Advantages of Sequestration

Debts are in effect reduced to what is referred to as the dividend, and the insolvent only pays what value his or her estate can realise.

 

Creditors have to prove their claims with the Master of the High Court, or the appointed trustee, which means that the insolvent may be able to reclaim some of his or her assets, where a claim is not proven.

Any on-going legal proceedings for debt must stop immediately and once the notice of surrender of your estate is published, any assets that have been attached under a writ of execution cannot be sold. This also means that any harassment for unpaid debt will stop, because the threat of legal action becomes toothless.

Emolument attachment orders, better known as garnishee orders against your salary must stop.

Certain assets may be returned to the insolvent’s possession, where these are essential to his or her ability to make a living. Thus, assets that are essential to the insolvent’s trade may be recovered.

Disadvantages of Sequestration

Immovable property or any vehicle may have to be sold to pay creditors.

 

An insolvent’s credit record is negatively affected, in that the sequestration is recorded on his or her credit records for a mandatory period of 10 years. Thus, the insolvent will not be able to obtain credit during this time.

 To come out of sequestration, a rehabilitation application has to be made to the High Court, which granted the sequestration in the first instance. Certain limits apply as to when and how an insolvent can apply for rehabilitation. Click here for more about rehabilitation

An insolvent is prohibited from holding certain positions, carrying certain types of business and bearing office, until such time as a rehabilitation order is granted by the High Court.

 

Concequences of Sequestration

Sequestration stems from the debtor being declared insolvent. An insolvent is restricted from obtaining credit, he or she is regarded as not fit to hold certain official positions, is barred from entering certain contracts, and cannot follow certain vocations.

 

Once a sequestration order is granted, all civil debt legal proceedings against the debtor must seize. This means that any judgments taken against the debtor for debt, become null and void, including those that enforce emolument attachment orders.

The claims of all creditors are treated as one, creating what is legally known as a concursus creditorium, or a ‘coming together of creditors’ and no creditor is allowed to pursue any claims against the debtor where it may negatively affect the claims of other creditors.

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A creditor’s right to recover a debt in full is restricted and replaced by the right to prove a claim against the insolvent’s estate, in order to share with all other creditors, the proceeds of realisation of the insolvent estate’s assets. In other words, creditors are only allowed to claim portions of the entire estate’s value and not the entire debt owed to them. The portion that each creditor is allowed to claim, is governed by a pecking order of creditors, which ensures that the distribution is equitable and fair to all creditors.