If you find yourself unable to cope financially, there are a number of legal avenues you may choose to follow.

For example, you can apply to be placed under administration in terms of the Magistrate’s Court Act, or to be placed under debt review in terms of the National Credit Act. A further option is to apply for one’s voluntary surrender, or sequestration.

Here we provide an overview of what sequestration involves, as a starting point to determining whether it may be appropriate in your circumstances.

How sequestration differs from other alternatives

Sequestration is a more far-reaching procedure than being placed under debt review or administration.

Being under sequestration is likely to have significant effects on your life, and many of these will be negative. However, the effects will last for a limited period, after which you will be free of pre-existing debt and able to start again with a clean slate.

This differs from debt review and administration, which will help you reschedule debt so that you can pay it off over a longer period – but still requires that all the debt be settled.

Voluntary sequestration will free you from overwhelming financial difficulties, although at a cost.

Procedure for voluntary sequestration

Only a High Court can order that you be sequestrated. This means that the best starting point is to approach a good insolvency attorney, with experience in handling sequestrations.

To proceed, you will have to take the following steps:

• advertise in a newspaper and the government gazette that you are applying for your voluntary surrender
• advise your creditors by registered mail of the application to court
• serve the application on the Master of the High Court and the South Arica Revenue Service.

What the court will consider

In an affidavit, you will have to explain your present financial circumstances and how they came about to the court. You will have to show what your estate is worth and how much you owe to your various creditors.

It’s important to understand that the court will grant a sequestration order only if it is satisfied that your sequestration will be of meaningful benefit to your creditors. Generally, this is considered the case if your creditors are likely to receive between 10 and 20 per cent of the value of their claims against you after the sequestration.

How your debts are settled

Once the court order is granted, your assets vest with your trustees, who are appointed by the Master of the High Court.

Your trustees should take steps to sell your assets so that your creditors can be paid. It’s required that the proceeds be divided among your creditors so that no one creditor benefits more than another.

Once this has occurred, your creditors will have no further claim against you in respect of the debts that existed at sequestration.

Effects of sequestration on you

While you’re under sequestration, you’ll be subject to a number of limitations. For example, you may not be a member of a close corporation or the director of a company.

In addition, you may not sell or deal with any assets that form part of your insolvent estate at the time of sequestration, and you may not incur any further debt.

You can still enter into contracts of employment or agreements to do business and keep those earnings for yourself. However, you can’t be a trader who is a general dealer or a manufacturer, and you cannot have any interest in such a business.

Your trustees can decide whether to continue with contracts that you entered into prior to your sequestration.

Legal proceedings by or against an insolvent

An insolvent may not sue or be sued, except in the case of:

• divorce
• maintenance
• claiming payment for work done or professional services rendered by the insolvent after the date of sequestration
• pension
• a claim for damages as a result of defamation or personal injury.

An insolvent may also sue their trustees if the estate is mismanaged.

Duration of sequestration

Yours sequestration will automatically fall away after 10 years, at which time you will be legally considered rehabilitated. However, you can apply to court for your rehabilitation before the 10-year period is up.

You can apply for rehabilitation 12 months after the trustees’ first account is confirmed.

Certain exceptions apply, however. If you have been sequestrated before, you may apply to court for rehabilitation only three years after the trustees’ first account is confirmed. If you were convicted of fraud or certain other offences related to insolvency, you may apply for rehabilitation only after five years.

So why apply for your own sequestration?

Once an order is granted for your sequestration, your creditors will no longer be able to pursue any claims against you personally. Instead your creditors submit claims to your trustees. Even on-going court claims against you and judgments must be pursued with your trustees.

In other words, once you are sequestrated, you no longer have to deal with creditors. That becomes your trustees’ problem.

Once you are legally rehabilitated, you will be free from any limitations imposed on you by your sequestration. You’ll also be free from all debts that existed at the time of your sequestration.

This means that voluntary surrender is ideal if your financial position is such that it’s simply impossible to escape a debt trap.

Your first proactive step

If you’re considering voluntary surrender (sequestration), the best first step you can take is to contact a suitably qualified insolvency attorney.

We have extensive experience in handling sequestrations, our service is highly confidential and we pride ourselves in making our clients feel at ease.

For further information, please contact Jonathan Musikanth on 087 802 9930.