Rehabilitation is a legal process which happens, in some instances automatically or by order of the High Court of South Africa, whereby the insolvent is relieved of the legal implications of being insolvent and put back into a legal position of someone who is / was not declared insolvent.


Legal Implications of Rehabilitation?

Section 129 of the Insolvency Act states that the effect is that of bringing an end to your sequestration and of discharging (writing off) all your debts which were due, or of which the cause of which had arisen before the sequestration, and which did not arise out of fraud on your part and to further relieve you of every disability resulting from the sequestration.”


When do I qualify for rehabilitation? 

There is a popular myth in South Africa which says that you must wait 5 years before you can rehabilitate. This is nonsense. There are 7 Sections in the Insolvency Act which deals with 8 circumstances under which you can Rehabilitate. Each of these instances has its own time frame:

Statutory composition

(Section 1197 read with Section 124(1)). You can at any time after sequestration approach your trustee to accept a proposal to your creditors in terms whereof all your creditors (not only those who have proven claims in your insolvent estate) will be paid at least 50 cents in the rand. Once you have given sufficient security to the Master of the High Court that all these creditors will be paid, the Master of the High Court will issue a certificate in which this agreement and security is reflected. You must include in this offer a tender for the administrative cost in the estate. Administrative costs are the trustees’ disbursements and fees. The rights of secured creditors (bondholders etc) are not affected. That part of the claim which has not been met from the sale of the assets which they held as security, form part of the so called concurrent creditors and the 50 cents in the rand applies to their unfulfilled claims as well. Once the Master of the High Court has issued this certificate you can immediately apply for rehabilitation.

Claims proven in your insolvent estate

Section 124(2)(a) – If creditors have proven claims against you insolvent estate you can apply for rehabilitation after twelve months after have lapsed since confirmation of the Master of the first liquidation and distribution account submitted by the trustee. A further condition is that a period of four years since date of sequestration must have passed.

Claims proven in your insolvent estate – (proviso section applicable)

Section 124(2) has a provisional condition which states that if your trustee’s first liquidation account have been confirmed by the Master and ‘n period of twelve months after this confirmation have elapsed you can apply for rehabilitation at any time if the Master recommends the rehabilitation. In practise you must proof very specific circumstances which must be to the advantage of the general wellbeing of South Africa, commerce, your company or for example the previous disadvantaged people.

The court does not really consider the fact that such an “early” rehabilitation is to your own benefit – there must be a wider benefit. Should you qualify under this section, you can effectively apply for rehabilitation once your insolvent estate has been wound up. Depending on circumstance, you can rehabilitate as early as twelve months after date of sequestration.

Previous sequestration

Section 124(2)(b): If you have been previously sequestrated, you can only apply for rehabilitation if two conditions are met:

1. A period of four years must have elapsed since the date of your sequestration; and

2. A period of three years must have elapsed since the date of confirmation of the trustees first liquidation account.

Criminal Offence committed

Section 124(2)(c) – if you have been found guilty of a criminal offense in your insolvent estate, you are allowed to bring an application for your rehabilitation after five years elapsed since the date that criminal judgement was passed.

No claims proven

(Section 124(3)) – after your sequestration there are two creditors’ meetings held at either the offices of the Master of the High Court or at your local Magistrate Court. These meetings are also called the “first meeting” and “second meeting”. If a period of six months since your sequestration have passed and no claims were proven on the first and second meetings then you qualify to bring an application for rehabilitation. In practise the six month period is normally a bit short because certain administrative procedures are normally only completed after at least about nine months. Rehabilitations under this section normally occur when your insolvent estate was very small and creditors were afraid of contribution, so they did not proof claims.

Full payment of claims

Section 124(5) – if the assets in your insolvent estate realize sufficient funds to pay all creditors who have proven claims in full, you immediately quality to apply for rehabilitation.

Effluxion of time

Section 127(A) – if you have not applied to the High Court for a rehabilitation order and ten years have passed since the day of sequestration, you rehabilitate automatically.


Must I repay my debts before I can apply for rehabilitation?

No. In layman’s terms, when you are sequestrated your debt is written off. None of your old creditors can ever force you to pay back the “old debt”. In legal terms your debt is not written off, it vests in a trustee who must realise the assets and distribute the yield of the sale of the assets amongst creditors in accordance to insolvency act.

Frequently asked Questions: Rehabilitation

What is the effect of rehabilitation regarding my adverse information on the Credit Bureaus?
Who has the responsibility to remove my adverse credit information at the Credit bureaus?
What is the effect of rehabilitation regarding my adverse information on the Credit Bureaus?
What is the effect of my rehabilitation on my future participation in commerce?
What must the judge consider when granting a Rehabilitation Order?
Which Court has jurisdiction to rehabilitate me?
If all my creditors have been paid in full and there is still some money left over, what happens to that money?
Why don’t I simply wait ten years?
What is a Vesting Order?
How do I determine whether I qualify for rehabilitation?
What is the banks’ attitude when considering lending money to an insolvent that has been rehabilitated?
Will my application for rehabilitation succeed?
What does “contribution” mean?
Must I repay my debts before I can apply for rehabilitation?
What about debt incurred during sequestration?
Does the National Credit Act have an effect on my position after I have rehabilitated?
Right to reasons for credit being refused: