Tuesday, 1 October 2013

Sequestration l What is sequestration and liquidation? l debt, debt solutions, credit bureaus, Compulsory Sequestration, Voluntary sequestration

What is Sequestration and Liquidation?

Key tags: sequestration, liquidation, insolvency, insolvent, debt, debt relief, debt review, debt solutions.

In terms of South African Insolvency Law a natural person, a trust a partnership, a deceased estate and a married couple's joint estate are sequestrated while a company or close corporation is liquidated.

In simplified terms, if a person's debt has become too great and is impossible to manage and such person's liabilities exceed his/her assets, the individual is insolvent (bankrupt). In certain cases such a person can eliminate his debt and re-obtain a normal life free of debt.

This is done by way of a procedure involving an application to court for the sequestration of such a person's estate. Upon sequestration, a trustee is appointed by the Master of the High Court, who is placed in control of the insolvent's estate. Creditors are then no longer able to pursue the insolvent directly. There is a misconception that the insolvency procedure has been created to allow the people to incur debt and walk away.
This is not the case, as it is the trustee's duty to guard creditor's interests and an application for the sequestration of a debtor's estate can be a very effective procedure to compel the debtor to pay.
The insolvency procedure is therefore to the advantage of both insolvents and creditors alike.

1. Your liabilities must exceed your assets.
2. The sequestration or liquidation must be to the advantage of your creditors.
3. There must be sufficient free residue (in other words assets) to pay the costs of the sequestration or liquidation application.

This is where a debtor applies to court for the sequestration for his own estate. The following persons may apply:

1. Estate of natural person: the debtor or his agent.
2. Partnership: all the partners resident in South Africa or their agent.
3. Estate of a deceased debtor: executer.
4. Joint estate of spouse married in community of property: both spouses.
5. Estate of person unable to manage in community of property: both spouses.
6. Estate of person unable to manage his own affairs: curator bonis.

An application for compulsory sequestration is brought when a creditor applies to court for the sequestration of his debtor's estate.

An applicant for the compulsory sequestration of a debtor's estate needs to know that:

He has established a claim, which entitles him to apply for the sequestration of the debtor's estate.

The debtor is actually insolvent, ie his liabilities, fairly estimated, exceed his assets, fairly valued; OR the debtor has committed an Act of Insolvency.

There is a reason to believe that it will be to the advantage of creditors if the debtor's estate is sequestrated.

The court may liquidate companies for a variety of reasons. In liquidation applications you have to establish commercial insolvency. This means an inability to pay debts as and when they become due in the ordinary course of business.

1. Compulsory liquidation by the court.
2. Voluntary liquidation by a creditor or a member.
3. Liquidation of a close corporation.

Once a liquidation order has been made by the court, a liquidator is then appointed by the Master of the High Court. The Master's duty is to take control of all assets, convert dues to cash and then to pay creditors in proportion to their claims.

Subject to complying with certain requirements, an insolvent can be rehabilitated (ie. He can be declared no longer insolvent). Generally this can happen four years after the date upon which the insolvent's estate was sequestrated. However under certain circumstances this can take place sooner.

Rehabilitation occurs automatically after 10 years have lapsed. Rehabilitation is a discretionary remedy and the court may impose conditions in its order rehabilitating the insolvent.

The rehabilitation of an insolvent puts an end to the sequestration and relieves the insolvent of every disability resulting from the sequestration. It also discharges all the debts of the insolvent, which were due, or the cause of which had arisen, before the sequestration.

Eugene Prinsloo Consulting can assist you with sequestrations, liquidation and rehabilitations nation wide.

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