Financial Rehabilitation: What is it and when is it used?

Financial RehabilitationFinancial rehabilitation is needed when an individual is insolvent and his estate is subsequently sequestrated. Financial rehabilitation is therefore the process (whether it is automatic or made by an order of court) to rid the individual of his insolvent status.

Insolvency occurs on two levels. Factual insolvency occurs where your liabilities are greater than your assets. Commercial insolvency occurs when your cash flow is insufficient to pay your debts as they become due and payable. The difference between these two forms of insolvency is that with the latter your assets may still exceed your liabilities.

Section 2 of the Insolvency Act 24 of 1936 defines the type of person who would be considered insolvent and their estate subsequently sequestrated. Such a person is defined as a ‘debtor’ and typically refers to private persons and their relative estates (this definition includes a partner of a partnership but excludes juristic persons and body corporates).

Financial rehabilitation therefore occurs automatically or by order of court. Automatic rehabilitation occurs after 10 years from the date of provisional sequestration. Alternatively, one can apply to the court after 4 years from the date of provisional sequestration (in some instances this may be done earlier).

Section 129 of the Insolvency Act provides the effects of successful rehabilitation, provided that all the requirements for rehabilitation are met. The following sections explain that:

  • 129(1)(a) rehabilitation puts an end to sequestration
  • 129(1)(b) it discharges all the debts of the insolvent which were due or had arisen up to the date of sequestration, but did not arise on part of fraud of the insolvent
  • 129(1)(c) rehabilitation relieves the insolvent of all the disabilities[i] arising from sequestration.

For more information and advice on Financial Rehabilitation, contact Du Toit’s Attorneys on 012 742 0100 or 012 643 1882. Alternatively, you can send an email to: or

[i] The disabilities mentioned are essentially those that the insolvent has a limited capacity to act on and is treated almost as a minor. The reason for this limitation is that the insolvent is not considered to be able to take care of the affairs relating to his estate properly and is therefore required to report to the trustee of his estate for certain financial matters (not every commercial transaction is limited). It further ensures that the insolvent does not sell off property which would otherwise be used to pay his/her creditors.