The sequestration process involves a court application. The applicant in the application is either yourself for your own sequestration (voluntary surrender) or the applicant is one of your creditors (either a friendly or aggressive creditor). The applications are similar and although there are some different requirements for each, the result is the same.
Voluntary surrender refers to the process whereby a natural person can make an application to place him/herself under an order for sequestration.
A person is insolvent if his/her liabilities exceed their assets. In such a case he/she can apply for voluntary surrender of their estate. Anybody can apply for voluntary surrender at any stage as soon as he/she is insolvent, even if they have been or are under debt counselling, for example.
The person who wants to sequestrate him/herself, will depose to an affidavit which explains why he/she claims to be insolvent. This will be drafted by the attorneys who will bring the application on behalf of the applicant. As soon as the affidavit is signed, the application will be issued at court and a court date is assigned. The applicant does not have to appear in court because the advocate appears on his/her behalf.
If the court grants a provisional order on the first court date, the matter will be postponed for approximately one month. During that month, notice will be given to all creditors, and if on the return date no-one has opposed the application, the order will be finalised and the applicant’s estate will be sequestrated.
Applications are also made by way of a court application. However, in this case the applicant will be a creditor of the debtor. If it is a creditor with whom the debtor does not have a good relationship, it is referred to as an “aggressive” sequestration (the bank, for example).
However, the banks seldom bring sequestration applications against the average debtor as it is much cheaper and easier for them to follow the collection procedures: attach property and sell it and/or attach your salary.
If it is a creditor with whom the debtor has a good relationship, it is referred to as a “friendly” sequestration (for example a family member or a friend to whom you owe money).
Aggressive (“unfriendly”) sequestration
Where an unfriendly creditor brings a sequestration application against a debtor, it’s called an aggressive sequestration. It is also a forced sequestration as opposed to a voluntary surrender.
The creditor who brings the application must have established a claim against the debtor. In other words, the debtor must actually owe the creditor money. A second requirement is that there must also be a benefit to creditors. Thirdly, the debtor must have committed an act of insolvency.
If a creditor brings an aggressive application against a debtor, the debtor can oppose such an application if he/she is not insolvent or if there is another reason why the order should not be granted.
Process for “unfriendly” and “friendly” sequestrations
The process for both these applications is the same and it is only the applicant that differs.
As with voluntary surrender, an affidavit will be given by the creditor to explain why he avows that the debtor owes him/her money. He/she will attach proof thereof (contract/statement) and also proof that the debtor has committed an act of insolvency (where the debtor has written a letter to say that he/she cannot pay the debt). In both instances the applicant must prove that there will be a benefit to creditors to have the debtor sequestrated.
Once the affidavit has been signed, the necessary documentation will be drafted, issued at court and a court date assigned. As soon as this is done, the documents will be served on the debtor, employees of the debtor, Master of the High Court and the South African Revenue Services by the sheriff. The provisional order should also be given to all creditors above R5 000 by way of registered post. If the application is not opposed, a final order will be made for the sequestration of the debtor/applicant.
This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Please feel free to contact Brian Kahn for further information or specific and detailed advice. Errors and omissions excepted (E&OE)