NOTE: SEQUESTRATION IS TEMPORARY – EMINENT REHABILITATION RESTORES A PERSON’S STATUS BEFORE SEQUESTRATED FULLY, IN ALL RESPECTS.
It has become a major task for the normal household to keep head above water and meet their financial monthly commitments.
In this day and age, more often than not through no fault or neglect on the part of persons and for reasons and due to circumstances beyond their control a person, e.g. lockdowns, they experience financial hardship finds themselves in dire financial straits which tend to become worse and worse as time progresses. This may result, ultimately, in a point of no return when the prospects that a person may be able to settle his / her debts in full had become impossible.
We advise clients on what to do under those circumstances – there are a variety of measures that persons in financial distress may take to regulate the situation in which they find themselves, such as:-
- debt counselling – this process is very popular, as persons tend to seek a short term solution. It is a fact, however, that by adopting this method of financial relief is temporary and debts simply mount up;
- sequestration by voluntary surrender, which involves an application to the High Court for the estate of a person to be sequestrated. A Court can make an Order when a person is able to cover the costs of sequestration to prove that a dividend of 20 cent in the Rand would probably accrue to concurrent creditors. If a person does not have sufficient assets to liquidate to reach the 20 cent in the Rand target, then his / her future income may be pledged to the extent that he / she can financially afford to do so, to meet the 20 cent in the Rand requirement over a period of time (by monthly instalments). This has the effect that creditors are legally compelled to “write off” that part of the debts – the contemplated 80%. Our firm has established a precedent in this regard in the High Court, Durban;
The main purpose of sequestration is the orderly and equitable distribution of the sequestrated person’s assets.
The advantages of sequestration are, briefly stated, as follows:-
- Once the Notice of Intention to apply for voluntary sequestration is published , creditors may no longer take any legal steps and all existing legal actions are stayed until the Court has ruled on the Application and so the Applicant is no longer harassed by creditors or be obligated to pay them, until the Court has ruled on the Application;
- Once the sequestration Order is granted a trustee is appointed to administer the estate and to take possession of the estate for distribution to creditors.
- However, certain assets which are required to maintain a decent standard of living, do not form part of the insolvent estate
- Garnishee Orders on salary are cancelled;
- All interest on outstanding debts is frozen and debts therefore do not increase by added interest;
- Effectively, 80% of the total debt is written off and extinguished;
- A Trustee is appointed to administer the estate – the responsibility passes to him / her;
- Income which is required to maintain a decent standard of living does not accrue to creditors
The disadvantages of sequestration are as follows:-
- The sequestrated person’s assets are sold for distribution to creditors;
- The sequestrated person is disqualified from being a director of a company or a managing member of a close corporation;
- The sequestrated person may not hold certain financially responsible- and government positions;
- The sequestrated person may not enter into a credit agreement without the consent of the Trustee;
- The sequestrated person is listed at credit bureaus as a sequestrated person.
The insolvency proceedings are in the Motion Court – evidence is presented in Affidavits – the Applicant does not need to appear in Court to testify or otherwise. When a person is sequestrated, the next aim is to terminate the status of sequestration by applying to Court for your Rehabilitation.
Disclaimer: This article is for information purpose 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.