Sequestration
A debtor can willingly and voluntarily surrender their estate to the High Court for sequestration when their debt has become unmanageable and their liabilities exceeds their assets. This is also know as voluntary surrender or voluntary sequestration.
Compulsory sequestration is when a creditor applies to have the estate of an individual sequestrated when they cannot pay off their debts.
Sequestration proceedings are not designed for resolution of disputes pertaining to the existence of the debt. If the claim is disputed on reasonable grounds, the court will not grant a sequestration order.
Voluntary Surrender
The following parties can apply for the voluntary surrender of their estate:
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The insolvent debtor himself;
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The agent of an insolvent debtor, expressly authorised thereto;
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The executor of a deceased estate;
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The curator of the estate of the insolvent debtor who is incapable of managing his own affairs;
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Partnership - the partners must apply simultaneously;
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A club that is capable of holding property apart from its members;
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A trust.
Compulsory Sequestration
The Insolvency Act 24 of 1936 provides two bases upon which a sequestration order can be granted:
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The commission of an act of insolvency;
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factual insolvency.
The two most prevalent acts of insolvency are nulla bona returns of service and written notice of inability to pay. It is important that the written notice evidences an inability to pay, as opposed to an unwillingness or a refusal to pay.
The applicant/creditor must further be able to show that the sequestration will be to the advantage of creditors. Evidence is required that property of the insolvent can be realised and that there is a reasonable prospect of payment of a dividend to proved creditors.
Once a sequestration order has been granted, the Master of the High Court will appoint a trustee who will take control of the financial affairs of the insolvent estate. All movable and immovable property of the insolvent will fall within the insolvent estate and will be available for distribution. The insolvent will have to provide the trustee with the funds needed to pay the benefit to his creditors. Where no sufficient funds are available, the trustee can have the insolvent's assets auctioned to recover the amounts due to the creditor.
Once all the creditors' claims has been settled and after the Master of the High Court confirmed the account, the insolvent will be able to apply for his rehabilitation.
Consequences of being sequestrated
Once an individual's estate has been sequestrated, he/she will be disqualified from acting as a director of a company and certain other employment positions. The individual's credit record will reflect his/her status as insolvent which will prevent him/her from obtaining any further credit. Should the insolvent individual be married in community of property, there exists only one joint estate. This means that the joint estate will be sequestrated and both spouses will be declared insolvent
Rehabilitation
Rehabilitation of an insolvent bring the sequestration of his estate to an end. Parties who have complied with one of the following requirements may bring an application for their rehabilitation:
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Composition has been reached with creditors - this is usually in the form of a payment plan;
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No claims proved - application may be made 6 months from date of sequestration;
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Full payment of proved claims - at any time after the Master has confirmed the account;
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After a lapse of time an application may be made:
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12 months from confirmation of the first liquidation and distribution account;
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if previously sequestrated, 3 years from confirmation of account;
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if convicted of any fraudulent act relating to his insolvency, 5 years from date of conviction;
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If the application is made within 4 years from date of sequestration, the rehabilitation can only be granted if the Master recommends the rehabilitation in his report. Without such recommendation having been obtained, the court cannot even consider the application.
Who can apply for rehabilitation?
The application is usually brought by the insolvent himself but can also be brought by his widow who was married in community of property to the insolvent. If the insolvent is still married in community of property, the spouse should be joined as co-applicant.
What is the effect of being rehabilitated?
The insolvent's legal status will be restored to solvent and the individual will be able to obtain credit again. The individual will also be able to function again in certain professions or careers from which he was disqualified upon his sequestration.
