In law Sequestration is the act of removing, separating or seizing anything from the possession of its owner under the process of the law for the benefit of the creditors or the State.
Provisions for sequestration proceedings by creditors are made in the Insolvency Act 24 of 1936. A court may grant an application for the sequestration of a debtor’s estate if it is satisfied that:
-the Applicant has established a claim against the debtor;
-the debtor is insolvent or committed an act of insolvency;
-there is reason to believe that it will be to the advantage of creditors of the debtor if his estate is sequestrated.
Sequestration can be compulsory (friendly or unfriendly) as well as voluntary.
Compulsory sequestration occurs when a person’s creditors make an application to the High Court to have a person declared insolvent (unable to pay the debts owed). In this situation the Applicant would be the creditor of the debtor.
The results of Compulsory sequestration are similar to that of voluntary sequestration in that the person loses ownership of their estate and all the assets are sold in order to be given to their creditors. The main difference between the two depends on who brings the application.
Aggressive (‘’unfriendly’’) sequestration
This is when a creditor brings a sequestration application against a debtor (for example the bank).It is also a forced sequestration as opposed to voluntary surrender. If a creditor brings an aggressive application against a debtor, the debtor can oppose such an application if he/she is not insolvent or if there is another reason why the order should not be granted.
A process in which a friend or family member alleges to have a claim against the debtor and applies for the sequestration of the debtor’s estate due to non-payment. The reason for these ‘’friendly sequestration’’ applications is to bypass certain requirements pertaining to voluntary surrender applications. Friendly sequestration is also a forced sequestration, but the Applicant and the creditor who brings the Application have an amicable relationship.
The Negative effects of sequestration include:
-You will not be able to administer a trust account
-You would not be able to access credit (for more information visit rehabilitation on sequestration)
-An insolvent is also disqualified from practicing certain professions or careers:
-cannot be a director of a company;
-cannot be involved in management in a close corporation;
-will not be able to hold a fidelity certificate;
-be a member of a Provisional Parliament;
-be a member of National legislature;
-act as a trustee on a trust under certain circumstances and may be removed by the Master.
The Positive effects of sequestration
- You alleviate the burden of debt, if you choose to pay the benefit to your creditors over a certain period;
- Harassment by the creditors is minimized (if not eliminated) as they are referred to the sequestration Attorney or Curator;
- Your debt could be eliminated once your estate has been sold;
- Garnishee orders obtained will cease to be operational as soon as you present your director or employer with the High Court Order (Garnishee-enforcing a judgment debt against the creditor to recover money);
- Paying the money over a period of time will be interest free.
It is important to note that when you are being sequestrated, it is crucial to seek legal advice. An Attorney is important throughout the process. The steps involved include:
-Compiling a Statement of Affairs
-Determining the value of your assets
-Sign Statement of Affairs and assets
-Submission of the Statement of Affairs
-Notice of Motion
-Submitting the Application
Despite the concept of sequestration possibly being construed as overwhelming, negative or stressful, it is an option that is sometimes necessary and beneficial. The insolvent will, at a minimum, be prevented from business ownership and be precluded from certain forms of employment or endeavours. However, Sequestration can offer a fresh start and a way forward.