COMMERCIAL LAWYERS IN JOHANNESBURG
WHAT IS SEQUESTRATION?
Sequestration entails the surrendering of the natural person’s estate, whereby the person applies to court to be declared insolvent. An insolvent person’s estate is sequestrated in terms of the provisions of the Insolvency Act 24 of 1936 (hereinafter “the Act”).
According to the Corporate Finance Institute (2020), insolvency refers to a state of financial distress, whereby an individual’s is unable to settle his/her outstanding debts. A person will not be declared insolvent if he/she is merely unable settle outstanding debt – the individual must be unable to cover his or her outstanding debt after all his/her assets have been sold.
A sequestration order can either be obtained where the individual voluntarily applies for the order, or alternatively, if the individual’s creditors apply.
WHO CAN SEQUESTRATE?
The Act states that a debtor can include:
- A person;
- a partnership; or
- the estate of a person or a partnership.
The Act however excludes body corporates, companies or any other association of individuals which may be placed in liquidation in terms of the law regulating companies.
WHAT IS THE TEST FOR INSOVENCY?
In the case of Venter v Volkskas Ltd the court held that the test for insolvency is whether the debtor’s liabilities, fairly estimated, exceeds his assets, fairly valued.
WAYS TO SEQUESTRATE
1. Voluntary surrender – section 3(1) of the Act
Voluntary surrender refers to where a debtor applies for an order to be sequestrated from his own accord. Although it might seem that this is a shortcut for debtors to avoid liability, voluntary surrender had in fact been designed for the benefit of the creditors and should not afford relief to harassed debtors.
An application is brought in the High Court on behalf of the debtor which ultimately allows him/her to have up to 80% of his/her debt written off. You will be relieved from any further obligation to pay your creditors as they will receive a portion of the debt in the sequestration process. In order to succeed with an application for voluntary sequestration, the Applicant needs to prove benefit to the creditors which is usually 20c in the rand.
Who may apply?
- Where parties are married in community of property
- Both spouses may apply.
- Where a partnership exists
- All members of the partnership who resides in the Republic may apply.
- Where a debtor is deceased
- The executor may apply.
- Where a debtor is unable to manage his own affairs
- The party who is appointed as the administrator of the estate may apply
- Where the debtor is a natural person
- Either the debtor himself, alternatively his agent.
What should be proven?
- That the debtor’s estate is insolvent;
- That the debtor owns assets of satisfactory value to cover the costs of the sequestration;
- That the sequestration shall be in the best interest of the creditors.
2. Compulsory sequestration – section 9(1) of the Act
One of the main differences between a voluntary surrender and a compulsory sequestration, is that in the latter, it is brought by and on behalf of the creditors.
- What are the requirements and who is entitled to apply?
- A creditor must have a liquidated claim of not less than R 100.00, and where there are two or more creditors who has liquidated claims against the debtor, they must have a liquidated claim against the debtor of not less than R 200.00.
- The creditor has to sufficiently prove that:
- he has established a claim which entitles him to bring the application;
- the debtor’s estate is insolvent;
- there is reason to believe that it will be to the advantage of the creditors if the debtor’s estate is sequestrated.
It is important to note that being declared as an insolvent has far reaching consequences on an individual’s status. Not only will such an individual find it more difficult to obtain credit or loans, but he/she will also be excluded from certain professions, such as a director or liquidator.
Should you find yourself in the unfavorable position that might result in the sequestration of your estate, it is highly advisable to consult with one of the insolvency attorneys at Burger Huyser Attorneys. The attorneys at Burger Huyser Attorneys are familiar with the liquidation and sequestration process and will guide and assist you to regain control over your financial matters.