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“insolvency” relates to both sequestration (for individuals and trusts) and
liquidation (for companies and close corporations). Sequestration can either be
effected by voluntary sequestration or compulsory sequestration. This article
will deal with voluntary sequestration, where the person applying to the Court
for sequestration is the insolvent individual himself/herself.
What does “insolvent” mean?
is insolvent (bankrupt), the amount of her debts is more than the value of
their assets and income, and she is unable to pay her creditors (a creditor is a
person or business she owes money to).
How does voluntary sequestration work?
person becomes insolvent, she can apply to the Court for her estate to be
sequestrated. There are, however, three requirements that she will have to meet
before the Court will allow her estate to be sequestrated:
- She must
prove that her debts are actually more than the value of her assets.
- She must
have enough assets to pay the costs of the sequestration application.
- She must
prove that the sequestration will benefit the persons and/or businesses she
owes money to i.e. they must get paid (at least something) if her estate is
Court grants permission for sequestration, it will appoint a trustee/curator by
court order who must manage the insolvent estate to the equal benefit of all
trustee/curator will sell her assets and use the money to pay her creditors. If
the money from the sale of her assets is not enough to pay all creditors in
full, the money will be divided pro rata between the creditors based on the
amount owed to each creditor and the order of preference of payment. Any
outstanding debt that remains thereafter will be written off by the creditors.
What happens when the voluntary sequestration process has
insolvent person can start over with no debt to his name. This makes it sound
as if a person can make debt, then apply for voluntary sequestration and walk
away without paying his creditors. However, being sequestrated does have
What are the disadvantages of voluntary sequestration?
following disadvantages should be considered before applying for a voluntary
Who may apply for voluntary sequestration?
sequestrated person’s credit record will get a blow as he/she will be blacklisted
at credit bureaus and lose their creditworthy status.
sequestrated person can’t borrow money or incur any other debt until he/she is
sequestrated person will qualify as being rehabilitated when declared as such
by the Court, which can happen four years after the sequestration date or
sometimes sooner. If the Court does not declare the sequestrated person
rehabilitated, he/she will automatically become rehabilitated ten years after
his/her sequestration date.
- If a
person’s estate is sequestrated, it may lead to prohibition of membership of
certain professional bodies until he/she is rehabilitated, or even future
exclusion from certain professions.
- In the case
of a natural person becoming insolvent, the person himself/herself may apply,
or his/her representative.
spouses are married in community of property, both spouses must apply for voluntary
sequestration at the same time.
partners in a partnership who are resident in South Africa or their
representative may apply for voluntary sequestration.
- When a
deceased estate is insolvent, the executor of the estate may lodge an
application for voluntary sequestration.
- The curator
(curator bonis) of an estate where the individual is unable to handle his/her
own affairs e.g. if the individual is mentally unfit.
sequestration is not the panacea it appears to be at the surface. Although it
might be a solution for the financial problems of an insolvent person, there is
a price to pay in terms of losing a creditworthy status and/or a profession
together with a good reputation which might have taken years to build up.
decision to apply for voluntary sequestration should not be taken lightly and
should only be used as a last resort after all other possible avenues have been
exhausted. If you need
more information on insolvency and voluntary sequestration, please contact your
This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)