The consequences of sequestration
The sequestration of the estate of an insolvent is dealt with in terms of the provisions of the Insolvency Act 24 of 1936 (herein after referred to as “the Act”).
The main purpose of sequestration is for the orderly and equitable distribution of the proceeds of the debtor’s assets where all of his creditors cannot be paid in full. Sequestration is aimed at dividing the debtor’s assets in accordance with a fair pre-determined ranking of creditors. It is also important to remember that the individual’s estate will not be sequestrated if it is not to the benefit of his creditors. When an individual is declared insolvent and his estate is sequestrated accordingly, it is not without consequences. The consequences of sequestration can be far reaching, depending on the insolvent’s specific circumstances. Some of the consequences of sequestration will be dealt with herein below.
The property of an insolvent
All movable and immovable property of the debtor before and after the sequestration, fall within his insolvent estate. The property which an insolvent thus acquired in the period between sequestration and rehabilitation, also forms part of his insolvent estate and is available for the payment of his debts, unless excluded in accordance with the Act. The debtor’s basic necessities such as clothing, bedding, pension and compensation for personal injuries are some of these exclusions.
Upon the sequestration of an insolvent, his estate is handed over to the Master of the High Court (herein after “the Master”) who appoints a trustee for the insolvent estate. The insolvent is therefore divested of his property. As stated earlier, this includes property which the insolvent obtained after being sequestrated, but prior to his rehabilitation. Such property may therefore be realised by the trustee and the proceeds distributed to creditors. In this regard the court has found that such property remains vested in the trustee even if the trustee was unaware of its existence and a period of more than 30 years have elapsed since sequestration.
A further consequence of sequestration is that all civil proceedings instituted by or against the insolvent, is stayed until the appointment of a trustee. Criminal proceedings are not affected whatsoever. An implementation of a judgment against the insolvent will also be discontinued as soon as the Sheriff receives notice of the insolvent’s sequestration.
Employment of insolvent
An insolvent is also disqualified from practicing certain professions or careers. An insolvent may not, amongst others:
- be a director of a company;
- partake in the management of a close corporation of which he is a member;
- hold a fidelity fund certificate in accordance with the provisions of the Estate Agency Affairs Act;
- be registered as a manufacturer or distributor of liquor;
- act as a trustee of a trust under certain circumstances and may be removed as trustee by the Master;
- be a member of the National Assembly of Parliament;
- be a member of the National Council of Provinces;
- be a member of a provincial legislature;
- be a board member of the National Credit Regulator;
The insolvent’s spouse
A sequestration order also has an effect on the debtor’s spouse. Section 21 of the Act provides that the separate assets of both spouses vests in the Master and later the trustee when either spouse is placed under sequestration.
If there is an existing marriage in community of property, there is in principal only one joint estate. Both spouses will therefore receive the status of an insolvent and the joint estate is sequestrated.
If a marriage out of community (with or without accrual) exists, Section 21 places the burden of proof on the solvent spouse that all goods in his/her estate, is indeed his/her property, and therefore excluded from the debtor’s estate.
Insolvency comes to an end when the insolvent becomes rehabilitated, which means that he is released from his pre-sequestration debts. The insolvent is therefore provided the opportunity of a new start. In accordance with the Act, an insolvent is automatically rehabilitated after the lapse of 10 years from date of sequestration. An insolvent may, however, approach the court for an order that he be rehabilitated prior to the lapse of the 10 year period, provided that certain conditions are met.
It is clear that the sequestration of your estate may have far reaching consequences. It is therefore advisable that you contact your attorney when faced with sequestration to ensure that you are sufficiently advised on the consequences thereof for your specific circumstances.