How to Apply for Sequestration in South Africa: A Complete Guide

Sequestration in South Africa is a legal process that allows individuals who are unable to pay their debts to be declared insolvent. When you apply for sequestration, you essentially request the court to write off a large portion of your financial estate. In general 65-75% is written off and the remaining percentage (25-35%) and be paid off over a negotiated period. Debt includes personal loans, credit cards, credit facilities, SARS, school fees, student loans, medical debt and other debt like shortfalls on repossessed assets.

In this article, we talk about how you can apply for sequestration in South Africa.

Sequestration remains a lawful and beneficial remedy for over-indebted individuals in South Africa.

Understanding Sequestration in South Africa

In South Africa, sequestration is governed by the Insolvency Act 24 of 1936.

There are two main types of sequestration: Voluntary Surrender (also known as Voluntary Sequestration) and Compulsory Sequestration (also known as Forced Sequestration). The basic idea is essentially the same. The difference between the two is which party applies for Sequestration.

When a Debtor, or individual, applies for Sequestration voluntarily, they initiate the process by admitting their insolvency. Compulsory Sequestration, on the other hand, is established by a Creditor who proves to the court that the Debtor is insolvent and unable to pay their debts. For a complete framework on Compulsory Sequestration, refer to Section 9(1) of the Insolvency Act.

To apply for Sequestration in South Africa, you must prove that your liabilities (debt) exceed your assets and that there will be some benefit to your Creditors (25-35%). One of the most critical requirements is demonstrating that Creditors will receive a minimum dividend, commonly 20 cents per Rand that you owe (refer to Section 10 of the Insolvency Act). In other words at least R20,000.00 for every R100,000.00 owed.

In this article, we will focus on Voluntary Surrender or Voluntary Sequestration.

Steps to Apply for Sequestration in South Africa

The first step in the process is to consult an insolvency attorney who specialises in this field. Because the legal requirements and procedural steps are strict and time-sensitive, professional assistance is essential.

Consultation and Assessment

This is where we come in. To understand your situation, you will first talk to our registered insolvency lawyers. Once we determine that you are a suitable candidate for sequestration, we will assist you in drafting the necessary documents.

Statement of Affairs and Founding Affidavit

After an assessment of your financial situation, we will draft a Statement of Affairs, which outlines all your liabilities, and other financial details.

Furthermore, there is a Founding Statement, an affidavit that we must submit along with your Statement of Affairs. This document marks your financial circumstances, motivation for seeking sequestration, and other legal aspects.

Sequestration provides legal protection from Creditors

Document Verification, Signature, and Notifying Creditors

Once the above documents are verified and completed, you will have to sign these documents in front of a Commissioner of Oaths.

We will then submit the application, on your behalf, to the Master of the High Court and other relevant authorities such as SARS. We will also handle the communication with your Creditors.

As part of the process, we publish notice of the Voluntary Surrender in the Government Gazette. The notification will also include a court date and is required as part of an official notice to all Creditors.

Once this notice is placed, all payments to Creditors will cease. You will receive legal protection against any actions from Creditors.

Court Hearing

Once these procedural requirements are satisfied, your attorney will bring an application to the High Court. The court will examine your financial situation, the benefit to Creditors, and the compliance with statutory requirements. If satisfied, the court will issue a Sequestration Order (refer to Section 10 of the Insolvency Act).

The process does not end here. Trustees are then appointed to finalise the claims from Creditors.

A Liquidation and Distribution account is submitted to the Master of The High Court once these claims are finalised. This is basically a Financial Statement closing off the Voluntary Surrender of your debt. Sequestration is finalised once the Master of the High Court confirms the Liquidation and Distribution account.

After the Sequestration Order

You qualify for Credit Rehabilitation once the Master of the Court confirms the Liquidation and Distribution account.

In South Africa, rehabilitation can occur automatically after ten years or through an early rehabilitation order after 48 months from the date of the court order. Early rehabilitation will incur a legal fee to rescind the Sequestration Order. Rehabilitation restores your legal status and allows you to engage in normal financial activities once again.

Should You Apply for Sequestration in South Africa?

The decision to apply for sequestration in South Africa should not be taken lightly and is typically used as a debt solution after you have tried Debt Review, or if you are more than 12 months in arrears with debt.

It also affects your credit status for 48 months or until Credit Rehabilitation is granted. However, it would have taken you much longer to become credit worthy if you were unable to repay the original debt and were unaware of Sequestration as a debt solution. Sequestration provides you with a clean slate within 48 months and breathes new life into your financial journey.

Before you apply, make sure to get a comprehensive financial assessment and explore all available alternatives. If no other viable options exist, Sequestration remains a lawful and potentially beneficial remedy for over-indebted individuals in South Africa.

For more information on Sequestration or Credit Rehabilitation, we encourage you to contact us for an in-depth assessment of your situation.

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, Voluntary Surrender, 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