Sequestration in South Africa
Sequestration in South Africa refers to a legal process when an individual becomes insolvent or bankrupt. It involves a person or business declaring themselves unable to meet their financial obligations and seeking protection from creditors. The primary objective of sequestration is to fairly distribute the debtor’s assets among their creditors to provide them with relief from unmanageable debt. The person’s estate is surrendered by order of the court. The estate of natural persons, partnerships and trusts can be sequestrated.
Sequestration in South Africa may be voluntary or compulsory. Voluntary sequestration occurs when an individual voluntarily approaches the court to surrender their estate. This is typically done by filing an application with the High Court and providing evidence that the individual seeking sequestration is unable to pay their debts.
Compulsory sequestration occurs when one or more creditors apply for the individual’s sequestration. The process involves applying to the court for a sequestration order based on evidence of the individual’s insolvency.
Liquidation or Sequestration in South Africa?
Sequestration applies to insolvent individuals, partnerships and trusts and is regulated by the Insolvency Act 24 of 1936. Liquidation applies to corporate entities, like Companies or Close Corporations, which would be liquidated in terms of the Companies Act 61 of 1973, in conjunction with the Insolvency Act. Sequestration primarily applies to individuals and trusts but may also apply to partnerships or sole proprietorships. Its objective is to help debtors achieve a fresh financial start while ensuring that creditors receive some repayment.
Liquidation typically applies to business entities such as companies and closed corporations, also referred to as juristic persons. The purpose of liquidation is to wind up the affairs of a business entity that is no longer economically viable. The company’s assets are sold to repay creditors and the business is wound up and ceases to exist.
Why Choose Sequestration in South Africa?
Sequestration in South Africa is selected when an individual has unmanageable debt that cannot be repaid by regular means. It provides a legal process for dealing with creditors and finding a fair solution to settle debts.
Sequestration in South Africa can ensure that the debtor’s assets are distributed fairly among their creditors. Creditors might not receive any payment at all if the debtor is left to continue to struggle with their debt.
A sequestration order protects the debtor from further creditor actions, such as garnishee orders, lawsuits, and repossessions. This legal protection provides relief and stability to the debtor during the process. Aggressive collection efforts and harassment from creditors stop, giving the debtor some breathing space while they sort out their debt.
Sequestration in South Africa means that a trustee is appointed who manages the process impartially. Assets are liquidated fairly, and debts are paid off according to a specific order of preference.
It offers several advantages, but debtors should be aware that certain debts may not be cleared, and conditions may be set for debts to be discharged. Sequestration is not always the most suitable option. There may be alternative debt relief solutions that better align with the debtor’s specific financial circumstances.
Sequestration in South Africa results in several consequences, not all of which are beneficial. The process will result in you acquiring the status of being insolvent which carries with it limitations on your legal capacity until you are rehabilitated.
Get Professional Help
The decision to sequestrate or not is a complex and nuanced one with strict formal requirements and many decisions that need to be taken. Professional legal guidance is the only way to ensure the best possible outcome for anyone struggling with over-indebtedness.
Make an appointment with Francois Uys Inc. Attorneys and let us help you to become debt-free. We will guide you through the formalities and represent you in all the critical consultations. We have over three decades of experience in business law and an extensive list of satisfied clients.
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. The information is relevant as of the date of publishing.
