South African insolvency law makes provision for the voluntary sequestration of an individual. The individual’s attorneys apply to the High Court on behalf of the applicant to declare the individual bankrupt. The individual’s estate is surrendered to the Master of the High Court, who appoints a trustee to take over control of the surrendered estate. The trustee must oversee the sale of assets and distribution of proceeds to the creditors and for the payment of the legal costs associated with the sequestration. This must be done in accordance with South African law.

The court’s order for voluntary sequestration implies that the relevant creditors must no longer claim from the individual, but from the insolvent estate. This means all creditor actions against the individual must stop. It also implies the end of creditor harassment.

The law stipulates that all garnishee orders against the individual’s salary must stop, interest on debt is frozen, and the individual should seize any payments to creditors. The creditors must thus wait for the sale of assets and distribution of minimum benefits.

It is illegal, according to South African insolvency law, for the individual to make any payments to creditors during this time. This is to prevent benefitting one creditor over the others. The creditors know such, and thus willingly speak to the individual’s attorneys when referred, as they know they cannot make claims against the individual. All legal actions against the individual are thus stayed.

Not everyone qualifies for voluntary sequestration. If the individual still has enough assets to sell in order to cover the debts owed, then the individual should do so. If the assets or value of the assets cannot cover the debt if sold, then the individual must consider whether their income exceeds their expenses sufficiently to be able to pay off debts. If not, the individual qualifies for voluntary sequestration subject to the equity in the assets being sufficient to cover the legal costs of sequestration, administration of the surrendered estate, and the minimum benefit for the creditors as required by South African insolvency law.

Reasons for applying to be sequestrated range from sureties signed to income reduction and loss of employment. Debt can easily spiral out of control, and if the individual has taken all reasonable steps to get out of debt, but is still unable to pay the creditors, the individual should consider voluntary sequestration.

If the individual has immovable property and paid up vehicles then they, according to South African insolvency law, form part of the surrendered estate.

The minimum benefit that must be realised from the sale of assets on auction is 20 cents out of the rand. This means that the individual is able to get rid of their debt without having 100% of the money owed.

The insolvent individual’s salary and pension money are excluded from the surrendered estate, and so is money received as compensation for a personal injury.

Though the individual must disclose their sequestrated estate according to the requirements of South African insolvency law when they apply for credit, they can legally get credit if they have the written permission of the trustee. That said, few creditors are willing to extend credit to an insolvent party. The insolvent individual’s credit record indicates sequestrated, and as such, an insolvent party is not likely to get credit during the sequestration period.

The insolvent party is allowed to have a credit card and a cheque account. If they have been in place before the sequestration and have not been overdrawn, the individual can keep the accounts, provided the individual uses their own money and does not overdraw on the accounts. This means the credit card and cheque accounts must have positive balances at all times.

It is essential for the individual to list all creditors in the sequestration application. According to the requirements of South African insolvency law, the individual must inform the creditor if the party failed to list the particular creditor. If the creditor is difficult about such, then the insolvent party must apply to Court to forgive the oversight. In this regard, it is best to make sure that every creditor is listed.

Speak to our attorneys should you wish to apply for voluntary sequestration in South Africa.

Disclaimer: This article is for information 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.