The Types of Sequestration in South Africa

In South Africa, when a natural person or a trust encounters financial distress, one of the options open to them is sequestration. This process typically arises when the person or trust becomes insolvent. It is a legally regulated procedure where the individual’s or trust’s assets are surrendered to the High Court. A Curator or Trustee is then appointed to oversee the fair distribution of the proceeds from the sale of these assets among the creditors. Sequestration is invoked when a person or trust is unable to repay their debts and their financial situation is beyond repair.

When an individual or trust is sequestrated, it formalises their status as insolvent. This occurs when the estate is surrendered to the Master of the High Court in accordance with the provisions outlined in the Insolvency Act 24 of 1936. There are two types of sequestration, as explained below.


Forced or Compulsory Sequestration

Forced or compulsory sequestration occurs when a creditor demonstrates, among others, that the liquidity or realistic value of a individuals estate is insufficient to cover their immediate debts. The process is initiated by the issuance of a notice of motion which is usually lodged by one or more of the financially distressed individual’s creditors.

Where the Court determines that the applicant has substantiated their case, a provisional sequestration order will be granted. The provisional order serves as an interim order until the Court makes a final decision based on the facts presented in the application. In the absence of evidence showing the estate to be solvent, the Court will issue a final order.


Voluntary Sequestration

The individual can also apply to have their estate sequestrated. In this instance, the debtor voluntarily approaches the Court and declares their insolvency, indicating that their debts exceed their assets. If the Court is satisfied that all the requirements have been met, a sequestration order will be issued. In a voluntary surrender, there is no provisional order.

When is Being Sequestrated a Good Option?

Being sequestrated has its pros and cons. On the plus side, surrendering your assets releases you from your previous debts and gives you a fresh financial start. It also ensures that creditors are treated equitably and receive a proportional share of the proceeds from the sale of the sequestrated assets.

Once a sequestration order is granted, it offers you protection against further legal actions from creditors preventing harassment and blocking new legal proceedings against you.

On the downside, being sequestrated has significant implications for your creditworthiness. It will negatively impact your ability to obtain credit in the future. It may also limit your ability to secure loans or mortgages, and you may be asked to pay higher interest rates. Sequestration is a public process, and the order becomes part of the public record. This information can be accessed by anyone, including potential employers, lenders, or business partners, and may affect their perception of you negatively.

You lose control over your assets and your financial affairs as the Curator takes charge of managing the distribution of your assets and payments to creditors.


The Importance of Specialist Legal Guidance

It is vital to seek guidance from experienced attorneys who specialise in sequestration and debt-related matters. Francois Uys Inc Attorneys possess a wealth of expertise in this regard and can provide essential support throughout the intricate legal process. We strive to reach the most favourable outcome possible tailored to your specific circumstances.

With a track record of success spanning over 33 years, Francois Uys Inc Attorneys are established authorities in the field. We specialise in all aspects of debt and insolvency. When you rely on us, you can trust that you will receive exceptional legal advice to address your needs effectively. Call us today and start your journey to becoming debt free.


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.