Questions About Insolvency in South Africa

If you make use of the services of experienced insolvency lawyers in South Africa, the process of voluntary sequestration will be completed more quickly and efficiently as you may expect. We take a look at some the questions you may have to help you gain a better understanding of insolvency and how experienced lawyers can help you.

What is insolvency?

sequestration lawyerAccording to the Insolvency Act 24 of 1936 and its amendments, insolvency is a legal status that the court awards to a person or a business entity that is also under governance also of the Companies Act. In the case of an individual, the process to be declared bankrupt or insolvent is called sequestration. Liquidation refers to a business entity’s status, once the court has awarded the bankruptcy status. The sequestrated status is only awarded if the individual can prove their inability to pay their debts and if there is sufficient benefit for the creditors if the person’s estate is surrendered and the assets sold. It is best to make use of experienced insolvency lawyers to assist in determining whether you qualify for sequestration or not.

What is the difference between compulsory and voluntary sequestration?

Compulsory sequestration is when the creditors apply to have the debtor sequestrated because of the debtor’s inability to pay the debt. With voluntary sequestration, the debtor, preferably with the assistance of experienced insolvency lawyers, apply to the High Court of South Africa to be declared insolvent.

What is included in the surrendered estate?

All immovable property of the debtor forms part of the insolvent estate and will be sold off on auction from which the proceeds will be distributed by the curator or trustee to the various creditors. The debtor’s estate is surrendered to the Master of the High Court, who appoints the relevant curator or trustee to oversee the sale of the immovable property and distribution of proceeds to the creditors.

How does insolvency affect the debtor’s legal status?

The debtor is declared insolvent and a notice of sequestration is added to the debtor’s credit record at the credit bureaux. The debtor may not enter into any credit agreements without the written permission of the curator. The debtor, while under sequestration, may not be a director of a company, member of a close corporation, hold a fidelity fund certificate to act as estate agent, or register or be registered as a distributor of liquor or manufacturer thereof. The debtor may also, during this time, not act as a trustee of a trust or be a member of the National Council of Provinces, the National Assembly of Parliament, the provincial legislature, or the National Credit Regulator.

How long must the debtor stay under sequestration?

The sequestration lasts until the debtor is rehabilitated. If the debtor does not apply for rehabilitation, the period is ten years, after which time rehabilitation is automatic. The debtor can, with the help of experienced insolvency lawyers, apply for rehabilitation. They may do this if the insolvent debtor has received a certificate from the Master of the High Court that the creditors have accepted an offer of composition and in which payment or security has been submitted of not less than 50 cents in the rand for every claim against the insolvent estate. There are various other instances in which the debtor can be rehabilitated earlier and these are best discussed with our insolvency attorneys. Instances such as when the prescribed period of the first account has lapsed and full payment has been made for all proven claims, amongst others, also apply for qualification to be rehabilitated.

Does the sequestration order affect the debtor’s spouse?

Yes. The assets of the spouse also vest in the Master and under governance of the trustee if one spouse is sequestrated. If the debtor is married in community of property, the assets in the marriage are shared and as such, only one estate vests in the trustee, because the spouses have community of property. If the debtor is married out of community of property with or without accrual, the spouse of the debtor declared insolvent must be able to prove which goods in their estate belong to them and must thus not be included in the debtor’s insolvent estate.

We recommend speaking to our experienced insolvency lawyers regarding how voluntary sequestration will affect your spouse to avoid costly misunderstandings.


Disclaimer: Information is relevant on the date of publishing and is not intended as any form of legal advice. Please call on our attorneys for legal guidance rather than relying on the information herein to make decisions – September 2017.

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