Tamar Kahn
As the rand lurches into the land of Monopoly money, lawyers are among the few people still smiling.
Not because they had the foresight to invest in foreign currency, but because they see the bony fingers of bankruptcy collecting record numbers of clients.
Bankruptcy has an ominous ring, bringing to mind Dickensian scenes of debtors’ prisons. But what happens when you’ve reached the limit – you have no more cash, credit or savings and you’re refusing to answer the telephone because of creditors?
First off, know your liquidations from your sequestrations.
If you are an individual and your debts outstrip your assets, you are insolvent, and your estate can be sequestrated. In English? Your finances are in such a bad way that even if you sold your house, your Lamborghini and your pet barracuda, you would still be a long way from getting yourself back into the black.
Enter your trustee. This not-so-welcome knight in tarnished armour will arrange for your assets – everything you own, barring the clothes on your back and the dead animals in your freezer – to be auctioned off to the highest bidder.
Your trustee will then take a chunk for services rendered, make sure the lawyers are paid, and divide up what little is left among the demons who are demanding money – otherwise known as your creditors. While you are insolvent, your legal status is reduced to that of a minor – no more credit cards for starters – and your trustee is effectively your guardian.
You then have to spend on average four years waiting to be rehabilitated. Rehab is not a means of coming off the bottle, though you are likely to be heading for the home brew by this stage, but the word that welcomes you back into the grown-up world.
Usually such unfortunate individuals see trouble coming, and apply for what’s known as “voluntary surrender” of their estate.
But sometimes creditors lose patience and take the hapless individual to court – for instance, your friendly bank manager may act on you if your overdraft suddenly skyrockets and you clearly are not going to be able to pay it back.
Companies and close corporations heading for the wall get their own vocabulary. No sequestration for them – they get liquidated.
This time it’s not a bills-bigger-than- assets scenario, but rather a case of not having enough cash in the kitty. If you are running a company or close corporation, you can wind it up yourself by getting the members to declare in writing that the party is over, and lodging this with the registrar of companies or close corporations.
You can also go straight to the courts for an order that the company be wound up – it costs a bit more, but is considerably quicker.
Alternatively, you can take the angry- creditor route, whereby you quietly go bust and wait for one of the innocents you owe to set the liquidation process going.
This is not a good idea, however, because if you ran up debts when you knew the game was over, you’re likely to be smacked with a fraud charge, and the sheriff and his not-so-merry men will still come knocking on your front door.
In any event, a liquidator will be appointed by the ominously named Master of the High Court, any assets will be auctioned and then shared out in what’s known as “the legal order of preference”.
This means that if you are owed money for supplying a merchant with goods, you’ll see your greenbacks only after the more important people, such as the lawyers, have taken their slice.
Companies and close corporations that go belly up can never be rehabilitated – they simply cease to exist. So if you have a new brain wave, there is nothing to stop you registering a new close corporation or company and going into business again.
The law protects businesspeople who have legitimately amassed a personal fortune but have, for whatever reason, gone under – it means that you don’t automatically lose the jacuzzi simply because no one is buying your company’s widgets.
There are of course a few nasty little sharks who, since time immemorial, have taken advantage of the legal separation between an individual and a company. When they see trouble on the horizon, they strip their company of all its assets, close shop and start up again under a new name. It’s illegal, but it takes a vigilant liquidator to track them down.