Insolvency lawyers, otherwise known as insolvency practitioners, fulfill several vital roles when a business is declared insolvent, but what does that mean and what are the main functions of insolvency lawyers.
A business is declared insolvent when it cannot pay debts that are due. In another article, we’ll take a look at the different types of insolvency and the difference between insolvency and bankruptcy (these two often get confused and we’ll clear them up over here).
In some cases, insolvency lawyers might be able to save the business. This isn’t always the case though, and when it isn’t possible a certain number of steps need to be taken within a legal framework to make sure that available monies are fairly distributed among creditors, this is known as the concursus creditorum.
Once a company is liquidated, an investigation is launched to determine the reasons for insolvency. Were there any blatant offences that led to insolvency? Were any past directors or officers involved in contravening the Companies Act? Once a liquidator has examined the affairs and transactions of the company, they will then have a clearer picture as to the events that led to this eventuality.
Stock is taken of the finances and assets and assets are sold in order to recover monies that can then be distributed among creditors. Creditors also need to be placed in an order of preference which determines who gets paid first and how much.
Believe it or not, many entities declared insolvent are dealing with a great deal of outstanding debt themselves. In many cases, outstanding debt may contribute greatly to their financial disarray. Inefficient debt collection processes might also play a role. If you find yourself in this position, head over to this article where we discuss employing a law firm in order to manage your debt collection. In any event, Van Zyl Ebrahim Cook Attorneys Incorporated acting as insolvency lawyers, in this case, will then recover the outstanding debt in order that it may be allocated to creditors.
We provide ongoing support and advice throughout this complicated process. We are able to assist with the liquidation application made to court and also handle much of the paperwork, making sure that everything is completed to fulfill legal requirements. Distribution of assets will be clearly communicated and we assist the liquidator in conducting enquiries in terms of section 417 and 418 of the Companies Act read with the Insolvency Act.
Finally, should it be required, we may proceed with litigation against directors should they have knowingly proceeded to perform company duties in a reckless manner, particularly if they were aware and the intention was to defraud creditors.
Van Zyl Ebrahim Cook Attorneys Incorporated offers insolvency practice as a core part of our practice. We can assist with applying for an individual’s sequestration or a company’s liquidation. Here we require the reasons for applying for sequestration and or liquidation, which is then set out in a court application. Once we obtain the court order, a trustee or liquidator is then appointed and they deal with meeting with the insolvent or directors of a company, determining reasons for insolvency, holding enquiries if need be, liaising with creditors and making payment to creditors.
Director and insolvency practitioner Safiyah Ebrahim Cook was registered on the National Masters List of Insolvency Practitioners in 2015 and is a practicing member of the South African Restructuring and Insolvency Practitioners Association (SARIPA). Safiyah heads our insolvency practice and team, which is operated by qualified, experienced attorneys and assisted by accountants and is also a liquidator who takes on appointments made by the Master of the High Court.