Insolvency – Liquidation or Sequestration?
Legally a person or a company is described as insolvent when its liabilities exceed its assets. This constitutes being ‘Factually’ Insolvent, which is not to be confused with being ‘Commercially’ insolvent. Commercial insolvency describes an inability to pay debts, when they fall due, despite the individual or company having assets that exceed their liabilities. In terms of South African law companies and other juristic persons are treated differently from individuals once they are declared insolvent. Insolvent individuals’ and trusts’ estates are sequestrated, and companies and other juristic entities are liquidated.
In South Africa, insolvent companies are liquidated in terms of Chapter 14 of the Companies Act 61 of 1973 (referred to as the old Companies Act). Solvent companies are liquidated in terms of the Companies Act 71 of 2008 (the new Companies Act). Individuals whose estates are sequestrated are dealt with in terms of the provisions of the Insolvency Act, 24 of 1936.
Formal Insolvency
Insolvency is a state of financial distress where you are unable to pay your debts as and when they fall due. Factual insolvency can occur long before any legal steps to deal with your situation are taken. The formal status of being insolvent exists once your estate is placed under sequestration. Individuals may apply for sequestration themselves, described as voluntary sequestration, or one of their creditors may make the application, referred to as compulsory sequestration. As part of the process, the individual is obliged to surrender their estate to a court-appointed trustee or curator who manages the sale of the estate assets and the distribution of the proceeds to the creditors.
Facing Insolvency What are the Options?
When facing insolvency there are several options available to individuals. You may undergo debt counselling and work with a registered debt counsellor who will assess your financial situation, negotiate with creditors, and develop a debt repayment plan based on your income and expenses.
You can apply to a debt administrator who will distribute your available income among your creditors according to a court-approved plan. This process provides legal protection from legal action by creditors.
Debt consolidation is also an option. It involves combining multiple debts into a single loan with a lower interest rate, a longer repayment term or both. It simplifies debt management and may reduce the total monthly payments.
Each option has its implications, advantages, and disadvantages. It’s crucial to seek professional advice to understand the specific consequences of each option and then determine the most suitable course of action for your situation.
The Benefits of Voluntary 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 the surrendered estate and who then deal with all aspects of the sequestrated estate. Your creditors may also no longer harass you or institute legal proceedings against you.
Sequestration is a Legal Process
Options available to insolvents are nuanced and their application is specific to everyone’s financial position at the time. Being declared insolvent and having your estate sequestrated is stressful and a complex legal process with serious consequences. There are strict formal requirements, many of which are time bound. Decisions that need to be made may dramatically affect the outcome for the insolvent.
Francois Uys Incorporated Attorneys are experts in the field of Insolvency Law and Insolvency Litigation. Seek guidance from experienced attorneys who specialise in sequestration and debt-related matters. We possess a wealth of expertise and experience with sequestrations and will provide essential support throughout the complex legal process. Many important decisions must be made that can substantially affect the outcome. We will guide you through the important strategic decisions that need to be taken to protect your interests. Call us today and start your journey to freedom from debt.
Disclaimer: This article is for information purposes only. It does not constitute legal advice and cannot be used to make any decisions. For advice on the topic of sequestration contact Francois Uys Inc Attorneys. The information is relevant as of the date of publishing.
