Written by Juanice Jooste
25 March 2024
What Are the Options Available When Applying to Sequestrate An Estate?
In the world of credit and credit cards, individuals can pay off their debts in instalments over varying amounts, whether six months or 30 years. Unfortunately, debtors often incur enormous amounts of debt that result in increased monthly instalments or suffer unforeseen events that impact their monthly income, like job losses, leaving them unable to cover their monthly instalments. In such cases, debtors may consider sequestrating their estates.
It is worth noting that sequestration may occur only when someone’s estate is considered insolvent, and the sequestration of their estate will benefit their creditors. To legally test whether a person is insolvent, that is, unable to pay off their debts, their liabilities have to exceed their assets.
This article will consider and investigate the options available to debtors, considering the voluntary surrender of their estate and creditors and the compulsory sequestration of their debtor’s estate.
What is the Voluntary Surrender of an Estate?
The voluntary surrender of an estate is when an individual applies to the court to surrender their estate. Persons who are allowed to apply for voluntary surrender are listed in the Insolvency Act 24 of 1936 and the Matrimonial Property Act 88 of 1984, as follows:
- An insolvent debtor or their agent.
- An executor of a deceased estate.
- The executor of a debtor who was declared insolvent and incapable of managing their own estate according to Section 3(1) of the Insolvency Act.
- All members of a partnership who reside in South Africa and their agents can apply to the court for either the surrender of the partnership’s estate or their separate estates. Per Section 3(2) of the Insolvency Act, this does not include partners en comandante, such as silent or special.
- Spouses married in a community of property will have to apply together for the sequestration of their estate per Section 17(4) of the Matrimonial Property Act 88 of 1984.
What are the Requirements for the Sequestration of an Estate?
The requirements for the sequestration of an estate are outlined in Section 6(1) of the Insolvency Act as follows:
- The preliminary formalities outlined in Section 4 of the Insolvency Act must have been complied with.
- The estate must be insolvent.
- The debtor owns enough realisable property to cover all the sequestration costs, legal fees, and estate management fees, which can be paid out of the free residue of the estate.
- The sequestration must be to the advantage of the creditors.
Voluntary sequestration is straightforward about who can apply and the requirements that must be met when applying. But can someone else apply for the sequestration of a debtor’s estate without their consent?
Can a Creditor Apply for the Sequestration of a Debtor’s Estate?
Compulsory sequestration is when one or more of a debtor’s creditors apply for sequestration on the debtor’s behalf. If this application is successful, the debtor will be notified as soon as the process of sequestration starts. The court will only allow such an application for sequestration if the following requirements are met:
A) If the applicant has a claim that is in line with Section 9(1) of the Insolvency Act, one of the following two requirements must be met:
- The liquidated claim must be R100.00 or more if a single creditor applies.
- If more than one creditor applies, their combined liquidated claim should be R200.00 or more.
B) The debtor must have committed an act of insolvency or be deemed insolvent.
C) There has to be a reasonable belief that if the estate is sequestered, it will benefit all creditors, as it has to be to the advantage of the creditors.
What are Acts of Insolvency in South African Law?
Acts of insolvency were identified to make it easier for creditors to prove that a person is insolvent. A few acts or omissions need to be performed for a creditor to reasonably doubt that a debtor’s estate is insolvent. If the debtor performs these acts or omissions and the creditor can prove it, it is more likely that the debtor’s estate may be sequestrated. These acts or omissions are outlined in Section 8 of the Insolvency Act as follows:
- Section 8(a): The debtor leaves South Africa or their home or remains absent from South Africa or their home to try to evade paying their debts or delay the payment of In this case, the creditor must prove the debtor’s intention to evade paying debts or delay payments.
- Section 8(b): The debtor fails to satisfy a judgment that orders them to pay money and then further fails to indicate sufficient disposable property or to satisfy the judgment upon being asked by the officer who must execute the judgment. This is also true when the officer makes a return indicating insufficient property.
- Section 8(c): A debtor’s preference for one creditor or attempt to pay one specific creditor above another will prejudice the other creditors.
- Section 8(d): The debtor prefers or tries to favour one creditor above the others by removing or attempting to remove property that will cause prejudice to other creditors.
- Section 8(e): The debtor makes or tries to make arrangements with the creditors to release them wholly or partly of their
- Section 8(f): The debtor fails to apply for surrender as required by Section 4(3) of the Insolvency Act.
- Section 8(g): The debtor gives written notice to their creditors that they cannot pay their
- Section 8(h): A business owner who is unable to pay his debts after attempting to transfer his business or successfully transferring his business in terms of Section 34(1).
The sequestration process requires an experienced insolvency attorney to navigate the complexities of voluntary or compulsory sequestration. Contact one of Burger Huyser Attorneys’ specialist insolvency law attorneys for assistance with your application for sequestration and the legal process of sequestrating an estate.
DISCLAIMER: Information provided in this article does not, and is not intended to constitute legal advice. READ MORE