SEEK ADVICE FROM AN INSOLVENCY PRACTITIONER BEFORE APPLYING FOR VOLUNTARY SEQUESTRATION
With insolvency law in South Africa being rather complex, it is best to get legal guidance from an insolvency practitioner regarding the timeframe of voluntary sequestration, the process, benefits and disadvantages, and legal implications of insolvency. We briefly look at some aspects of voluntary sequestration, giving you an idea of why it is important to discuss all your questions with an insolvency practitioner before committing to the voluntary sequestration process in South Africa.
WHAT ARE THE MAIN OUTCOMES OF A SEQUESTRATION ORDER?
Once the court awards the sequestration order, the applicant is declared bankrupt and stays insolvent until rehabilitated. The insolvent party’s estate is surrendered and the party no longer has control over the affairs of the surrendered estate. The insolvent party no longer has full contractual capacity and must obtain the written permission of the estate curator to enter into credit agreements. The insolvent party must also declare their insolvency status if so asked by a creditor upon application for credit. The insolvent party may not hold certain positions in Government and professional bodies and may not be a director of a company during the period of insolvency. To regain full control over financial affairs, the insolvent party must be rehabilitated. This is also a legal process, which must be handled by an insolvency practitioner in South Africa.
ARE THERE BENEFITS TO VOLUNTARY SEQUESTRATION?
Yes, the insolvent party gets rid of the largest part of their debt within a relatively short period, with the remainder payable in a lump sum or through down payment over a period of 18 to 24 months. Though the insolvent party is deprived of their assets, they are free from creditor harassment, the stress associated with debt, and further claims against their estate. They can start afresh and can apply for rehabilitation after a set period, provided the requirements for rehabilitation are met. All garnishee orders against their salary are cancelled and their salary is free from attachments for debt payments.
WHAT IS THE ROLE OF THE TRUSTEE OVER THE SURRENDERED ESTATE?
As an insolvency practitioner in South Africa will explain, the court appoints a curator over the insolvent party’s estate. The curator or trustee is responsible for managing the financial affairs in the estate. The role includes collection and liquidation of the assets in the surrendered estate and distribution of the proceeds from selling the assets. The proceeds must be distributed according to the requirements of the Insolvency Act. Only if there is a surplus (after all creditors have received their benefits, the cost of sequestration is covered, and legal costs are paid), can the appointed curator/trustee pay the surplus to the insolvent party.
WHAT HAPPENS IF THE SEQUESTRATION APPLICANT IS MARRIED WITHIN COMMUNITY OF PROPERTY?
Since the applicant and their spouse share an estate, the joint estate is sequestrated. As such, both parties become insolvent and cannot enter into credit agreements without the written permission of the curator. All limitations mentioned earlier apply to both parties.
WHAT HAPPENS IF THE SEQUESTRATION APPLICANT IS MARRIED OUT OF COMMUNITY OF PROPERTY?
Only the applicant is sequestrated. However, there are still implications for the spouse who must be able to prove which assets are theirs (and should be excluded from the estate). If the two parties live under the same roof, the spouse’s assets are also part of the estate, and the spouse must provide proof that specific assets at the property belong to them. It is best to get legal guidance from an insolvency practitioner in South Africa regarding the matter as certain steps can be taken to protect the assets of the solvent spouse.
WHAT PROPERTY FALLS WITHIN THE SURRENDERED ESTATE?
The surrendered estate includes all property of the insolvent party up to the date of sequestration that have been attached and property that they accrue during sequestration. It includes movable and immovable property, with exclusion of assets outside South Africa’s borders. If the insolvent party is married in community of property, the property inherited by the spouse forms part of the estate. This also applies to property inherited during insolvency. It is best to discuss the issue of what can be excluded from the estate with an experienced insolvency practitioner in South Africa.
It is, for instance, possible to negotiate for the furniture to be bought back from the insolvent estate. The furniture is still attached by the sheriff, but not removed from the insolvent party’s house. The insolvent party, with the help of an insolvency practitioner in South Africa, can apply to buy back the furniture at a reduced value.
Disclaimer: This article is for informational purposes only and does not constitute legal advice. Call on our attorneys for legal advice, rather than relying on the information herein to make any decisions. The information is relevant to the date of publishing – May 2018.