The sequestration process in South Africa: In South Africa, the only way to write off debts is through the sequestration process. This technique is ideal if you're drowning in debt.
If you want to learn more about insolvency and how you can benefit from it, continue reading.
What is the meaning of 'Sequestration in South Africa'?
If a trust or person(s) is unable to service their monthly obligations, they can follow the sequestration process to get the debt written off. In accordance with the Insolvency Act, this can be done in two different ways.
Namely:
(1) Voluntary sequestration; or
(2) Compulsory sequestration.
Sequestration in South Africa -
How does it work an what is the advantages and disadvantages of the sequestration process?
When applying for voluntary sequestration, the over-indebted person(s) or trust brings a surrender of estate application to the High Court, proving to the court that they're unable to service their monthly obligations.
The applicant will need to prove to the court that it will be in the best interest of the creditors if the estate is declared bankrupt.
Once the application is granted, the master of the high court will appoint a curator, and they will take control of the insolvent estate.
The debts are written off, and because there's no more worry about the debts, the applicant will be in a better position to make better financial choices in the future.
Compulsory Sequestration - is very similar but have very clear differences:
A friendly sequestration is a lot like voluntary sequestration, but with one big difference. The applicant in the application is not the over-indebted person(s) or trust but a creditor to whom a debt is owed.
The creditor needs to prove to the court that it is to the benefit of all creditors to grant the application for sequestration to ensure that one creditor doesn't benefit above the other.
In terms of the Insolvency Act, an amount of only R200.00 must be owed to continue with forced sequestration. However, the courts won't entertain an application if the debt that is owed is this little.
A compulsory sequestration in South Africa tends to be a hostile process, and even though the debtor can oppose the matter, it is a lengthy and costly application.
What is the difference between sequestration and liquidation?
Liquidation applies to businesses registered with the Companies and Intellectual Property Commission (CIPC).
In both instances, the debt is written off.
Which South African laws govern the bankruptcy proceedings?
However, when it comes to declaring a business bankrupt, not only the Insolvency Act applies but also the Companies Act. If there're any employees still employed by the liquidated company, the
Labour Relations Act will need to be taken into consideration as well, during the liquidation process.
The consequences of sequestration are not only beneficial, but as with everything in life, there are also some disadvantages that you need to consider when contemplating the sequestration process in South Africa.
In South Africa, one of the biggest benefits of the sequestration process is that debt is written off. On a case-by-case basis, you can write off as much as 90% of your debts. However, it will depend on your specific situation.
The process will have a negative impact on your credit profile, and legally, you'll remain insolvent until you apply for rehabilitation after insolvency. Alternatively, you could wait for ten years until statutory rehabilitation after sequestration occurs.
One of the downsides of the sequestration process is that an insolvent party cannot serve as a director of a company or a member of a close corporation. The
South African Revenue Service (SARS) and credit bureaus will document and record the change in legal status from solvent to insolvent.
And last but not least, an insolvent in South Africa will be unable to obtain credit, and certain employers prohibit the employment of insolvents. This is not usually a concern unless you work in the financial sector.
For more information, contact Cure Debt. Your Insolvency Specialist.
