How to maximise recovery when debtors go bankrupt

Helping you through the arrest, sale and distribution of proceeds of maritime assets THE COLLECTION of outstanding debts in the present economic climate is of increasing importance, says Steven Wallace of Garlicke & Bousefield Inc, a Durban-based firm of maritime attorneys. He says it is realistic to anticipate that some debtors will become bankrupt, and it is therefore a good idea to consider the possibility of securing the debts to maximise recovery if the debtor does go bankrupt. "Few people are aware that if assets belonging to a maritime debtor are arrested under the South African Admiralty Jurisdiction Regulation Act prior to liquidation, then those assets fall outside the general pool of assets for distribution to creditors." According to Wallace the assets arrested under the Act can be realised to form a separate fund, and the ranking of claims against that fund differs from the normal ranking under the law of insolvency. This, he said, enables a maritime creditor to significantly improve the chances of making a better recovery than in the normal course. "There are two types of arrests possible under the Admiralty Jurisdiction Regulation Act, the first being the arrest in rem and the other the security arrest. The procedure and effect of the two types of arrest differ widely and are available in different circumstances, but either type will achieve the purpose. The important thing to realise is that the arrest must be carried out before the liquidation, failing which it will be void. "If an order for liquidation is granted then the company against which it was granted is deemed to have been liquidated on the day the application was lodged, which may be some days earlier. The prudent creditor will therefore act sooner rather than later when a debtor starts to appear financially unstable." Wallace emphasised that the arrest, sale and distribution of proceeds of maritime assets is something of an esoteric area of law. Very little, if any, of the procedure is formally codified in legislation and it is probably wise to seek advice in these matters from a specialist maritime attorney.