Sequestration in South Africa explained
Sequestration meaning
There are two different types of sequestration in South Africa.
One is voluntary sequestration and the other is compulsory sequestration.
Generally, sequestration in South Africa refers to an individual giving up his/her estate to the High Court because they are unable to pay for all their debt. When an individual undergoes sequestration they are declared insolvent. A person can be declared insolvent if their liabilities exceed their assets. Once an individual or trust is under sequestration, a Curator or Trustee is appointed to manage the sale of the assets to the creditors.
With compulsory sequestration, when a consumer is unable to pay their debts, a creditor can apply for compulsory sequestration (surrendering of the consumer’s estate) in order to recover some of the debt owed.
With voluntary sequestration, an individual can apply to surrender their assets to The High Court
Who can be under sequestration?
- An individual
- A trust
What does it mean to be under sequestration/ the sequestration process explained?
- An individual will approach an attorney and enquire about sequestration. The attorney will assess if the individual meets the requirements of sequestration.
- The individual will then apply for sequestration to the court by getting the attorney to apply on their behalf, explaining why the individual is insolvent. Following this, the attorney will then act on the applicant’s behalf in Court.
- The attorney will then publish the applicant’s intention in the Government Gazette and obtain a Court Date. As soon as the individual's intention is published, other than in the case of garnishee orders, the applicant is protected from creditors and they no longer have to make payment for their debts.
- The attorney will put together a case with documents in support of the applicant.
- The attorney will appear in court on behalf of the applicant on the Court Date.
- Once the application has been granted, a Curator will be appointed to settle and manage the benefits of the estate to the creditors.
- Once all the benefits have been settled, the Curator will provide the individual with a document stating that all affairs and debt with creditors have been settled. This document will be the document needed to apply for rehabilitation.
What is rehabilitation with sequestration?
Rehabilitation basically means that your status of being declared insolvent is cleared.
Someone can either be rehabilitated automatically or by way of a court order. If it happens automatically, it will happen after 10 years. If it happens by court order, the person should approach the attorney who helped with sequestration.
What are the disadvantages of voluntary sequestration?
- It can be an expensive process because you need to request the help of an attorney to help you with the process.
- You can only apply for rehabilitation to a court after 4 years.
What’s the difference between sequestration and liquidation?
An individual or trust can undergo sequestration, but a company can undergo liquidation.
How do I know if I qualify for sequestration?
You can get an idea of whether or not you will qualify for sequestration if you can’t afford to pay your current debts. So, list your current income and expenses. If you aren’t able to pay for your debt with your current income, you may be eligible for sequestration.
And
If you sell your assets, your creditors should be able to receive at least the minimum benefit of that sale through auction.
What is the minimum benefit in sequestration?
The sale of your assets should be able to pay at least 20 cents for every Rand to each creditor.
What is an alternative to sequestration?
Debt counselling, also known as debt review, is an alternative debt relief measure that someone who is over-indebted can make use of.
Advantages of debt counselling:
- It doesn’t involve exorbitant fees.
- You get to keep your assets like your home and your car.
- Your debt monthly instalment can be reduced by up to 50%.
Read: Debt counselling in South Africa explained