Most rehabilitation applications wait out the four-year period that the section 124(2) proviso imposes. There is, however, a route that does not require that wait: a composition of creditors under which payment has been made (or security given) of at least 50 cents in the rand on every concurrent claim proved or to be proved. Section 124(1) of the Insolvency Act 24 of 1936 allows the insolvent to apply immediately, on three weeks’ notice, where the Master has issued the required certificate.

This article explains the mechanics, when it is realistic, and when it is not.

What a composition is

A composition is, in essence, an offer made by the insolvent to creditors to settle the proved claims against the estate at a stated rate, supported by appropriate security or proof of payment. Section 119 of the Insolvency Act sets out the procedure by which the trustee gives effect to a composition. The trustee submits the offer to creditors, calls and holds the relevant meeting, and reports to the Master.

For the section 124(1) early-rehabilitation route, the critical figure is 50 cents in the rand. The composition must provide for payment of at least that amount on every concurrent claim, with payment actually made or security actually given. The Master then issues a certificate confirming acceptance and payment/security — that certificate is what unlocks the immediate rehabilitation route.

How section 124(1) interacts with the waiting periods

Section 124(1) is the “no waiting period” pathway for compositions. Where the composition meets the statutory conditions and the Master has issued the certificate, the insolvent may apply for rehabilitation without waiting for any further period — only the standard three weeks’ notice to the Master and trustee is required. This sits alongside, and as an alternative to, the standard 12-months-from-confirmation route under section 124(2)(a) and the four-year proviso that otherwise imposes a wait of four years from the date of sequestration.

In practical terms: if you can fund and document a 50-cent-in-the-rand composition (and the Master issues the certificate), you do not need to wait four years.

A composition for less than 50 cents in the rand is still a useful arrangement with creditors, but it does not unlock the immediate-rehabilitation route — you still wait under one of the section 124(2) pathways.

When this route is realistic

This pathway is realistic where:

• the proved claims against the estate are of a size that 50 cents in the rand is fundable, either from your own resources, family, or an external source;
• creditors are prepared to accept the composition (the Insolvency Act sets out the majorities required);
• security can be given for the payment in a form acceptable to the trustee and the Master; and
• the trustee is willing to convene the meeting and process the composition under section 119.

It is not realistic where the proved claims are very large relative to your means, where creditors are unlikely to accept, or where the trustee has already moved well into final distribution.

What it costs to consider

There are three cost layers to be modelled honestly:

1. The composition payment itself — this is the headline number. At a minimum, 50 cents on every rand of every proved claim, plus appropriate security.
2. Trustee, Master, and procedural costs — meeting fees, confirmation costs, security costs, and the trustee’s fees in dealing with the composition.
3. Legal costs of the rehabilitation application that follows — drafting, Gazette notice, service, court filing.

A composition that “sort of” gets to 50 cents does not work. The condition is statutory. We model the numbers carefully before recommending this route.

The application after the composition

A successful composition does not on its own make you rehabilitated. It clears the timing obstacle. You still have to bring the section 124 application, with:

• the founding affidavit setting out the composition, its acceptance, and the payment or security given;
• the Master’s certificate under section 124(1) confirming acceptance and payment/security;
• the Government Gazette notice (three weeks for the section 124(1) route);
• formal notice to the Master and the trustee by registered post;
• the Master’s report (which incorporates or attaches the trustee’s report) under section 127(1); and
• the supporting documents the court will expect.

The court retains its unfettered discretion under section 127(2). A clean composition with proper Master’s certificate usually presents well, but the application is not automatic.

Where this route adds value

Three client patterns tend to benefit:

• A previously sequestrated business person who has since returned to financial health and would rather settle and move on than wait out the full four years.
• An insolvent with a single large creditor or a small group of creditors who can be approached in concert.
• A family member or related party prepared to fund a composition to enable the insolvent’s return to economic activity.

Where any of those is present, the composition route can save years.

Where this route is the wrong choice

It is the wrong choice where the timing benefit is small (you are already close to four years), where the funds do not exist or cannot be secured, where proved claims are unmanageably large, or where the trustee’s relationship with the estate has broken down to the point where convening a meeting is not workable.

How we approach it

For clients exploring this route we typically:

1. obtain the trustee’s records and a current schedule of proved claims;
2. quantify the composition cost, the security requirements, and the procedural costs;
3. test creditor appetite informally where appropriate;
4. coordinate with the trustee on the section 119 procedure;
5. only after the composition is confirmed by the Master, draft and bring the section 124(1) application.

Next step

If you have funding available, or access to it, and you would rather not wait the full four years, send a confidential enquiry. We will tell you whether a composition is a realistic path on your numbers.

This article is general information about South African law as we understand it on the date of publication. It is not legal advice. Each matter turns on its own facts. Speak to a legal practitioner before acting.