If you're facing financial difficulties, understanding what constitutes an "act of insolvency" is crucial. Committing such an act, often unintentionally, can empower creditors to initiate legal proceedings against you.
What is an Act of Insolvency?
An act of insolvency refers to any of eight specific actions by a debtor that legally signal insolvency, thereby allowing creditors to apply for compulsory sequestration. If you perform any of these acts, it's presumed in law that you're insolvent, giving creditors grounds to take you to court.
Eight Acts That Signal Insolvency:
- Offer of Settlement: Writing to a creditor admitting debt and proposing to settle for less than the full amount can be seen as an admission of insolvency.
- Written Notice of Inability to Pay: Formally stating in writing that you cannot pay your debts is a direct act of insolvency. Avoid written confessions of inability to pay.
- Absconding: Leaving your residence or the country to evade debt repayment. Proving intent can be challenging for creditors, but it's still risky.
- Failure to Satisfy a Judgment: If a creditor obtains a judgment against you and you lack assets for seizure, this can lead to a sequestration application.
- Preferential Treatment of Creditors: Paying one creditor while leaving others unpaid can be considered an act of insolvency by the neglected creditors.
- Non-Completion of Voluntary Sequestration: After announcing your intent to sequestrate voluntarily, failure to follow through allows creditors to pursue compulsory sequestration.
- Business Sale Without Debt Payment: Advertising the sale of your business but not settling debts owed can imply insolvency, leading to business liquidation or personal sequestration if you're a sole proprietor.
- Concealing Assets: Hiding or selling assets to avoid them being seized by creditors is an immediate act of insolvency.
Why This Matters:
Understanding these acts is vital because they can inadvertently trigger legal actions that might worsen your financial situation. If you're struggling with debt, it's wise to seek legal advice rather than taking steps that might legally define you as insolvent.
Next Steps:
If you find yourself in financial distress, consider consulting with legal professionals who can guide you through your options without inadvertently committing an act of insolvency. Contact our legal team for tailored advice on managing your debts effectively.
