Written by Marco Basson

23 September 2023

In South Africa, individuals who find themselves drowning in insurmountable debt have a legal option known as sequestration. Sequestration is the voluntary surrendering of your estate to the High Court under the governance of the Insolvency Act 24 of 1936.

The Application for sequestration is brought in the High Court, by an attorney, on behalf of the debtor. The purpose of the application is to allow the debtor to write off 80% of their debt to escape debt which has become uncontrollable.

Sequestration assists a debtor that has become insolvent, meaning that their financial liabilities exceed their income. A successful application will provide the debtor with the legal status of Insolvent. The Debtor is then relieved from further obligation to pay their creditors as stipulated by the original creditor’s agreement as the creditor’s agreement is brought to a close when they have received their benefit from the insolvent estate.

WHAT IS THE SEQUESTRATION PROCESS?

  • Assessment of the client’s situation: Firstly, the insolvency practitioner will determine if the client is indeed insolvent or if another debt remedy would be more suitable.
  • The attorney completes the application for sequestration and a court date is allocated: Once it has been decided that the client is indeed insolvent, their attorney will proceed with the application for sequestration and lodge the necessary advertisements in the government gazette. Once the advertisements have been lodged, the debtor will be prohibited from making any further payments to their creditors.
  • The case appears in court: A debtor does not need to appear in court, and their attorney will present the case to the court. The court will decide on whether to grant or dismiss the sequestration application.
  • After the Application has been granted: The debtor will now need to provide funds to pay the benefit to the creditors. This amount is due over a period of 18 and 24 months. If this is not acceptable to the curator, an auctioneer will be appointed to auction off the client’s assets.
  • All creditors’ claims have been settled by the curator: The curator will provide the client with a document that the resolution of the sequestration has been concluded. This document will allow the debtor to apply for rehabilitation. The entire process may take up to 34 months or as little as 18 months.

WHAT ARE THE POSITIVE EFFECTS OF SEQUESTRATION?

  • You are set free of the financial constraint of 80% of your debt, and the remaining 20% to be paid to the creditors will not be subjected to interest providing the ability to rebuild your financial life.
  • Legal proceedings started against you by creditors will be stayed, and they will only be entitled to their rightful creditor’s benefit.
  • Harassment by creditors is minimised and all situations must be referred to your attorney.
  • Your future income is protected by preventing creditors from attaching garnishee orders to your salary and freeing you from garnishee orders already in force.
  • The 20% of capital debt is the creditor’s benefit and the original creditor’s agreements may be voided, and the creditor’s relationship with the debtor will be brought to an end.

WHAT ARE THE NEGATIVE EFFECTS OF SEQUESTRATION?

  • You will not be able to act as a Director of a Company or act as a member of a Closed Corporation.
  • Your Employment will be affected if your position has any financial advisory role.
  • You will not be able to obtain further credit until you have been Rehabilitated.

WHAT IS REHABILITATION?

The rehabilitation of an insolvent person puts an end to the sequestration and relieves the insolvent person of every disability resulting from the sequestration. It also discharges all the debts of the insolvent, which were due or had arisen before the sequestration.

You will need to comply with certain requirements that will make you eligible for rehabilitation. Rehabilitation, however, occurs automatically upon expiry of ten years from the date of sequestration. In other instances, an application to the High Court is needed, and mostly the approval of the curator is required for the rehabilitation of an insolvent estate.

The sequestration process is a viable option for individuals drowning in debt; however, the intricate process requires an attorney with in-depth knowledge, expertise and experience in the field. Contact one of Burger Huyser Attorneys’ sequestration specialist lawyers to guide you through the process and get you back to financial health.

DISCLAIMER: Information provided in this article does not, and is not intended to constitute legal advice. READ MORE