Legal Framework of Sequestration: Laws and Regulations Governing Insolvency in South Africa

Debt Restructuring

Owing money to multiple creditors is incredibly daunting and can take a major toll on day-to-day life. Under South African law, insolvency occurs when our liabilities far exceed our assets, or in simple terms, when we owe more than we have. In such instances, the insolvent individual might be sequestered by the court on a voluntary or compulsory basis. Sequestration is a legal process regarding personal insolvency and occurs when an individual is no longer able to pay their debts. During the process, an individual’s assets will be placed under the care of a trustee who is appointed by the High Court. They must sell the individual’s assets and collect the necessary funds to repay the creditors.

Under sequestration, the insolvent party is regarded as having legal limitations until they have been rehabilitated and are no longer insolvent. Ultimately, the process is a structured mechanism through which insolvent individuals can manage and sort out their debt. In this guide, we explore the different types, the benefits of it, and why an accredited insolvency attorney can help.

Understanding the Different Types of Sequestration 

The main legal framework that oversees sequestration laws and regulations in South Africa is the Insolvency Act 24 of 1936. This act aims to “consolidate and amend the law relating to insolvent persons and their estates”. Under this regulatory framework, an individual whose liabilities exceed their assets is rendered insolvent and the sequestration undertaking must work to sell all assets and distribute them amongst creditors fairly.

Under South African law, there are two types of sequestration, namely voluntary and compulsory. The voluntary type happens when a person surrenders their estate for sequestration. The compulsory option, on the other hand, occurs when creditors who want to recover the debt apply to the High Court for sequestration on behalf of the insolvent individual. Both applications occur at the High Court and must include information about all liabilities owed, assets that can be sold, and the creditors who are owed money.

Once sequestration occurs, the court will appoint a trustee who is tasked with selling assets and settling the insolvent individual’s liabilities.

The Benefits of Sequestration 

Owing money to multiple creditors can be incredibly overwhelming, especially when they are constantly calling and demanding their money. Sometimes it can take an aggressive turn, and this takes a huge mental and emotional toll on the insolvent party. One of the biggest benefits of being sequestered is getting relief. During sequestration, the insolvent individual is immediately relieved from their creditors. Once sequestered, all legal action against them stops, meaning that they can access the time and energy needed to reorganise their finances and get back on track.

Furthermore, once an insolvent party is sequestered, creditors can no longer apply to the court for a garnishee order whereby they can automatically take money off the person’s salary. As such, the process also safeguards an individual’s salary, ensuring that they do not lose all their income and can still provide for themselves and their family.

Until a trustee has been appointed, their estate will remain under the control of the High Court.

Contact Our Experienced Insolvency Attorneys 

If you are facing personal insolvency and need guidance throughout the process, it is vital to work with attorneys who have experience and knowledge regarding debt resolution. Contact our highly experienced insolvency lawyers and we will discuss the steps ahead with you. With over three decades in the field of insolvency law, our attorneys can help you regain your financial freedom. We are the legal professionals that you can rely on!

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 insolvency and sequestration, contact Francois Uys Inc. The information is relevant as of the date of publishing.

Sources:

Insolvency law: https://journals.co.za/doi/pdf/10.10520/EJC85288

Insolvency Act: https://www.gov.za/documents/insolvency-act-24-jun-1936-0000