- Insolvency, Sequestration and Liquidation
Sequestration is a court procedure whereby a person’s estate is placed under “sequestration”. The trustee will assume control of the insolvent’s estate and will liquidate (sell) the assets in the estate and settle debts as far as may be possible, distributing the proceeds among creditors. Some creditors will take “a haircut”.
A person who owns more than he owes can still be “insolvent” as he may nevertheless be unable to pay his debts in spite of the fact that his assets exceed his liabilities. Such a person may, for example, have illiquid assets that can only be sold at some future time, while his creditors may be demanding immediate payment. A person’s estate can be sequestrated by the court if his liabilities are more than his assets. A person can be sequestrated either at his own request (voluntary sequestration), or at the request of a creditor (compulsory sequestration). As debtors sometimes view sequestration as an easy way out to avoid nagging creditors, these processes can be abused. The courts are consequently strict in ensuring that the requirements of the process are adhered to.
This means that the insolvent’s legal estate (the totality of a person’s assets and liabilities) comes under the control of a trustee. While a person’s estate is sequestrated he is precluded from conducting certain types of business (i.e. trading as a general dealer, being a manufacturer) but he is entitled to earn a living. When a person’s estate has been sequestrated this will be reflected on his credit reports, and he will be precluded from obtaining credit. Although a person’s estate may not be technically “insolvent” his estate may nevertheless be liable to be sequestrated if he commits certain acts, referred to as “acts of insolvency”. These acts include -
Debtors sometimes in anticipation of bad times ahead squirrel away property to friends or family. If, within two years of a person’s estate having been sequestrated, that person has disposed of property at a time when his liabilities exceeded his assets, and there was no counter value given for the disposal, the court can cancel (set aside) such a disposition. Benefits granted by a husband to his spouse in terms of an ante nuptial contract can be set aside by the court if the husband’s estate is sequestrated within two years of the date of the ante nuptial contract.
While sequestration may enable the insolvent to escape the pressure of creditors, there are also significant disadvantages to opting for sequestration. When a person’s estate has been sequestrated he is automatically regarded as having been “rehabilitated” after a period of 10 years from the date of sequestration. An insolvent may, however, before expiry of this period approach the court and apply to be rehabilitated. A person whose estate has been sequestrated can accumulate a new estate, but he may not dispose of assets belonging to the sequestrated estate.
A person who owns more than he owes can still be “insolvent” as he may nevertheless be unable to pay his debts in spite of the fact that his assets exceed his liabilities. Such a person may, for example, have illiquid assets that can only be sold at some future time, while his creditors may be demanding immediate payment. A person’s estate can be sequestrated by the court if his liabilities are more than his assets. A person can be sequestrated either at his own request (voluntary sequestration), or at the request of a creditor (compulsory sequestration). As debtors sometimes view sequestration as an easy way out to avoid nagging creditors, these processes can be abused. The courts are consequently strict in ensuring that the requirements of the process are adhered to.
This means that the insolvent’s legal estate (the totality of a person’s assets and liabilities) comes under the control of a trustee. While a person’s estate is sequestrated he is precluded from conducting certain types of business (i.e. trading as a general dealer, being a manufacturer) but he is entitled to earn a living. When a person’s estate has been sequestrated this will be reflected on his credit reports, and he will be precluded from obtaining credit. Although a person’s estate may not be technically “insolvent” his estate may nevertheless be liable to be sequestrated if he commits certain acts, referred to as “acts of insolvency”. These acts include -
- a debtor’s failure to satisfy a judgment;
- an act which prefers one creditor above another. any disposition of property by a debtor within six months of the sequestration of his estate which has had the effect of preferring a creditor can be set aside;
- concealing assets with a view to prejudicing a debtor’s creditors or to prefer one creditor above another;
- proposing an arrangement to a creditor which will involve that the debtor is released from some of his debt; and
- giving notice to a creditor that he the debtor is unable to pay a debt.
Debtors sometimes in anticipation of bad times ahead squirrel away property to friends or family. If, within two years of a person’s estate having been sequestrated, that person has disposed of property at a time when his liabilities exceeded his assets, and there was no counter value given for the disposal, the court can cancel (set aside) such a disposition. Benefits granted by a husband to his spouse in terms of an ante nuptial contract can be set aside by the court if the husband’s estate is sequestrated within two years of the date of the ante nuptial contract.
While sequestration may enable the insolvent to escape the pressure of creditors, there are also significant disadvantages to opting for sequestration. When a person’s estate has been sequestrated he is automatically regarded as having been “rehabilitated” after a period of 10 years from the date of sequestration. An insolvent may, however, before expiry of this period approach the court and apply to be rehabilitated. A person whose estate has been sequestrated can accumulate a new estate, but he may not dispose of assets belonging to the sequestrated estate.