How to Know if You Are Insolvent

Legally, a person is referred to as insolvent when their liabilities exceed their assets, the test being whether the debtor’s liabilities, fairly estimated, exceed their assets, fairly valued. This is sometimes referred to as ‘factual insolvency’. This is not to be confused with ‘commercial insolvency’ which is a term used to describe an inability to pay debts although the individual’s assets may exceed their liabilities. This constitutes a liquidity problem and is not insolvency in the strict legal sense.

The formal status of being insolvent is brought about when the individual’s estate is placed under sequestration. Sequestration occurs once a court has issued an order accepting the surrender, or sequestration, of an individual’s estate. In lay terms, a person is insolvent when they are unable to pay their debts.

Debt RestructuringAn individual may apply for sequestration themselves or one of their creditors may make the application. The former is known as ‘voluntary sequestration’ and the latter as ‘compulsory sequestration’.

As part of the process, the individual is obliged to surrender their estate and a court-appointed trustee or curator manages the sale of the estate assets and the distribution of the proceeds to the creditors.


The Consequences Involved in Sequestration of Your Estate

Individuals whose estates are sequestrated are dealt with in terms of the provisions of the Insolvency Act 24 of 1936. The primary consequence of sequestration is that the debtor is divested of their estate. The estate is vested in the Master of the High Court until a trustee has been appointed to assume control of the sequestration and administration of the individual’s estate. This is done to protect the interests of the creditors. Once the trustee is appointed, the estate vests in the trustee.


What Constitutes an Individual’s Estate?

All property, both immovable and movable, belonging to the insolvent individual forms part of the estate. Any inheritances received after the sequestration, but before rehabilitation, are included. Pension funds and personal injury claim funds are excluded from the insolvency proceedings.

The trustee acts to the benefit of the creditors. Furniture usually realises very low auction prices. It is often not worth selling to cover the debts. The sequestrated party’s insolvency practitioner will typically negotiate with the trustee to allow the insolvent individual to buy the furniture from the estate. Although the furniture forms part of the estate, it is not usually removed from the insolvent individual’s home, and they may be allowed to buy some of the items back from the estate.


Why Would You Apply for Sequestration?

Once your estate has been sequestrated and you have been declared insolvent, all your debt will be written off. The Master of the High Court will appoint a curator (or trustee) to assume control of your surrendered estate. They will deal with all aspects of the sequestrated estate.

As a consequence:

  • the curator deals with all your creditors and they can no longer demand payment from you for outstanding debt.
  • no emoluments attachment orders, also known as garnishee orders, can be placed on your salary or other income.
  • implementation of civil judgments against the insolvent will be discontinued as soon as the Sheriff receives notice of the sequestration.
  • after some time, once you have been rehabilitated, your credit record will be cleared.
  • the sequestration order can only be granted by the High Court and overrules all other court orders such as debt counselling.


Get in Touch with a Professional Attorney

Being declared insolvent and having your estate sequestrated is a stressful and complex legal process. It includes strict formal requirements, some of which are time-sensitive. Many of the decisions that must be made can significantly alter the result.

Book an appointment with Francois Uys Incorporated Attorneys before making any decisions. Let us assist you to obtain the best outcome with the least stress. We will guide you through the legal formalities and represent you in all the crucial consultations with the curator of your estate. We have over 25 years of experience with insolvency and sequestrations and have acquired an extensive list of satisfied clients.


Disclaimer: This article is for information purposes only. It does not constitute legal advice and should not be used to make any financial or legal decisions. For advice on the topics of insolvency and sequestration, contact Francois Uys Inc. The information is relevant as of the date of publishing.