Voluntary Sequestration in South Africa

Voluntary Sequestration in South Africa

Did you know that in South Africa over 6 000 vehicles and almost 2 000 homes are repossessed each month?  Furthermore, according to the National Credit Regulator in their latest Report there are over 10 million South Africans currently struggling to pay their loans, bonds, car instalments, credit cards or retail cards.

The term “insolvency” relates to both sequestration (for individuals and Trusts) as well as liquidation (for companies and close corporations).  Sequestration can be achieved either by voluntary sequestration or compulsory sequestration.

Voluntary sequestration is a process under the Insolvency Act, where an Application is done to the High Court to surrender your estate (assets and liabilities) to Creditors in the hands of the Master of the High Court and to be declared insolvent/bankrupt.

There are, however, three requirements that you will have to meet before the Court will allow your estate to be sequestrated:

  1. You must prove that your debts are actually more than the value of your assets;
  1. You must have enough assets to pay the costs of the sequestration application; and
  1. You must prove that the sequestration will benefit the persons and/or businesses you owe money to.

If the Court grants permission for sequestration, the Master will appoint a Trustee to take control over the entire estate.  The Master must than realise your assets according to the Insolvency Laws of South Africa and distribute the proceeds to Creditors after the administrative costs have been paid.

The effect of a Voluntary Sequestration Court Order is that Creditors must claim from the separate insolvent estate / surrendered estate, and not from you as their individual execution steps are stopped.  This means that the Trustee takes control of the entire estate and executes the administrative tasks.

Advantages of voluntary sequestration is that it enables you to regain control over your finances and to minimize your debt in a short-concentrated period.   This is due to the fact that creditors must receive at least 20 cents out of each rand.  Subsequently you only have to pay 20% of your debt through the sale of assets in the surrendered estate.  The assets in your estate must be sold and the proceeds of the sale on auction must be sufficient to pay for the sequestration process and to ensure that the creditors receive the abovementioned minimum benefit.

Other advantages include, that you don’t need to own property, you won’t need to go to Court, and you certainly will not lose your personal household belongings. Your employees or employer will also never have to know that you are under sequestration or any other pending legal action, as this process is handled discreetly.  Your garnishee orders will furthermore immediately be cancelled upon your sequestration.

However if not all the debt is covered with the sale of your assets, you will have to pay in the remainder owed, either in a lump sum or through monthly instalments.  However, the interest rates are frozen and as such, no further interest can be added to the outstanding amount.  Once the debt is settled through voluntary sequestration, you can start to rebuild your financial estate.

The following disadvantages should also be taken into account when considering voluntary sequestration:

  1. Your credit record will lose all credibility as you will be blacklisted at credit bureaux and lose your creditworthy status.
  1. You are not allowed to borrow money or incur any other debt until you are rehabilitated.

      3. 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. 

The end of the process and when you will be regarded as being rehabilitated happens when the Court declares you as such.  This could happen four years after the sequestration date or sometimes even sooner. If the Court does not declare you rehabilitated within that period, you will automatically become rehabilitated ten years after your sequestration date.

 

Roüa Pienaar

Candidate Attorney