 

  37. Section 135(3). 

  38. Section 135(3). 

  39. As noted above (reference 2) this provision is so outdated as to be incapable of enforcement. South Africa last used pounds as currency in 1961. 

  40. Section 137(a). 

  41. Section 137(c) read with section 23(3). 

  42. Section 137(d) read with section 23(4). 

  43. Section 137(d) read with section 23(4). 

  44. Section 137(d) read with section 23(4). 

  45. Section 144. 

  46. Section 145. 

  47. Section 139(1) read with section 64 and section 66(2). 

  48. Section 65(2A)(a) and (c). 

  49. Section 141. 

  50. A ‘composition’ is an offer made by the insolvent, to his creditors, which incorporates a debt repayment arrangement, mostly with discounted liabilities – for example, he will pay 40c for every R1.00 that is owed. 

  51. Section 142(1). 

  52. Section 142(2).