[Question] Directorship/Member/Trustee after sequestration

[QUINN]

The other day I was asked by a client whether he would be disqualified form being a Director of a PTY / Member of a cc or Trustee of a Trust if he is sekwestrated. I could not give him a straight reply.
Does anyone have an opinion on this and if this disqualifies hime what other options does he have to do business?

[Dave A]

A.F.A.I.K you can't be a director of a company or a public officer if you are an unrehabilitated insolvent in terms of the companies act. I'm not sure about the ordinary member of a cc, though.

The trustee of a trust one is interesting. The question arises - even if it's legal, is it advisable?

Same question might be relevant for the ordinary member of a cc...

[QUINN]

Thanks Dave
What options are then open for this person to do business

[Dave A]

Married men in this situation often circumvent the problem through their wife (provided she is amenable). Ultimately, if you can't be fronted by someone you can trust, you're in a bit of a mess.

The only other option would be sole proprietor (or partnership if you can find a willing partner). The weakness is that if you make money, you get all the old creditors sniffing after you again. Best to come to an arrangement with the unpaid creditors if you can.

At the end of the day it's a serious handicap having an unrehabilitated insolvent in an ownership or top management position, especially if the enterprise needs financing or credit facilities.

Tell your client to get rehabilitated as soon as possible. After a couple of years being a rehabilitated insolvent can even become a battle scar of honour.

[hf0157]

Interesting info about a sole proprietorship Dave. What would the curator's position be on this, or a partnership?

[Dave A]

I would hope the curator would welcome viable means to get the insolvent rehabilitated as first prize

[hf0157]

Are you saying that the curator could expropriate funds from the insolvent's business activities (partnership or sole proprietorship) or generated by the insolvent for the benefit of creditors (or the curator's fees) prior to rehabilitation? Another way of asking; Is wealth generated subsequent to the sequestration date exclusively the asset of the insolvent (by whatsoever means - partnership or sole proprietorship), beyond the reach of the curators fees and expense and creditors?

[Dave A]

Another way of asking; Is wealth generated subsequent to the sequestration date exclusively the asset of the insolvent (by whatsoever means - partnership or sole proprietorship), beyond the reach of the curators fees and expense and creditors?

I sense a snooker coming, so may I cover this from my original POV (which certainly has little to do with the legal subtleties in this instance).

My departure point is what is the insolvent to do - sit around and do nothing as the clock ticks? At that stage surviving the next 5 years is very much driven by the law of the jungle. They are faced with obtaining formal employment if possible, operating by proxy, or "informal sector" style self-employment.

The second aspect considered in the "sole proprietor or partnership" angle is that there's no formal process to the formation of a separate juristic person as an obstacle. In fact, a separate juristic person is not formed.

Last, I suggest the curator and creditors are only going to get interested if there's clear signs of money to be had.

Your line does raise the question, though -

If the insolvent lands a good job that pays well, could the curator obtain a garnishee order against his/her salary?

[sterne.law@gmail.com]

A few quick points -
trustee can not have been an insolvent.
An insolvent can be a shareholder of a cc but may not be involved in the management thereof.
When the insolvency process starts, the "estate" vests in the trustee(of the onsolvent estate - not to be confused with trustee of a deceased estate). It is both possible for the insolvent to start a new estate(that is new assets etc) that are not a part of the insolvent estate - but by the same token once insolvency starts, new assets and income might be a part of the insolvent estate.
To Dave's question - it is possible that a salary or income might be used to settle debts for theinsolvent estate

[sterne.law@gmail.com]

Also, reading original post - it is possible, if you are the only member or Director, to be excused, so to speak, and allwoed to oeprate any form of busienss entity. It is on application to court - so not a given.

[hf0157]

I sense a snooker coming, so may I cover this from my original POV (which certainly has little to do with the legal subtleties in this instance)

No snooker Dave :-) Just confusion.
Follow me here:
An insolvent can (1), apply for a discharge after six months if all creditors have been satisfied with 100 cents on the Rand and absent fraud. (creditors' satisfaction)
Can also (2), apply for discharge after 4 years if creditors have been partially satisfied with the assets of the estate as of the sequestration date (presumable to the court's satisfaction)
By operation of law/statute (3), after 10 years. (court's satisfaction?)

Many "sequestration counseling" websites have various advice on voluntary sequestration, but all generally espouses to wit:

"

The court will grant voluntary sequestrations to customer. The court will appoint an Administrator or Trustee who will be in control of your estate. The customer will surrender all assets to administrator. All assets will be sold by Administrator. Cost will be subtracted and the rest will be divided between all creditors. Any balance left on the account of the customer will be written off by creditor. Creditor may not pursue customer anymore.

This is the biggest advantages of sequestration. The customer will come out clean with no debt at the end of the process. The customer will have a clean start in live. No creditor or debt collector may call you for outstanding money again. For many people this is a great option to get rid of all the creditor calls and sleepless nights from worrying about your debt.

It seems that on the one hand, the law pegs the assets and liabilities of the insolvent at a certain amount and at a certain time (sequestration date), but on the other hand, allows the trustee to continue collecting debt for his and the creditors' benefit for up to ten years from assets accumulated subsequent to the sequestration date outside of the bankrupt estate.

This would then surely be unlawful ?

You statement about a sole proprietorship or partnership in your comment makes 100% sense and is as good as it gets......... on the one hand (no snooker here) :-)

The question arises: "What then, absent fraud, is the point of voluntary sequestration?

Pray tell; What thinkest thou?

[Dave A]

The question arises: "What then, absent fraud, is the point of voluntary sequestration?

We are talking voluntary here, and personal estate I assume. When it comes to juristic persons, the matter isn't nearly as complex.



You have to balance the fact that you're walking away from not only all your debt, but also everything you've got. Plus the handicaps that go with being classified an unrehabilitated insolvent going forward for a while.

The psychological side of this isn't that simple either. Yes, there is a refreshing simplicity in new starts, but I wouldn't underestimate the damage to the psyche caused by the sense of failure. It takes a concerted effort to pick yourself up and get going again - and quite a while to regain any sense of confidence in yourself.

I'd suggest when you know you've lost control of the situation. When you can see that big bus coming and you just know it's going to smash you up when it finally gets to you and this is the only way to stop it. Up to that point, I'd fight to keep head above water with all the energy I could muster.

[Taxempt]

Good day Anthony,

If I understand correctly Disqualification to act as a director is a court action. Does it then also apply to MEMBERS of close corporations?