How to Deal with Complicated Issues Regarding Sequestration

Sequestration is a complicated matter, best handled by experienced insolvency law attorneys. With many pitfalls to avoid, it is essential to get legal guidance regarding your debt, finances, and rights. We therefore take a look at a few of the issues and terms to give some clarification regarding the complexities of sequestration.

SARS is a Preferred Creditor

Creditors who hold security against the debt owed are preferred creditors. After these, SARS is second in line and only then are the creditors who don’t hold security against the insolvent estate considered. Employees who might also have claims against the insolvent estate rank just before SARS. As a preferred creditor, SARS gets payment before the creditors without security against the debt owed. These creditors are known as concurrent creditors. It is important to understand that the application for voluntary sequestration must have supporting evidence to show that you have enough funds to pay all the preferred creditors, which include the creditors with security against the insolvent estate, the employees with claims against the estate, and SARS. If this not possible, your application will not be approved.

Insufficient Funds to Pay Preferred Creditors in Full

In the instance where the sale of assets in the insolvent estate fails to deliver sufficient funds to pay SARS in full, the shortfall in VAT will be written off. Keep in mind that SARS still has the right to bring criminal charges against you if your VAT is not paid in full; it doesn’t matter if you are sequestrated or not. This is a complex issue best dealt with by attorneys who specialise in tax law. Should this be the case, our attorneys will assist you and refer you to relevant tax attorneys.

New Tax Number

You will receive a new tax number from SARS once you have been sequestrated. This makes it possible to start afresh and you will not have to be concerned about further claims from before the sequestration.

Not Going to Jail

Except for when you have committed a criminal offense against SARS, you will not go to jail for debt owed. So, in effect, you cannot go to jail for debt owed. Insolvency is not a criminal matter, but before 1994, you could still be imprisoned for debt owed and not paid. However, today you cannot go to prison for non-payment of debt, but can be imprisoned for a criminal offense related to sequestration and business records management.

Criminal Offense

So, what is seen as a criminal offense in terms of insolvency and sequestration? If you hide assets or business records from the trustee or if you have failed to keep proper records of the business in the case of liquidation, it is seen as a criminal offense. It is also a criminal offense if you have preferred certain creditors over others in a fraudulent way or if you have incurred more debt without reason to believe that you would be able to pay off the debt. If you have hidden information, failed to give information, or have refused to supply documents or information requested by the trustee, you may be criminally charged.

You can also be charged for criminal offenses related to the failure to attend inquiry meetings regarding your insolvent estate, and for hiding liabilities or providing false information about your assets when you applied for credit within two years before the sequestration. In light of this, it is thus imperative to attend inquiry meetings regarding the insolvent estate, disclose all requested information, and to be honest about assets and liabilities when applying for credit. We recommend speaking to our attorneys about the above to ensure that you have legal guidance to avoid getting into a situation where you can be charged for criminal offenses.

Trustee’s Right to Hold Inquiry Meetings

Should the creditors suspect that you withheld information about your assets or your trustee suspects this, the trustee can call an inquiry meeting upon instruction from creditors. The purpose of the meeting is to obtain information and you, your family members, and friends or employees can be subpoenaed to the inquiry. It is a criminal offense not to attend the meeting and not to disclose the information truthfully when requested. We strongly recommend not to hide assets, lie about liabilities or assets, and prefer one creditor above another when applying for voluntary sequestration in South Africa. Make an appointment with our lawyers, should you require legal assistance or help in applying for voluntary sequestration.

Disclaimer: The article is for informative purposes only. It does not serve as legal advice nor is it intended as such. Please speak to our attorneys before relying solely on the information herein to make any decisions.