Surviving insolvency 

Iona Minton
Thu, 21 Jul 2005

This article is a printout from iafrica.com
Copyright © 2000 iafrica.com*, a division of Metropolis*

Years ago an individual who had been declared an insolvent had as much respect as a sewer rat. Judgments were made and fingers were pointed.

Relatively speaking, fifty years ago it was quite difficult to fall into insolvency. Banks’ lending practices were much more stringent and clients were watched very closely. If they looked like they were overstepping the mark they were reeled in and firmly rapped over their knuckles by the bank manager.

Lenders more lenient 
With increased competition the banks are now far more lenient with their lending practices. While the loosening of their grip has been beneficial to those needing start-up capital for a business or a loan for a new car, others have been given enough rope to hang themselves.

Of course, not all insolvents are reckless mavericks. With the fast-changing business environment, they could have a thriving concern one day and a white elephant the next. Many struggling business owners do not even realise they are in fact insolvent. They keep plodding along until one day the bank manager decides to call in the overdraft.

What is insolvency? 
Insolvency begins with an application to the high court from your creditors. This being successful, a trustee is appointed to sell all of your assets for the benefit of the creditors. The trustee is even entitled to take the money you earn on a monthly basis (save your living expenses) to pay the creditors.

Another concern is that your spouse’s assets can also be attached even though he or she is not actively involved in the business venture. This is why a trust is so important for anyone who has assets to protect (see our Wills & Trusts section).

Opportunity to start afresh 
The first thing you have to deal with is the way you choose to see this event. Yes, it feels absolutely terrible, but it is the beginning of the end of dealing with angry creditors and growing interest bills. You will be able to start afresh, although you will not be able to apply for credit for a five-year period. Which is not so bad, considering it was probably debt that put you in this position in the first place. If you do not apply for credit status rehabilitation, it will be afforded automatically after 10 years.

Studies in America revealed that insolvents were better off than the people who continued to battle through their bills in a ten-year period. Provided of course that they did not take on any new debt.

No shame in insolvency 
There is no shame in insolvency; even those who acted recklessly did not envision the end result. Dust yourself off and carry on. If you read the autobiographies of the world’s business gurus you will soon realise that you are in good company.