The sequestration process entails legal proceedings whereby an applicant applies to be declared bankrupt or where a creditor applies to the court with the help of attorneys to have a debtor be declared bankrupt.
Voluntary Sequestration in A Nutshell
With voluntary sequestration, the insolvent party’s attorneys handle the court application and the applicant doesn’t have to be at the court hearing. If the application is successful, the court appoints a trustee to oversee the selling of the insolvent party’s assets on auction and the distribution of the benefits to ensure each of the creditors with a proven claim against the insolvent estate receives their minimum benefit, as required by law.
Compulsory Sequestration in A Nutshell
The process entails a formal application by the creditor to have a party sequestrated. The application is similar to voluntary sequestration. A creditor could be an employee, SARS, or any person or company to whom a debt is owed and which has not been paid. The creditor has the right to apply for the compulsory sequestration of an individual if the debtor commits any of eight acts of insolvency. There must be a debt owed to the creditor and the sequestration must be to the benefit of creditors.
Friendly Sequestration in A Nutshell
Where the creditor has a friendly relationship with the debtor, it is called friendly sequestration. Though similar to the voluntary and compulsory sequestration processes, it is generally where a family member to whom money is owed applies for the sequestration of the debtor. For the purpose of this article, we discuss the voluntary sequestration process that requires the help of insolvency attorneys in South Africa.
Meeting the Requirements for The Voluntary Surrendering of An Estate
The process is mostly to benefit the creditors, so the court must be satisfied that the applicant is truly insolvent. This means the applicant must be cash and capital insolvent. To be cash insolvent, they must be unable to pay debts when due. To be capital insolvent, their liabilities must far exceed their assets. Sequestration attorneys review the applicant’s income and expenses, total debt outstanding, interest payable on each, the creditor list, and the applicant’s asset list to determine the probability of a successful application for voluntary surrendering of the applicant’s estate. Factors that are taken into consideration include whether the party is truly insolvent and whether the sequestration process can ensure that the minimum benefit of 20 cents in the rand can be realised, as well as the sequestration costs covered. If so, the attorneys proceed with the application process.
Step 1 – Submit information to the sequestration attorneys to determine insolvency status. Make a list of your creditors, their contact information, the total debt owed to each, monthly instalments payable, debt in arrears, interest payable, and whether they have initiated legal proceedings. Also, list your assets and the estimated value of each. List which creditors have security for debts owed and the type of security. Keep in mind that your domestic worker and gardener are also claimants. Summarise the circumstances of your financial distress and how the insolvency came about. Also note steps that you have taken to reduce expenses in order to pay debts. List your monthly living expenses. List your income. Note which assets are encumbered, such as the vehicles, furniture, and house. Also note service contracts. Make an appointment for a personal visit, email communication, or a telephonic or online appointment. You don’t have to visit the attorneys and can make use of their services regardless of where in South Africa you live.
Step 2 – Attorneys review the information. The attorneys discuss the sequestration process with you and explain possible outcomes, opposition, time frame, risks, effects, and rehabilitation. They review the information submitted and if you qualify, advise on the process forward. The attorneys also answer questions about your assets, the process, costs, and more.
Step 3 – Provisional statement of affairs. The sequestration attorneys draft the provisional statement of affairs and discuss issues regarding it. Once the issues have been addressed, they draft the final statement of affairs.
Step 4 – Prepare and submit the final statement of affairs. A statement of affairs must be drafted and submitted to the Master of the Court. The sequestration attorneys handle the process. The statement includes a list of the creditors, their contact information, securities held, the total debt owed, the outstanding balance, interest, and monthly instalments. It also includes a list of assets and their estimated value. In addition, it includes an income and expense report. It also includes an affidavit by you regarding the truthfulness of the information supplied and how the financial distress came about. This must be signed by you in front of a commissioner for oaths. This is called the founding statement.
Step 5 – Notify creditors. SARS, the Master of the Court and the creditors must be notified of your intention to apply for the surrendering of your estate. To this end, the attorneys draft the notice that is published in the Government Gazette and a local newspaper. They also submit the information to the Master and send a notification to SARS by registered mail. The creditors are also notified. Once the notice has been published, you must stop all payments to the creditors. This is to prevent a situation whereby one creditor is benefited more than others. All legal actions against you are stayed, garnishee orders cancelled and interest on debt frozen.
Step 6 – Submission of the statement of affairs. The statement of affairs is submitted to the Master of the Court where it is available for inspection by creditors. Note that correct procedures must be followed in terms of submission and notification. For one, the creditors must be notified of where they can inspect the statement of affairs. They need enough time to inspect it to give them time to oppose.
Step 7 – Reserving a place on the court roll. The sequestration attorneys submit the notice of motion, which reserves a date and time on the court roll for the hearing.
Step 8 – Court hearing and trustee appointment. An advocate is appointed to present your case to the court and you are notified of the outcome. If the sequestration is awarded, a trustee is appointed to oversee the sale of assets on auction and distribution of the benefits to the creditors.
Step 9 – Meeting with the trustee and conclusion of the sequestration. You meet with the trustee and creditors regarding the assets. The sequestration attorneys negotiate the buy-back of certain assets from the estate. The sequestration is concluded and the first account is submitted to the Master. You receive a new tax number.
Step 10 – Rehabilitation application. Rehabilitation follows upon application for it with the help of insolvency attorneys. Once the process is completed, you are no longer under sequestration and are in full control of your financial estate.
Many of the mentioned steps take place simultaneously and the sequestration attorneys handle most of it. The duration of the process depends on when there is a slot on the court roll and how long it takes to distribute benefits among the creditors. It is possible to get out of debt quickly and to start afresh. Get expert guidance and help from our sequestration attorneys. Contact us for more information and answers to your questions.
Disclaimer: This article is for informational purposes only and does not constitute legal advice. Call on our attorneys rather than relying on the information herein to make any decisions. The information is relevant to the date of publishing: April 2020.