Insolvency Lawyers

SEQUESTRATION

When a client is facing financial strain, our Insolvency Lawyers are mindful and sensitive to the fact that such a client should not be burdened with excessive legal fees. Our attorneys have designed an efficient approach to sequestration, therefore we can finalise your application at a pre-determined fixed rate.

Because we are a firm of attorneys, we can assist our clients with the whole process, from sequestration right through to being rehabilitated.

The processWHEN IS SEQUESTRATION APPLICABLE? WHAT ARE THE BENEFITS OF SEQUESTRATION?HOW DOES SEQUESTRATION WORK?WHAT ARE THE DISADVANTAGES OF SEQUESTRATION? HOW DO I GET SEQUESTRATED? WHAT HAPPENS TO MY ASSETS WHEN I AM SEQUESTRATED? RehabilitationWhen can I apply for rehabilitation?How do I apply for rehabilitation?

Once you have made contact with our offices, we will ask you for the information and documentation we require to enable us to assist you.  We will then schedule a consultation as soon as possible to advise you of your rights and the options available to you, even if it does not necessarily entail the sequestration of your estate.

During the consultation we will ensure that we obtain all information and documentation from you which we did not receive prior to the consultation and explain in detail what the process entails, the time frames applicable and different payment plans to cater for your position.

After the consultation, our Insolvency Lawyers will commence with the drafting of all the required statutory notices and court documentation to ensure that all the prescribed timelines are met.  During this whole period, we will ensure that you are kept up to date with all developments in your application.

Once we are in possession of the court order, and should you wish, we will assist you in making contact with the appointed trustee and gladly assist you to negotiate with the trustee regarding the retention of as many of your assets as is legally possible.

We will furthermore hereafter, should you wish, continuously follow up with the trustee regarding the progress of the sequestration proceedings and, once all requirements have been met, assist you to apply to become rehabilitated.

When a person’s liabilities are greater than his or her assets, or simply put when a person is unable to settle all of his/her debt. In this instance, a person is referred to as being “insolvent”. If you are insolvent, you should consider applying for sequestration of your estate.

FOR A DEBTOR:
Sequestration can lead to a fresh start for a distressed debtor, and our qualified Insolvency Lawyers can assist with this. Once a debtor is sequestrated and thereafter rehabilitated, all the pre-sequestration debts are settled and the debtor can start on a clean financial slate.

Subject to the facts at hand, an insolvent can apply for rehabilitation as early as 6 months after sequestration. This depends on whether any claims are proven against the insolvent’s estate. It is important to comprehend that the court will not rehabilitate an insolvent if it appears that the insolvent has misled the court during a sequestration application. It is crucial to ensure that your application is valid and authentic at all times.

In practice, sequestration often results in a form of debt relief for the debtor. Once a debtor’s estate is sequestrated, the individual credit providers are prohibited from proceeding with any legal action against the debtor for the recovery of debts. All legal proceedings against a debtor are brought to a halt when the debtor is sequestrated (until the appointment of a trustee). Should the creditor wish to proceed with litigation after the appointment of a trustee, the creditor’s claim will then be paid from the insolvent estate in accordance with the declared dividend.

Upon the granting of a sequestration order, sales in execution are also discontinued. As soon as any sheriff (whose duty it is to execute any judgment against an insolvent), becomes aware of the sequestration of the insolvent’s estate, the sheriff must stop that execution – unless there is a court order which states otherwise.

It is noteworthy that the court must be convinced that sequestration of the insolvent’s estate will be to the advantage of his or her creditors before it will consider the voluntary surrender of a debtor’s estate.
Subsequent to being sequestrated, the insolvent is entitled to retain as much of his or her salary which is necessary to support his or her dependents.

FOR A CREDITOR:
The benefit of sequestration for creditors is that it ensures a fair distribution of a debtor’s assets amongst his or her creditors.

Once a debtor’s estate is sequestrated, individual credit providers are prohibited from proceeding with legal action against the debtor for the recovery of debts. Therefore, the creditors’ rights (as a group) are protected

Sequestration is the process in terms of which a debtor’s estate is divided amongst his or her creditors in order of their preference as determined by the provisions of the Insolvency Act 24 of 1936.

A debtor’s estate can only be sequestrated by a High Court order. In order for a debtor’s estate to be sequestrated, that debtor must approach the High Court with an application for the voluntary surrender of his or her estate. It is, therefore, a legal process for which the assistance of qualified legal representatives is required.

A debtor can only apply for sequestration or voluntary surrender if his or her liabilities, fairly valued, exceeds his or her assets, fairly valued, and its proven that it will be in the best interest of that debtor’s creditors if the debtor’s estate is placed under sequestration.

A creditor can also apply for the sequestration of a debtor’s estate. The purpose and benefit of sequestration for creditors are that it ensures a fair distribution of a debtor’s assets amongst his creditors.

Because the rights of the creditors are protected as a group, once a debtor’s estate is sequestrated, individual credit providers are prohibited from proceeding with legal action against the debtor for the recovery of debts. In practice, this often results in a form of debt relief for the debtor.

Some of the disadvantages include:

  •  An insolvent is precluded from holding certain positions, including:
    • Director of a Company or taking part in the Management of a Close Corporation, unless authorised by a court;
    • Credit provider, debt counsellor or payment distribution agent
    • Estate Agent, unless the trustee certifies that the insolvent is a fit and proper person despite his or her insolvency;
    • Manufacturer or distributor of liquor;
    • Trustee of a Trust;
    • Trader who is a general dealer or manufacturer.
  • All the insolvent’s property vests in the Master, and when appointed, the Trustee;
  • All the insolvent’s spouse’s property vests in the Trustee. (The spouse must apply to the Trustee for the release of the property);
  • The insolvent may not enter into a contract (without the written consent of the Trustee) which might adversely affect the insolvent’s estate;
  • The insolvent’s credit record will be updated accordingly.

When consulting with our clients, we do not only advise them in detail of the above challenges but also assist them to find practical legal solutions to negotiate these challenges.

A person can only become sequestrated by way of a court order. Such a court order is either obtained by a creditor of the debtor or by the debtor self through the process of voluntary surrender (voluntary sequestration).

VOLUNTARY SURRENDER / VOLUNTARY SEQUESTRATION

Voluntary surrender (or voluntary sequestration) is the procedure where a person him- or herself approaches a court for an order of sequestration. This requires a formal application to a High Court wherein evidence is provided through an affidavit. Therefore, the person applying for sequestration does not have to appear in court to testify.

  • When applying for sequestration, the applicant must prove the following:
    That the person’s liabilities (fairly estimated) exceed the person’s assets (fairly valued). The mere fact that a person cannot pay his or her debts does not mean that the person is insolvent.
  • That there are sufficient assets in the free residue (that portion of the person’s estate which is not subject to any right of preference of a creditor by reason of any special mortgage, legal hypothec, pledge or right of retention) to pay for the costs of the sequestration.
  • It will be to the advantage of the person’s creditors if the estate is sequestrated.
  • That there are no other mechanisms which are appropriate to deal with the person’s debts such as remedies in terms of the National Credit Act.
  • That the person has complied with the following formalities:
    • Published the required notices in the Government Gazette and local newspaper (circulating in the district in which the debtor resides) not more than thirty days and not less than fourteen days before the date upon which application will be made to the court.
    • Delivery of the above notice to each and every creditor, trade union of his or her employees, the employees themselves
    • Lodged at the office of the Master a statement in duplicate of his or her affairs.
    • The statement has been open for inspection by any creditor during office hours for a period of fourteen days after the notice was published.

After sequestration, the insolvent’s estate vests in the Master and thereafter in the Trustee when appointed. The trustee must realise (sell) the insolvent’s assets to cash and then pay the proceeds thereof to the insolvent’s creditors in order of preference. Under certain circumstances, the insolvent may purchase assets back from the Trustee.

Not all the insolvent’s assets, however, may be sold by the Trustee. According to law the insolvent’s clothing, bedding and the whole or such part of the insolvent’s household furniture, tools and other means of subsistence as the creditors determine must be excluded and may not be sold.

In this regard, we can assist our clients with negotiations relating to which assets should be excluded.

Rehabilitation cures the sequestration of an insolvent’s estate and further discharges all of the insolvent’s debts which arose prior to the sequestration.

In order for an unrehabilitated insolvent to once again legally apply for credit and enter into contractual relationships which binds his or her estate, that insolvent must first be rehabilitated. It is unlawful to apply for credit if you are an unrehabilitated insolvent. You may furthermore also not hold any of the following positions or commit any of the following acts:

  • Director of a Company or take part in the Management of a Close Corporation, unless authorised by a court;
  • Credit provider, debt counsellor or payment distribution agent
  • Estate Agent, unless the trustee certifies that the insolvent is a fit and proper person despite his or her insolvency;
  • Manufacturer or distributor of liquor;
  • Trustee of a Trust;
  • Trader who is a general dealer or manufacturer.

An unrehabilitated insolvent may apply for rehabilitation as early as 6 months after his or her sequestration. This is on condition that no claim has been proven against his or her estate at the time of the application for rehabilitation, the insolvent has not been convicted of any fraudulent act in relation to his or her insolvency or the insolvent’s estate has not previously been sequestrated.

In most instances, however, an insolvent will not qualify for rehabilitation prior to the lapse of 4 years from the date of the sequestration of his or her estate.

Unless an insolvent is willing to wait for a period of 10 years to become rehabilitated through the effluxion of time, that insolvent can only become rehabilitated by applying for a High Court order to that effect.

An unrehabilitated insolvent can only become rehabilitated by applying for such an order to the High Court which initially granted the sequestration order.

Prior to applying for rehabilitation, notice of an intention to bring the application must be given in the Government Gazette, to the Trustee and Master of the High Court. The application to the High Court itself is supported by an affidavit of the insolvent which must contain various information, including the circumstances which initially lead to the insolvency, financial position at the time of sequestration as well as at the time of the rehabilitation application.

Under certain circumstances, an insolvent may also be required to make payment to the Trustee of a contribution to the sequestration costs.

From your first consultation with one of our attorneys, the whole process can be finalised in approximately 4 months. In order to ensure that your application is finalised in the quickest possible time, we will provide you with a full list of information and documentation required.

ATTORNEYS

ANDRIES STANDER

DIRECTOR


NATASHA TRUYENS

ASSOCIATE

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