What Does It Mean to Be Sequestrated? Frequently Asked Questions
Sequestrations are the legal processes whereby creditors apply for debtors to be declared bankrupt or whereby insolvent parties apply to be declared bankrupt.
What Are The Requirements for Voluntary Sequestrations?
To be voluntarily sequestrated, the applicant must be truly insolvent. This means the applicant must be cash-flow and capital insolvent. As such, the individual’s liabilities must exceed their assets, and the individual must not be able to pay their debts when due. However, even if the person is truly insolvent, one has to remember that sequestrations are only awarded where they are to the benefit of the creditors, and when all costs surrounding the surrendering of an estate can be paid from the sale of assets.
What Is The Main Difference Between Voluntary and Compulsory Sequestrations?
With voluntary sequestrations, the debtors apply to have their estates surrendered, while with compulsory sequestrations, the creditors apply to have the debtors declared bankrupt.
What is Considered the Minimum Benefit for a Creditor?
It is the minimum percentage that a creditor must receive from the funds realised through the sale of the insolvent party’s assets. The percentage is 20% of the debt due. This means for every rand owed to a creditor, the sale of assets must realise sufficient funds to ensure that the creditor can receive 20 cents out of the rand. The minimum benefit is referred to as the dividend.
In Terms of Sequestrations, Must a Creditor Also Prove Advantage?
Yes. Sequestrations are not allowed if the creditors cannot receive an advantage. The creditor that brings a compulsory sequestration order against a debtor must be able to prove that the creditors with claims against the estate will receive the minimum advantage from the sale of assets.
What If a Debtor Does Not Have Assets and a Friendly Sequestration Order is Brought Against the Person’s Estate?
To prevent people from getting sequestrations in order to avoid their debt obligations, the courts investigate whether sufficient assets are available to ensure advantage to the creditors. Where such is not the case, it is possible for the court to grant the order when it comes to light that the debtor has hidden assets.
What Does It Mean for Your Spouse if You Are Sequestrated?
It depends whether you are married in or out of community of property. In community of property means that both parties are sequestrated, as you share an estate. If you are married out of community of property, the assets of your spouse are included in the surrendered estate and reside with the Master. The spouse must be able to prove that the assets belong to them and are excluded from the estate. The same applies if you are married out of community of property with accrual of assets.
What Does It Mean to Be Sequestrated in Terms of Employment?
You cannot be a director of a company, real estate agent as you cannot hold a fidelity certificate, or the manufacturer/distributor of liquor, as you cannot have a liquor licence. You can be a member of a close corporation, but cannot be involved in the management of the close corporation. You cannot be a trustee of a trust. Various government positions are also excluded, which are best discussed with our insolvency attorneys.
What Does Being Sequestrated Mean in Terms of Credit?
You cannot enter credit agreements while under sequestration without the permission of the trustee. If asked on an application form, you must answer truthfully that you are under sequestration. Your credit record shows that you are under sequestration. Once rehabilitated, the notice changes to rehabilitated. This notice stays on your credit record for a period of five years, whereafter it is automatically removed. However, if asked on a credit application form about past sequestrations, you must answer truthfully. Once rehabilitated, you can enter credit agreements without permission from the trustee.
What Happens to Your Furniture, Tools of Trade, and Firearm When You Are Sequestrated?
All movable and immovable property form part of the estate. However, it is possible to have the furniture, firearm, and tools of trade written up, but not removed from your home. Furniture is often not of enough value to ensure the sale thereof can realise enough funds to the advantage of the creditors. With the help of the insolvency practitioners, it is possible to negotiate the buyback of the furniture from the estate.
With regards to a firearm, it is too complex for the trustee to store and sell the firearm because of the strict firearm regulations in South Africa. To this end, the trustee is often willing to allow for a buyback of the firearm.
Tools of the trade are excluded from the estate. This means that if you need your computer as an essential tool, that is possible to have it excluded from the sequestration process. However, it is essential that the tools you want to exclude are truly essential for you to earn a living.
Your children’s assets are also excluded. However, a child of ten-years old can hardly be the owner of a 500 cc motorcycle. As such, any attempts to hide assets is fraud and can lead to proceedings against you. It can also lengthen the period before you can apply for rehabilitation.
Is It Possible to be Sequestrated When You Own More Than Your Liabilities?
Yes. Although generally, you must be cash-flow and capital insolvent, it is possible to have assets that are not liquid and can only be used in future. As such, you are technically insolvent if you are unable to pay your debts when due.
Can a Creditor Apply for The Sequestration of a Debtor Even If the Debtor Is Not Truly Insolvent?
Yes. Creditors have the right to apply for compulsory sequestrations of debtors when the debtors commit acts of insolvency.
What Is an Act of Insolvency?
If you perform certain actions or fail to perform required actions, you give a creditor reasonable grounds to believe that you cannot pay your debts or do not plan to do so. The creditor must still be able to prove the intention, but technically, if you commit one of the following, it can be seen as an act of insolvency:
- Prefer one creditor over the others through the disposal of property within six months after having been sequestrated, which benefits one creditor to the disadvantage of another.
- When you fail to satisfy a court judgment in terms of debt.
- Hiding assets with the aim of preferring one creditor over the others or to prevent a creditor from attaching the asset.
- By requesting in writing from the creditor to be relieved from some part of the debt you owe or admitting to the fact that you are unable to pay the debts.
What Should You Do If You Want to Negotiate with Creditors Without Being Sequestrated As a Result?
Get in touch with insolvency attorneys to handle any such negotiations. The attorneys can provide guidance as to the correct procedures. If you want to avoid compulsory sequestration, but are insolvent, it is best to take the first step by applying for the voluntary surrendering of your estate.
Where to Get Help with Sequestrations?
Get in touch with our insolvency attorneys for legal guidance regarding compulsory and voluntary sequestrations in South Africa.
Disclaimer: Information in this article is not intended as legal advice and is only for informational purposes. Please seek legal guidance from our attorneys before relying on this information to make any legal decisions.
