SEQUESTRATION PROCEEDINGS
WHAT ARE THE SEQUESTRATION PROCEEDINGS IN SOUTH AFRICA?
Sequestration proceedings in South Africa entail a legal process whereby the financial estate of an individual is surrendered and the individual is declared bankrupt. The court appoints a trustee/curator to oversee the administration of the estate, which also involves the selling of assets on auction and distribution of the proceeds to the creditors who have claims against the estate.
For the purpose of this article, we look at voluntary sequestration proceedings in South Africa. Compulsory sequestration is where a creditor or creditors apply to court to have an individual’s estate surrendered and the person declared bankrupt. Voluntary sequestration is when the individual applies to court to have their own estate surrendered and declared bankrupt.
An individual is insolvent when the person is unable to pay their debts when due and when their liabilities exceed their assets. However, even when a person is insolvent, creditors can still take legal steps to recoup their money. Unless the person undergoes debt review or sequestrates, they can end up paying debts for years because of extremely high interest rates and administration, as well as collection and legal fees associated with their debts.
The creditors may take judgement against the debtor. Unless the debtor has paid off the amounts owed as stipulated in the judgements, the debtor remains accountable for those debts. Judgements can stay against a person’s name for up to 30 years, severely hampering their ability to get credit, rent, or even find a job.
With voluntary sequestration, the debtor can have up to 80% of the debt written off. Once rehabilitated, the debtor is in full control of their estate and can enter credit agreements without requiring written permission from the trustee/curator.
HOW THE PROCESS WORKS
The debtor must be able to prove insolvency. In addition, the sequestration must be to the benefit of the creditors. The sequestration costs must be covered, and the creditors must receive the minimum required benefit from the proceeds of sale. If a debtor is truly insolvent, then the application can be made to court.
Certain formalities must be completed to ensure a successful application. The first step is to publish a notice of the intention to voluntary sequestrate in the Government Gazette and a relevant newspaper. This notice serves to alert creditors and give them a chance to object to the sequestration. The notice must be published in a newspaper that is likely to be read by the creditors.
The notice must include full details of the debtor, such as names, address, and occupation. It must also state the date upon which the application will be heard in court and where the statement of affairs will be held should the creditors need to inspect it. The debtor must prove publication of the notice through an affidavit and copies of the publications in which the notice was published.
This notice must be published not more than 30 days before the court hearing date. This is to prevent a debtor from applying for sequestration to stay legal action. All interest and debts are frozen once the notice has been published. If the debtor publishes the notice for months before the court hearing, the creditors have to wait a long time before they can receive their benefits. The notice must be published not less than 14 days before the court hearing date. This is to give the creditors enough time to object and to inspect the statement of affairs.
Once the notice has been published, the debtor must supply copies of such (within seven days) to all the creditors of which the debtor has the addresses. The debtor proves this has been done by means of an affidavit that includes details on the procedure followed. The debtor must also send a notice to SARS. This is done via registered post.
STATEMENT OF AFFAIRS
The statement of affairs details the income and expenditure of the debtor, assets, debtors, and creditors. It must include a balance sheet and detailed lists of movable assets, immovable assets, and the value of each. It must also include the details of debtors, including amounts owed and contact information. The creditor list must include the same and whether security is held against each debt. The statement must include a list of assets pledged, or which are subject to a lien. In addition, the debtor must provide a list of each accounting book used up to and including the time of the notice of intention to voluntary sequestrate. Personal information, such as details of previous insolvency applications must be included.
The statement of affairs must also detail the circumstances and reasons for the debtor’s financial situation. Finally, it must include an affidavit that the statement of affairs is accurate and that all estimates have been fairly done. The debtor’s insolvency attorneys will help with all the above requirements, ensuring accuracy and compliance with procedural requirements.
The Master can also require an independent valuation of the property declared by an appraiser to confirm the accuracy of the information supplied.
SUBMISSION OF THE STATEMENT OF AFFAIRS
The documents must be submitted in duplicate to the Master’s office. The documents can be submitted to a Magistrate’s office in the district where the debtor resides if there is no Master’s office in the area.
APPLICATION FOR SURRENDER AND COURT HEARING
In addition to meeting the procedural requirements mentioned, the debtor must submit an application to court. This is a motion, and the affidavit forms the supporting document. This is to show that the debtor has complied with the procedural requirements and meets the requirements for insolvency. The application is placed on the court roll and a hearing date is set. The applicant does not have to appear in court, as the attorneys represent the applicant in the court.
On the day of the hearing, the court can either accept the surrendering of the estate or reject the application. The court may also postpone the hearing. If the application is refused, the debtor status is restored to its state before the sequestration application.
IMPORTANCE OF THE NOTICE OF INTENTION TO VOLUNTARY SEQUESTRATE
Once the notice of surrender has been published, all legal action against the debtor is stayed. Creditors cannot take any further legal action, demand payment, add interest, apply a garnishee order, or attempt debt collection. They must wait for the court hearing and can oppose or have to wait for the sale of assets and distribution of the benefits. The debtor thus receives protection against debt collectors and creditors once the notice has been published.
With the debt frozen during this period, the debtor can save up to pay for costs or to start over. The trustee/curator is appointed, and the debtor must meet with the trustee and creditors. A sale of execution is arranged, and the assets are sold. The proceeds are distributed among the creditors according to the requirements of the Insolvency Act.
The applicant is debt-free and can start to rebuild their financial estate. Once the requirements are met, the debtor can apply for rehabilitation. Once rehabilitated, the debtor’s status changes from sequestrated to rehabilitated. This stays so on the credit records of the debtor for a period of five years, after which it is automatically removed.
Get in touch with our insolvency attorneys for legal guidance and help 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 rather than relying on the information herein to make any decisions. The information is relevant to the date of publishing.