Understanding Sequestration in South Africa
If an individual or trust is unable to service their debt, an application can be made for sequestration of their estate. In terms of the current South African insolvency law, this may be voluntary or involuntary. Voluntary sequestration is the discretionary surrendering of the estate of an individual or trust to the Master of the High Court. The Master of the High Court appoints a curator to assume control of the surrendered estate. Involuntary sequestration occurs when an application to sequestrate is instituted by a creditor. Only the High Court has the jurisdiction to consider such applications.
Sequestration or Liquidation?
Sequestration applies to insolvent individuals and trusts and is regulated by the provisions of the Insolvency Act 24 of 1936 (the Insolvency Act). Liquidation applies to corporate entities, like Companies or Close Corporations, for example, which would be liquidated in terms of the Companies Act 61 of 1973 (the Companies Act) in conjunction with the Insolvency Act.
Voluntary Sequestration
In the case of voluntary sequestration, an advertisement, known as a Notice of Surrender, is placed in the Government Gazette and a local newspaper circulating in the district in which the relevant party lives. Publication of the Notice of Surrender prevents further legal procedures against the sequestrated party being instituted.
A Statement of Debtor’s Affairs is prepared and lodged with the Master of the High Court and, in some instances, the Magistrate’s Court for inspection for 14 days.
Registered letters are then sent to all Creditors giving them notice of surrendering of the estate. Creditors can then ask the attorney on record for any necessary information.
The South African Revenue Service (SARS) must also be notified. Registered taxpayers are required to apply for a new tax number which will apply to the new estate that is being established.
An advocate will be briefed to appear in the High Court on the applicant’s behalf to bring the application for surrender. The applicant does not have to appear in person. The Court may accept the surrender if the process has been properly followed. If the applicant’s estate is in fact insolvent, granting the application will be advantageous to the creditors (20c/R).
Compulsory Sequestration
In the case of compulsory sequestration (also known as a Forced or Friendly Sequestration), one or more of the creditors of an individual or trust bring(s) the application. A Notice of Motion supported by an affidavit and supporting documentation will result in a provisional order to be issued ordering the individual or trust to provide reasons why their estate should not be sequestrated. Providing that certain additional formal requirements are met and if the Court is satisfied that it will be advantageous to the creditors, a Final Order will be granted.
Why Would One Sequestrate?
In instances where one is over-indebted to the extent that creditors can no longer be paid (insolvency), sequestration may provide a means of restoring creditworthiness. The Court is asked to intervene and appoint a Curator to deal with your assets and liabilities. Once this happens, creditors may no longer institute proceedings against you to recover outstanding debt, providing protection from harassment.
Sequestration 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. You will, for instance, not be able to act as a Director of a Company or Member of a Close Corporation. Your status will be listed with SARS and on the credit bureaus. You will not be able to obtain further credit and certain employers have a prohibition on the employment of insolvents.
Get Professional Assistance from Francois Uys Inc
The decision on whether to sequestrate or not is a complex and nuanced one with strict formal requirements and many decisions that can significantly alter the outcome both negatively and positively.
Make an appointment with Francois Uys Inc Attorneys and let us guide you to the best possible outcome. We will assist you with the formalities and represent you in the critical consultations with the Curator where a number of strategic decisions need to be made. With over 25 years of experience with sequestrations and a long list of satisfied clients, you can rest assured that you are in qualified hands.
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.
