How much does Sequestration Cost in South Africa?

Sequestration may seem like a daunting process, especially when individuals are faced with overwhelming debt. It offers a path to regain control of your financial situation, but many individuals worry about the associated costs. In this post, we will clearly outline the costs related to Sequestration in South Africa, providing detailed examples to help you understand the costs and processes.

What is Sequestration?

Sequestration is the legal action of declaring a person insolvent, meaning they can no longer meet their debt obligations. This procedure is governed by the Insolvency Act of 1936.

There are two types of Voluntary Sequestration: Sequestration using cash or sequestration using assets.

• With Cash Sequestration, a Sequestration Order cannot be obtained until the full cash value of the Sequestrations costs are paid. This type of Sequestration usually applies to individuals who do not have assets but still want to benefit from this solution.

• With Asset Sequestration there are assets that stand as security for the sequestration costs while you pay the fee off over a negotiated period – usually 18-24 months.  The assets, which are usually household contents or paid off vehicles, are not removed from your possession. They simply stand as security while you pay the costs off. With this option the attorney can obtain the Sequestration Order, even though the fee is paid off over a longer period.

The cost to Sequestrate can vary and is based on various factors and fees

Sequestration costs in South Africa

While there are guidelines for the fees associated with sequestration in the Insolvency Act, costs can still differ. However, the benefit or percentage to the Credit Providers does not differ in South Africa. Credit Providers will receive an average of 20 cents on the rand. Where costs do differ are the legal fees involved in bringing the application to court and legal costs can differ based on various factors.

As an example, if an attorney gives you a quote to write off 60% of your debt, it means that of the remaining 40% will go to the Credit Providers and Fees. Namely, 20% will go the Credit Providers and the 20% to legal costs.

In contrast, if 75% of the debt is written off then the Credit Provider will still get 20%, but now the legal costs are only 5% of the total cost to Sequestrate.

Why the difference? It simply depends on the attorney you use and their relationships with the various Service Providers in the process i.e. valuator’s, trustees, advertisers and miscellaneous expenses. An attorney that has been practising for 20 years has built up dedicated and loyal relationships with Service Providers who offer better fees due to the volume of business they receive from that attorney.

Here are the various fees that will affect the cost of sequestration:

1. Valuator’s Fees

2. Legal Costs - Administrative and Attorney Fees

3. Advertising Costs – Notice in the Government Gazette and Local Newspaper

4. Court Fees

5. Percentage paid to the Credit Providers called the “benefit” to the Credit Providers

6. The Trustee's fees

7. Bond of Security - insurance paid to the Master of the Court.

8. Corresponding Attorney - Attorneys used in other provinces

9. Miscellaneous costs.

1. Valuator’s Fees

If you are proceeding with Asset Sequestration then a valuator is appointed to write up assets to the value of the sequestration costs. This report is provided to the courts to prove that you have enough assets to cover costs, while you pay the costs off.

On average, valuator fees can range from R3,000 to R10,000. Factors that determine the costs are the valuator used and also the number of assets that are required to be valuated and reported.

2. Legal Fees

One of the main costs of sequestration is legal fees. Hiring a knowledgeable attorney is essential to navigate the complexities of the process.

On average, legal fees can range from R8,000 to R20,000. Factors such as the case's complexity and the lawyer's expertise can influence these costs. For instance, if you own multiple properties or face disputes with several credit providers, your fees may be on the higher end.

3. Advertising Costs

Notice of the application for sequestration is published in the Government Gazette and in a local newspaper. This requirement adds another cost, with advertising fees typically costing between R500 and R1,500. The final price will depend on the newspaper chosen and how long the notice must run.

4. Court Fees

Filing for sequestration comes with court fees related to submitting required documents. These costs usually range from R1,500 to R3,000. these fees can vary based on the court's location and any unique case circumstances.

5. Benefit to the Credit Providers

In a sequestration process, the primary advantage for Credit Providers is getting a fair and well-organised distribution of the debtor's assets or cash payment, which is overseen by a Trustee. By guaranteeing that each participating Credit Provider receives a share of their debt this process offers transparency in contrast to the disorganised pursuit through collection agencies – which often yields poor results and is costly. It produces a more predictable and controllable result than no recovery at all, even though a sizable amount of the debt is written off (typically 60–75 percent).

On average a Credit Provider will receive 20 cents for every rand you owe. So, if the write off value of your debt is 75% it means that the Credit Provider will receive 20% and the legal costs are 5% of that total. In contract to some attorneys that will write off only 60% of your debt. This means that 20% is paid to the Credit Providers and the remaining 20% to legal costs.

6. Trustee Fees

Once the court has granted the Sequestration Order, a trustee will be appointed to manage the payment to Credit Providers. This professional will handle selling assets and ensure that debts are settled correctly. They are also responsible for generating a report which must be confirmed by the Master of the Court. This report is called a Liquidation and Distribution Account.

Trustee fees are typically calculated as a percentage of the estate's total value, usually between 3% and 6%. For example, if your estate is valued at R200,000, your trustee fees could fall between R6000 and R12,000.

7. Bond of Security

A Bond of Security is a form of insurance that is issued by a registered insurer and paid to the Master of the High Court in the event that an appointed Trustee does not properly administer an estate or trust. In the event that the appointed administrator fails in their duties, the Master of the High Court can call on the bond to recover any damages that result from the failure, thus protecting the assets of the estate and its beneficiaries.

This insurance cost is based on the assets and cost of the sequestration.

8. Corresponding Attorney

If you use an attorney in a different province to the one you live in then there will also be an additional cost to employ a corresponding attorney to bring the sequestration application in your jurisdiction i.e. a High Court in your Province.

A corresponding attorney can cost an additional R3,500.00 to R20,000.00 depending on the attorney used.

9. Miscellaneous Costs

Other expenses may arise during the sequestration process. For instance, obtaining credit reports, undergoing financial assessments, or having additional legal consultations can all add up. Generally, these miscellaneous costs can range from R1,000 to R5,000. Being aware of these potential expenses will help you create a solid financial plan.

Final Thoughts

Sequestration may provide a way out for those facing overwhelming debts, but understanding the related costs is crucial. Before making a decision, weigh your options and discuss your situation with knowledgeable professionals. This will empower you to take control of your financial future and make informed choices suitable for your needs. Read more about if sequestration is right for you or how to apply for sequestration.

To get a proper quote on the cost of sequestration in South Africa, an insolvency practitioner must assess your situation beforehand. We highly recommend consulting with one of our experienced insolvency practitioners. At Solvendi, we focus on giving our clients our full attention and providing a cost effective sequestration. Our assessments and consultations are free of charge. The total cost to sequestrate will be between 25-35% of the combined outstanding debt with 65-75% of your debt being written off. So as an example, if your total outstanding debt is R200,000 then it will cost R50,000 at a minimum and R70,000 as a maximum to sequestrate. There are no other out of pocket costs. This means that R120,000.00 to R150,000.00 of your debt is written off and your monthly installment over 18 months is as little as R2,780.

Disclaimer: This article is intended for general informational purposes only and should not be interpreted as legal advice. Any actions taken based on the information provided are done so at your own discretion. Solvendi cannot be held liable for any outcomes resulting from such actions. We encourage you to consult with us directly before making decisions solely based on the content of this article.

Considering Voluntary Sequestration? We have legal experts with 20 years experience that can guide you through the process. Our main aim is to be as informative as possible. Let's Chat.

If you require advice with regards to Sequestration, Business Liquidations, Insolvency, Bankruptcy or Credit Rehabilitation kindly contact SOLVENDI as follows:

National: 087 220 0710

Head Office: 010 880 7589

Email: consultations@solvendi.co.za 

Website: www.solvendi.co.za