Debt Erazer
The purpose of sequestration
Is to ensure the orderly and equitable distribution of a debtor’s assets, where they are insufficient to meet the claims of all creditors.
Sequestration allows you to start a new beginning without any debts. Where you cannot afford to pay your creditors, directly or via the debt review process, then sequestration may be your solution. Consumer’s looking to exit debt review or administration can also consider sequestration as an option.
Please Click Here for the Advantages and Disadvantages of Sequestration.
Voluntary Sequestration also known as ‘voluntary surrender’
Sequestration is governed by the Rules and Regulations set out in the Insolvency Act 24 of 1936. To be sequestrated the debtor has to be declared insolvent by the High Court. The legal definition of insolvency requires that the debtor’s liabilities, fairly estimated, exceed his assets, fairly valued. In other words, a debtor has to be bankrupt. And when he or she applies for sequestration it is in effect an application to be declared bankrupt and to gain protection from certain creditors.
Sequestration can be voluntary or compulsory. Voluntary surrender, as it is also known, means the debtor approaches the court without being forced to do so, while compulsory sequestration occurs when one of the creditors approaches the court, to declare the debtor insolvent and to separate the debtor’s estate from him or her in order to secure the creditor’s claim.
The sequestration process is designed for the benefit of the creditors to ensure they at least get something meaningful back for the credit they extended. The courts have ruled that the minimum threshold should be that the realisation of an insolvent’s assets should equal at least 20 percent of the debt due, so creditors may receive at least 20 cents for each Rand of debt owed to them. This is known as the dividend from the proceeds of realisation of the estate’s assets. This dividend can be paid either by the sale of any movable or immovable assets that you may have or it may be paid via a once off cash payment or a cash payment that is spread over a period of several months.
Once the court determines that the debtor’s assets are insufficient to pay all his debts in full, he or she is declared insolvent. The court then determines whether the value of the insolvent’s estate is sufficient to meet the minimum criteria for sequestration. If the court is satisfied it will grant a sequestration order against the debtor.
The sequestration order serves to separate the debtor from his or her assets. One may even say the court seizes the property or estate of the debtor. The debtor’s estate or assets are then handed over to the Master of the High Court. The Master appoints a trustee for the estate and this trustee oversees the disposition of the debtor’s estate, which effectively means the trustee sees to it that the assets in the estate are disposed of in order to realise capital with which to pay the debtor’s creditors.