BASICS OF VOLUNTARY SEQUESTRATION – INSOLVENCY ACT IN SOUTH AFRICA
The sequestration act in South Africa is called the Insolvency Act No 24 of 1936. If you consider voluntary sequestration as a means to become debt free in South Africa, it is essential to become familiar with stipulations of the Insolvency Act. To this end, we recommend speaking to our insolvency attorneys who can explain the advantages, disadvantages, processes, and legal requirements associated with the voluntary surrendering of your estate.
To get you started, we briefly look at some important aspects regarding voluntary sequestration as governed by the Insolvency Act in South Africa.
REQUIREMENTS FOR VOLUNTARY SEQUESTRATION IN SOUTH AFRICA
The requirements for voluntary surrendering your estate, according to the stipulations of the Insolvency Act must be met before you can be legally declared bankrupt. This means that your liabilities must exceed your assets. In layman’s terms, it means you must have more debt than assets and must be unable to pay your debts when due with your current income. The idea behind surrendering your estate is to get rid of your debt. However, it is not a free ticket. You will lose your immovable property in the process.
You cannot undergo voluntary sequestration in South Africa if the sale of the assets in the surrendered estate cannot produce sufficient income to ensure that the creditors can each receive the minimum of 20 cents out of the rand benefit. In addition, the sale of the assets must realise enough unencumbered funds to pay for the sequestration process.
ACCORDING TO THE INSOLVENCY ACT, WHO CAN APPLY FOR VOLUNTARY SURRENDERING?
You can surrender your estate or have an appointed attorney do so on your behalf. The executor of a deceased estate can apply. If you are married in community of property, you and your spouse must apply, as you have a joint estate. We recommend speaking to our attorneys about who can apply in terms of “natural person”.
WHICH PRELIMINARY FORMALITIES MUST BE FOLLOWED?
The court must be satisfied that the correct procedures and formalities have been followed in the application for the voluntary surrendering of your estate. Such formalities include, for instance, publication of the notice of intention to surrender in the Government Gazette, notice to SARS and the creditors, and following the stipulations regarding the time frame in which such notices must be published. It is best to speak to our attorneys about the formalities. They will handle the drafting of the notices and the statement of affairs on your behalf. They will also make sure that all formalities are concluded according to the requirements of the Insolvency Act of South Africa.
The notice of intention to voluntarily sequestrate must be published in the Government Gazette and the relevant newspaper not more than 30 days prior to and not less than 14 days prior to the hearing date as stipulated in the Insolvency Act. This is important, since the creditors must have the opportunity to view the statement of affairs and decide whether they accept the surrendering or want to oppose it.
The notice cannot be published months before the hearing date, as it disadvantages the creditors, since all payments to creditors seize once the notice has been published. The creditors must wait for the court decision and the sequestration process to take its course. They cannot get interest on the debt owed. If months pass between the notice and the hearing date, they thus have to wait the entire time before they can receive some compensation for the outstanding debt.
WHEN MUST THE NOTICE OF THE VOLUNTARY SURRENDER OF AN ESTATE BE GIVEN TO THE CREDITORS?
You must provide the creditors copies of the notice to surrender within seven days from the publication of the notice. Our attorneys will provide the required proof of notice to the creditors, ensuring compliance with the requirement of the Insolvency Act. A notice of the voluntary surrendering of the estate will also be sent to the South African Revenue Services (SARS) and your employees as relevant.
WHAT ARE THE EFFECTS OF THE VOLUNTARY SEQUESTRATION?
You are no longer in control of the estate. The court appoints the trustee to oversee the sale of assets in the estate and ensure distribution of the benefits to the creditors. The proceeds of sale are used towards benefit of the creditors, and to pay for the legal and sequestration costs. You are officially bankrupt. During the period, you may not hold certain government positions, may not enter into credit agreements without written consent from the trustee, and may not be a director of a company. However, you become debt free and can start fresh without constant creditor harassment. Once all the requirements are met, you can apply for rehabilitation.
WHAT IS THE EFFECT OF REHABILITATION?
You regain full control over your financial affairs and can enter into credit agreements without the permission of a trustee. All debts against the estate are written off and you are no longer under sequestration. Give our attorneys a call for legal guidance and assistance with the voluntary surrendering of your estate according to the requirements of the Insolvency Act 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 as at the date of publishing.