Sequestration is a legal process that deals with personal insolvency.
The process provides a legal instrument for individuals to address their financial difficulties and manage their debts. The estate of a person is sequestrated due to the person being insolvent. This means that the person is no longer able to pay his/her debts as and when they become due and payable, and their financial situation is irreparable.
The estate of natural persons, partnerships and trust can be sequestrated in South Africa.
There are two types of sequestrations under the South African law, governed by the rules and regulations set out in the Insolvency Act of 1936:
- Voluntary Sequestration: Voluntary sequestration refers to the process where an individual voluntarily surrenders their estate to be sequestrated. The debtor must file an application with the High Court, accompanied by a statement of affairs detailing their assets, liabilities and creditors. Anyone can apply for voluntary sequestration at any stage as soon as he/she becomes insolvent, even if they have been under debt counselling, for example (subject to compliance with the requirements therefore).
- Compulsory Sequestration: Compulsory sequestration is when a creditor or creditors apply to the High Court to have an individual’s estate sequestrated, based on the individual’s insolvency and inability to pay debts. The debtor can however oppose such an application, if he/she is not insolvent or if there is another reason why the sequestration order should not be granted.
*(kindly note that liquidations pertain to companies, and follow a different Act to found their requirements).
Upon sequestration, a trustee will be appointed by the Master of the High Court, to manage and administer the insolvent estate. The trustee is responsible for inter alia managing the estate’s assets, paying outstanding liabilities and distributing any remaining funds amongst creditors having a valid claim against the estate.
Creditors have the right to submit any claims that they have against the estate to the trustee. The trustee verifies and accept the claims, following a prescribed process. The assets of the insolvent individual are then distributed to creditors based on their ranking and priority as specified by the law.
During the sequestration process, certain legal considerations come into effect:
- Stay of Legal Proceedings: Once sequestration proceedings commence, a stay is imposed on all legal proceedings against the insolvent individual.
- Examination of Affairs: The trustee has the authority to investigate the affairs of the insolvent individual, including their financial affairs, assets and liabilities. This is done to determine the accuracy of the statement of affairs and to identify any deceitful activity.
- Rehabilitation: The Insolvency Act provides for the rehabilitation of insolvent individuals. Once certain requirements are met, the individual may apply for a release from the sequestration proceedings, in terms of an application, which releases them from their previous debt and legal limitations imposed during the sequestration process.
In conclusion, it is important for individuals seeking relief from being financially distressed, to understand the legal framework and applicable law to sequestrations in South Africa. By acquainting themselves with the Insolvency Act of 1936, and following the correct procedures, individuals can successfully and effectively navigate the sequestration process in order to achieve financial stability.
Feel free to contact us for more information in this regard.
Written by:
Michelle Minnie (Attorney)