Drowning in debt? Insolvency Act can help

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MBABANE – There’s more than one way to skin a cat.

As emaSwati encounter trying times, especially financially, it is now more pressing than ever for the public to familiarise themselves with Acts which could assist when one is drowning in debt.

The Insolvency Act of 1955 is one such Act. The legislation assists debtors and creditors in reaching an amicable financial end and easing the burden of financial pressure.

Although effective in ensuring creditors are paid after the court declares a person insolvent, there is a pressing need for the Insolvency Act to be amended.

Court

This follows that the Act, which was established in 1955, does not practically state the amount of assets a person ought to have in order to approach the court to be declared insolvent.

Section 9 (1) of the Act states that a creditor (or his agent), who has a liquidated claim for not less than E100, or two or more creditors (or their agent), who in the aggregate have liquidated claims for not less than E200 against a debtor who has committed an act of insolvency or is insolvent, may petition the court for the sequestration of the estate of the debtor.

However, according to a seasoned lawyer, the amounts included in the Act are not practical in this day and age.

When engaged on the Act, the law expert mentioned that the overview was that ordinarily as a person, one had to be solvent.

“In other words, your assets are either equal or above your liabilities so that you can be able to survive. Can you imagine people entering into a contract with you when you are insolvent, it has major ramifications on the public,” he said.

The lawyer said when one was declared to be in a state of insolvency, when they could no longer pay certain obligations when they were due, they could approach the courts and say that they had been unfortunate to find themselves in a state of insolvency.

“In the case of an individual, a trustee is appointed and in the case of a company it is a liquidator. The trustee steps into your shoes and you are no longer entitled to do anything without consulting them,” said the lawyer.

He said the trustee liquidated the person’s assets to a point where all were broken down in order to benefit the creditors.

“The assets are looked at and what is found is far less after deductions as the trustee charges are subtracted first. The remaining amount is, therefore, used to pay off the creditors and it is usually far less than what the creditors require,” he said.

Creditors

The lawyer said in the case where a person was now considered insolvent, the creditors would get a fraction of what they were entitled to.

That is the essence of insolvency, it is either you apply for insolvency or a creditor approaches the court to determine you as an insolvent so as to receive payment.

He further mentioned that part of this process was provisional sequestration, which was when the insolvent’s assets were liquidated by the trustee.

“By the way, you are entitled to oppose an application to declare you insolvent if creditors approach the courts for you to be declared insolvent.”

When questioned as to what conditions needed to be satisfied in order for a person to be declared insolvent by the courts, he said; “Before being declared insolvent, the court can summon you to state the nature of your assets. But the Act speaks of E400 as assets yet that amount was huge at that time (1955). There is no point in distributing or sequestrating assets that are that small today because the costs of sequestrating that person are going to be far more. Hence it is at the court’s discretion to declare you insolvent,” he said.

The value of E400 then would be found to be far more today.

“This is why there is a need for this Act to be reviewed to be applicable to today.”

He also mentioned that once declared insolvent, the debtor was still obligated to pay a fraction of their assets to the creditors.

“It all depends on how much the debtor owes. Depending on the gap of what is owed and what the debtor has.”

He further said when a person was considered insolvent; there was no way they could pay off the assets, hence only a fraction was used to pay off creditors.

The lawyer was further questioned on what measures were taken in terms of marriage in community of property, whether the assets from the spouse could be used to pay off debts of the other.

Prenuptial

“That can be done as there is a joint estate. However, when there is a prenuptial agreement, I cannot bind my wife to pay off my debts,” he said.

Section 21 states that the additional effect of sequestration of spouses shall be vested in the master and further the trustee. Even though the estate of the spouse has not been sequestrated it will be vested by the trustee.

However, the property will not be considered or released if the spouse attained the property prior to the enactment of the law.

“If it was acquired in a previous marriage and if it was acquired through insulation and therefore it is acquired on condition it does not form part of the joint estate, it cannot be vested for sequestration,” he said.