The first step in getting rid of mounting debt is to speak to an insolvency expert to help clear up myths about sequestration and to guide you through the process.

What is Insolvency?

Insolvency is a financial state of affairs wherein the individual’s income is insufficient to pay their monthly expenses and debt. It is also the financial status of a business where the liabilities far exceed the assets and where the business is unable to make good on its financial obligations. When the individual’s financial estate is surrendered for selling the assets to distribute the benefits among the major and minor creditors, it is called sequestration. In the case of a business – except with a sole proprietorship – the process is called liquidation.

Differences Between Sequestration and Liquidation

The main difference between sequestration and liquidation is that with liquidation, the business doesn’t need assets to be declared insolvent, whereas a natural person can only sequestrate if they have property or the necessary finances to pay the minimum benefits to the creditors. The natural person must have an income to pay off the remainder of the debt. It is thus essential to speak to an insolvency expert who will be able to help you determine whether you can apply for voluntary sequestration. Note that a minimum of ten cents out of the rand must be available to creditors, but the higher the amount available, the more likely that the court will grant the sequestration order.

How to Apply for Voluntary Sequestration in South Africa

The insolvency expert is normally a lawyer and is assisted by an advocate on your behalf. You don’t need to appear in court (though the court can demand it). The application is made to a High Court in the country and the court reviews the affidavit that explains your financial situation and the circumstances that led to it. You also need to publish a notice in the Government Gazette and relevant newspapers to declare your intent to sequestrate. In addition, you must send registered letters to your creditors to notify them of your intent.

An appraiser will value your assets, which include the physical assets such as immovable property, cars, and equipment, in addition to money in your bank accounts and any debts owed to you. If the total amount falls short of the minimum ten cents out of the rand for the creditors, you can supplement it with donations or cash from friends or family members to ensure that the application is approved.

The court will grant the order for sequestration and a trustee will be appointed to handle the sale of assets and distribution of benefits to the creditors. After twelve months have passed since the trustee’s first account had been confirmed, you can apply for rehabilitation. There are various other periods applicable to rehabilitation, best discussed with an insolvency expert such the ones at Insolvency Care.