Decoding Sequestration: What You Need to Know
Dealing with overwhelming debt can be a tough situation, and you might be exploring your options. Of these options, sequestration is often considered a last resort. It involves giving up all your possessions but allows you to start fresh without debts. In this blog, we’ll make sense of all things sequestration South Africa, unpack the sequestration meaning, and detail what the process entails.
What Is Sequestration?
Sequestration, a legal process, is a way to help individuals in financial distress regain control of their financial affairs and clear their debts with the assistance of a court-appointed trustee. It comes in two forms, namely, voluntary sequestration which is usually requested by the debtor, and compulsory sequestration whereby it is initiated by creditors. During this process, the consumer formally declares their financial troubles to a legal court and asks for help. If the court agrees, they’ll appoint a trustee who will manage the sale of the person’s assets, using the proceeds to settle their debts with creditors. This process continues until the person successfully takes steps to improve their financial situation.
How Sequestration Works
Contrary to popular belief, sequestration is not a strategy to evade debt, but rather, it offers a structured solution for managing financial difficulties. Here’s how it works:
First, any assets belonging to the person facing sequestration are sold, and the money generated is used to pay off their debts. If there’s still outstanding debt, it can be settled either in full or through a prearranged initial payment, followed by regular instalments spread over 18 to 24 months. Once all debts are resolved, the debtor may consider pursuing rehabilitation, provided they meet specific criteria, which it’s advisable to discuss with legal experts. This process can help individuals regain financial stability and move forward on a more solid footing.
Protection From Creditors And Fair Treatment for Creditors During Sequestration
Many people facing financial difficulties often worry about whether creditors can continue pursuing legal action against them. The good news is that there are legal safeguards in place to protect individuals in such situations.
Once you’ve decided to declare sequestration, your intention is officially published in the Government Gazette and a local newspaper. This step triggers a process that requires creditors to voice any objections they may have in court. Importantly, during this period, creditors are prohibited from harassing you, seizing your assets, demanding payments, or adding interest to your debt.
Similarly, the law ensures fairness to all creditors. The Insolvency Act, designed to maintain this fairness, primarily focuses on benefiting creditors rather than relieving debtors. This Act introduced the concept of “advantage of creditors” in South African insolvency law. It’s a fundamental requirement in both compulsory sequestration cases and voluntary surrender. Before a sequestration order is granted, it must be proven that there’s an advantage to creditors once the debtor’s estate is sequestrated. This means that individuals drowning in debt and seeking relief won’t be considered in sequestration applications unless they can demonstrate this advantage to creditors.
Sequestration And Personal Belongings
When you’re in the process of applying for sequestration, it’s natural to have concerns about what the effects of sequestration will be on your personal belongings, such as your furniture and jewellery.
Under the law, furniture is generally included in the insolvent estate by the trustee. However, it’s important to know that there’s room for negotiation. In specific cases, insolvency lawyers may work with you to either exclude your furniture from the insolvent estate or get it appraised. This approach could potentially allow you to repurchase your furniture at a reduced value, which can be a significant relief. On the other hand, when it comes to jewellery, it typically falls under the category of assets included in the insolvent estate.
When Can the Court Reject a Sequestration Application?
The court has the authority to reject a sequestration request if it doesn’t serve the creditors’ best interests. Nonetheless, it’s important to note that the law requires creditors to be entitled to a minimum of 20 cents for each Rand they are owed. In cases where the applicant doesn’t have real estate, they should possess alternative assets that can be liquidated to guarantee that creditors are adequately compensated. Sequestration without assets is not possible in South Africa.
How Long Does Sequestration Last In South Africa?
In South Africa, your journey to freedom from sequestration is guided by some important timelines and rules, as below:
- Ending Insolvency: In South Africa, sequestration generally ends when you are rehabilitated. So, if you wish to rebuild your financial life and reputation, you must apply for rehabilitation.
- Rehabilitation Timing: You can seek rehabilitation after 12 months from the confirmation date unless certain conditions come into play.
- Previous Sequestration: If your estate has been sequestered in the past, you’ll need to wait for three years, rather than just one.
- Fraud Conviction: If you have a prior conviction for fraudulent activities related to your insolvency, you’ll have to wait for five years before you can apply.
- Early Rehabilitation Option: You can seek rehabilitation just six months after your estate’s sequestration. But this is possible only if no claims have been made against your estate at the time of your application, you have no convictions related to fraudulent activities linked to your insolvency, and your estate has not gone through sequestration in the past.
- The Consequences of Not Seeking Rehabilitation: If you choose not to apply for rehabilitation, the credit bureau will keep your sequestration record for a lengthy 10 years, during which time you won’t be able to access credit.
- Automatic Rehabilitation: Generally, after a decade from the date your estate was sequestered, you’ll be automatically rehabilitated. However, if the court issues an order stating that you should not be automatically rehabilitated, this won’t apply to you.
How To Apply for Sequestration in South Africa
As are most legal battles, the sequestration process is a very complex and lengthy journey. Here is a step-by-step guide on how to apply for sequestration in South Africa.
Step 1: Prepare a Statement of Affairs
In the first step of the sequestration, your attorney will assist you in creating a crucial document known as the “Statement of Affairs.” This statement includes information about your creditors, such as their names, addresses, the amounts you owe them, the reasons behind your debts, and any security claims they might have. Additionally, you will be required to prepare a “founding affidavit” to provide insights into why you are facing insolvency, your monthly expenses, and any legal obligations you have.
Step 2: Assess Your Assets
The second step involves assessing your assets. This evaluation process will be carried out by an appraiser recognised by the court. They will determine the value of your assets, ensuring they match the information in your provisional statement of affairs. If, for any reason, your assets fall short of the required value, your attorney will come up with potential solutions. These solutions may include restructuring your assets or acquiring new ones to meet the necessary minimum value. Another option is cash sequestration in which an individual or entity’s cash assets, such as bank accounts, cash on hand, or other forms of liquid assets, are used.
Step 3: Submitting Documents And Public Disclosure
The next step is to sign and submit your documents. These papers, which consist of your statement of affairs and affidavit, need to be copied, signed in front of a Commissioner of Oaths, and then dispatched to the High Court. Once your documents get the court’s approval, they will be publicly announced in the Government Gazette, providing an opportunity for others to share their thoughts. This process is vital for protecting your assets from creditor actions, and it puts your financial situation under the purview of the Insolvency Act. At the same time, your final statement of affairs will be forwarded to the Master of the High Court.
Step 4: Notify Creditors and Issue the ‘Notice of Motion’
Once you’ve started the insolvency application, your attorney will then send notifications to inform all creditors. Importantly, you should know that you are not obligated to inform your employer about this process. Furthermore, your attorney will also take the essential action of issuing a “Notice of Motion” to secure a spot on the High Court’s list for the upcoming application hearing.
Step 5: Application Lodging and Court Date
When your application is complete, copies are provided to the Master of the High Court and, if needed, to the South African Revenue Service (SARS). When it comes to sequestration and SARS, a sequestrated person can receive up to three tax reference numbers: one before sequestration, one for the insolvent estate, and one after sequestration, with the need to visit a SARS Branch for coding as an insolvent person.
The court registrar will formally file the original application and your attorney will send a copy to the advocate handling your legal representation in court. Afterward, the High Court will carefully review your insolvency application. If they find that all the requirements specified in Section 4 of the Insolvency Act have been met, they will issue a sequestration order. This order officially recognises the surrender of your estate.
Debt Help Beyond Sequestration With National Debt Advisors
If you find yourself grappling with overwhelming debt, it’s essential to remember that you’re not alone on this journey. At National Debt Advisors, we are here to provide you with the guidance and support you need. Our experienced team is committed to going the extra mile, ensuring that your path to financial freedom is as hassle-free as possible.
National Debt Advisors is here to help South Africans like you who are dealing with the complexities of debt struggles. Don’t let the weight of debt hold you back; let us guide you toward a brighter future, free from the burdens of financial stress and uncertainty. Whether you’re considering sequestration or exploring alternative solutions, we have the expertise to assist you in making informed decisions about your financial future. Contact us today.