Civil Litigation and Debt Collection

 

 

Generally, sequestration does not automatically terminate your employment contract. However, the Insolvency Act does prohibit an insolvent person from holding certain positions, such as:

  • A director of a company.
  • A member of a Close Corporation.
  • A trustee of an insolvent estate.
  • A Member of Parliament.
  • An estate agent (in some cases, subject to board approval).
  • For most other jobs, sequestration does not directly prevent you from working, but it might be a factor in specific professional or security-sensitive roles.
  • Bank Account: Yes, you can open a new bank account, but it must be with the written consent of your trustee. You will also get a new tax number from SARS.
  • Contracts: An insolvent person's contractual capacity is limited. You cannot enter into contracts that affect your insolvent estate without the written consent of your trustee. However, you can enter into contracts for your personal needs, provided they do not involve assets of the insolvent estate and do not prejudice your creditors. It is advisable to consult your trustee for any significant new financial commitments.

You remain under sequestration until you are rehabilitated. Rehabilitation can occur in several ways:

  • Automatic Rehabilitation: You are automatically rehabilitated after 10 years from the date of the provisional sequestration order, unless a court orders otherwise.
  • Early Rehabilitation Application: You can apply to the High Court for early rehabilitation under specific circumstances, typically after certain time periods have passed (e.g., 6 months if no claims were proved, 12 months from the Master's confirmation of the first account, or 3-5 years in other cases, especially if there were previous insolvencies or certain offences).
  • Full Payment/Composition: If all creditors' claims are paid in full, or if a composition (agreement to pay a certain percentage) is reached and fulfilled, you can apply for immediate rehabilitation.
  • Effect of Rehabilitation: Rehabilitation ends the sequestration, restores your contractual capacity, and removes the "sequestrated" status from your credit record (though the record of the insolvency may remain for some time).
     

Sequestration is a serious step with significant consequences, and it is usually considered a last resort when other debt relief options (like debt review or payment arrangements) are no longer viable. The court will only grant a sequestration order if it is shown to be to the advantage of creditors, meaning they stand to receive a better dividend from sequestration than from any other method. It is crucial to obtain professional legal advice to assess if sequestration is the most appropriate solution for your specific financial situation.

Sequestration is a formal legal process, governed primarily by the Insolvency Act 24 of 1936, where the estate of an insolvent person (natural person, partnership, or trust) is surrendered to the High Court. This occurs when they are unable to pay their debts. The process leads to a court-appointed trustee managing and liquidating the debtor's assets, with the proceeds distributed among creditors according to legal preference. It provides a debtor with relief from unmanageable debt and a chance for a fresh financial start.
 

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Sequestration 

Sequestration - A Path to Financial Rebuilding with VDM Attorneys

Facing overwhelming debt can be a daunting experience. At VDM Attorneys, we understand the complexities and emotional toll that financial distress can bring. Sequestration offers a structured legal process in South Africa for individuals, partnerships, and trusts who are no longer able to meet their debt obligations, providing a pathway to a fresh financial start.
 

Legal Definition of Sequestration In South African law, sequestration refers to the formal legal process, primarily governed by the Insolvency Act 24 of 1936, through which the estate of an insolvent person, partnership, or trust is surrendered to the Master of the High Court and subsequently to a court-appointed trustee. This process is initiated when the debtor is unable to meet their financial obligations as they fall due, or when their liabilities exceed their assets, constituting insolvency.

How is a Sequestration Order Obtained?

There are two primary methods through which a sequestration order can be granted by the High Court:

1. Compulsory Sequestration (Forced Sequestration)
This process is initiated by one or more creditors. A creditor can apply for compulsory sequestration if they can demonstrate that the debtor's liabilities exceed their assets, or if the debtor has committed an "act of insolvency." Common acts of insolvency include:

  • Failing to satisfy a judgment debt, indicated by a Sheriff's report of "Nulla Bona" (meaning no assets found).
  • Leaving South Africa with the intention of avoiding debt repayment.
  • Disposing of assets in a manner that prejudices creditors.
  • The proceedings begin with a formal application (Notice of Motion) served on the debtor. If the court is satisfied with the creditor's evidence, a provisional sequestration order will be issued. This is a temporary order, with a set "return date" by which the debtor can present reasons why a final order should not be granted. If no satisfactory reason is provided, the court will then issue a final sequestration order.

2. Voluntary Surrender of Estate
Alternatively, a debtor who is insolvent (meaning their debts outweigh their assets) can themselves apply to the High Court to voluntarily surrender their estate. In this scenario, the debtor directly approaches the court, declaring their insolvency. If all legal formalities are met and the required proof of insolvency is provided, the court will grant a final sequestration order without an initial provisional phase. This is an ex parte application, meaning it's initiated by the debtor without an opposing party at that stage.

Note: Only a High Court has the jurisdiction to grant a sequestration order for individuals, partnerships, and trusts.

The Impact of Sequestration

A sequestration order has significant and immediate legal consequences for the insolvent person and their estate:

  • Change in Legal Status Sequestration results in a change in an individual's legal standing, sometimes referred to as capitis diminutio. This means their capacity to enter into certain contracts and enforce certain claims is limited, and they may be prohibited from holding particular positions or appointments.
  • Vesting of Assets From the moment of sequestration, the insolvent's assets automatically vest in the Master of the High Court. Once a trustee is formally appointed, these assets then transfer to the trustee, who is tasked with managing and ultimately liquidating the estate to distribute proceeds among creditors.
  • Stay of Legal Proceedings and Execution Upon the granting of a sequestration order, all ongoing civil legal processes and the execution of any judgments against the insolvent are stayed (halted). This means creditors cannot pursue further individual legal action to recover debts once sequestration is in effect; all claims must be dealt with through the insolvent estate process.
  • Effect on Credit Agreements For assets acquired under installment agreements (like vehicle finance), the original owner (e.g., the bank) loses direct ownership upon sequestration but gains a legal "hypothec" (a form of security right) over the asset. The asset then falls under the insolvent estate, to be managed by the trustee.
  • Notice of Intention to Surrender If a debtor intends to voluntarily surrender their estate, they must formally publish this intention in the Government Gazette and a local newspaper. Critically, after this publication in the Government Gazette, no assets attached by the Sheriff may be sold in execution. This provides a crucial protection against the further dissipation of assets before the formal sequestration.

Formalities and Safeguards

The legal process for sequestration involves strict formalities, particularly regarding the service of documents. Due to the significant impact on an individual's legal status, applications for sequestration orders (including provisional and final orders) generally require personal service.

Furthermore, to protect affected parties, the Insolvency Act requires that a provisional sequestration order be served on:

  • Any trade union representing the debtor's employees.
  • The employees themselves (via notice board or main entrance).
  • The South African Revenue Service (SARS).

These measures are in place to ensure transparency and protect the interests of all stakeholders, especially employees whose livelihoods might be affected.

Why Choose VDM Attorneys?

Navigating the complexities of sequestration requires expert legal knowledge and compassionate guidance. Whether you are a creditor seeking to recover debts or a debtor considering voluntary surrender, VDM Attorneys offers comprehensive support through every stage of the sequestration process.

We provide clear, strategic advice tailored to your unique circumstances, ensuring compliance with all legal requirements and working diligently to achieve the best possible outcome for your financial future.

Contact VDM Attorneys today for a confidential consultation to discuss your sequestration needs.