Need Help with Insolvency? Get Answers from Experienced Lawyers

Need help with insolvency? Do creditors knock and threaten with compulsory sequestration? Do you want to take the first step towards becoming debt-free, but do not know if it is the right decision? Get answers on the less frequently asked questions surrounding insolvencies in South Africa.


What is the Difference Between Sequestration and Administration?

sequestration lawyerSequestration is a legal process whereby the insolvent party’s estate is sequestrated and the party is declared as bankrupt. The insolvency attorneys of the creditors (compulsory sequestration) bring an application for the sequestration of the insolvent party’s estate to court. In the case of voluntary sequestration, the applicant is the insolvent party and is represented by insolvency lawyers.

A trustee/curator is appointed to oversee the selling of the assets in the estate and to distribute the proceeds among the creditors. Once the first liquidation account has been submitted and the time requirements have been met, the insolvent party can apply for rehabilitation.

With sequestration, a minimum benefit of 20 cents out of the rand must be paid towards each of the creditors. The legal fees from the sequestration must also be paid from the sale of assets. Where there is a shortfall, the insolvent party must pay it over an agreed period. The interest on the debt is frozen, so this can be paid over a relatively short period.

The insolvent party loses their assets (excluding tools of trade and assets for which the insolvency lawyers negotiated to have the insolvent party buy back from the estate). The party is free of debt once the sequestration process has been completed.

However, to voluntary sequestrate, the party must be able to prove that they are insolvent. That means they must be both capital and cash-flow insolvent. Their liabilities must exceed their income and they must be unable to pay their debts when due. The proceeds of assets sale must be sufficient to ensure that minimum benefits can be paid to the creditors and that all the legal fees are paid. The person does not owe any more money on debts in the estate after sequestration. Since sequestration is a more expensive solution, it is imperative that the debt be substantial.

With administration, the debt is less than R50 000. If the debt is more than this, the debtor or creditors should seek a more suitable solution, such as a debt compromise, debt review, or sequestration. With administration, there is not a specific plan for paying the debts. No part of the debt is written off. This means the debtor has to pay the full amount. With sequestration, around 20% to 50% of the debt total is paid.

Administration is not well-regulated, and debtors often have to pay back debts over years, while also having to deal with lawyer fees, administration fees, and the credit notice of being under administration. However, if the debt is less than R50 000, it is a more suitable solution than debt review, although a debt consolidation loan may help to cover the entire amount. That said, if a person has no income, they cannot qualify for a debt consolidation loan and also do not qualify for debt review.


How is it Possible for a Bank to Claim a Person Owes Money Based on a Surety They Signed if the Debt Has Been Paid Off?

Beware the many clauses in credit agreements. Banks often include clauses in their agreements where they include the right to off-set one bank account if one of the accounts are in the negative. They also have several clauses on sureties. Once a debt is paid off, it does not mean the surety is cancelled. Make sure the bank gives a letter to state that the debt has been paid off and that the surety has been cancelled, since the bank can later object an application for voluntary sequestration based on the fact that they have not been included as a creditor because of the surety clause.


Need Help with Insolvency in Terms of the Potential of Being Jailed?

Fortunately, the answer is that a debtor cannot be jailed for owing money. To be in debt is not a crime. Debt collection proceedings fall under civil proceedings. In the past, it was still possible to be jailed for debt if the debtor failed after a court order to make the necessary payments to the creditor. The debtor can be jailed for fraud, but not debt.


What Happens with the Tax Number of the Debtor After Insolvency Proceedings?

The insolvent party gets a new tax number, as their tax debts are included in the insolvency proceedings. The person starts with a clean tax bill after the sequestration.


Need Help with Insolvency in Terms of an Undivided Share in Property?

Since the undivided share forms part of the insolvent estate, it will be sold and the proceeds of sale will go to the creditors and to pay the legal fees of the lawyers, trustee/curator, and administrative costs of the sequestration. The problem is that someone else normally has the other undivided share. They, however, most probably signed surety for the share of the insolvent party. As such, they cannot simply take over the insolvent party’s bond repayment.

Instead, the party must buy out the undivided share by registering a bond for it and the amount must be paid into the insolvent party’s estate account. The sequestration trustee deducts the costs of the estate administration and the remainder is paid to the financial institution that holds a bond over the property, only once the estate has been wound up, and only after the distribution account has been approved.

It is best to consult with our insolvency lawyers on the process to follow if you want to sequestrate while having an undivided share in a property. One of the solutions for the other party is to obtain a loan for the entire bond from another financial institution, other than from the bank that holds the bond on the property.


What Happens if the Other Party Does Not Want to Buy the Undivided Share?

If the other party with an undivided share does not want to buy the undivided share of the insolvent party, then it will be sold to a third party at a nominal cost. This can be any amount, which leaves the party with the undivided share in a problematic situation. They have 50% ownership but must pay the full bond. It becomes even more complicated. In this instance, it is best to seek legal guidance from experienced insolvency lawyers to help avoid costly pitfalls and legal battles.


Is it Possible to Sell a Property After the Sequestration Proceedings Have Begun?

No. Once the sequestration is in motion, the debtor’s estate is under control of the Master until a trustee has been appointed. Thereafter, it is under the trustee’s control. Even if a purchase agreement has been signed just before the sequestration application, the sale cannot proceed. Only if the trustee decides to go on with the purchase agreement can it go on, and only with the permission of the Master of the High Court (after the second creditor meeting, the trustee can make the decision without requiring permission from the Master). Keep in mind that the proceeds from the sale will still be distributed according to the requirements of the Insolvency Act.

With many questions on insolvency proceedings, it is best to seek legal help from experienced sequestration lawyers. Complete the online assessment form to determine if you qualify or get in touch with our attorneys for answers and help with compulsory and voluntary sequestrations in South Africa.


Disclaimer: This article is for informational purposes only and does not constitute legal advice. Call on our attorneys for legal advice, rather than relying on the information herein to make any decisions. The information is relevant to the date of publishing.

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