TYPES OF SEQUESTRATION
There are various forms of sequestration in South African Law. By far the most popular form of sequestration for individuals is an application for the voluntary surrender of estate.
Sequestration is governed by South African legislation, more specifically the Insolvency Act 24 of 1936.
FORCED SEQUESTRATION
A creditor of an individual can apply for forced sequestration. The creditor needs to show that such creditor has a claim which entitles him/her to apply for sequestration of the debtor’s estate, that the debtor is actually insolvent, or the debtor has committed an act of insolvency. It must further be indicated that there is reason to believe that it will be to the advantage of the creditors if the debtor’s estate is sequestrated.
The proceedings are initiated by the creditor in issuing an application for sequestration.
If the court is satisfied that the creditor has proved his case a provisional sequestration order will be issued. The provisional sequestration order will have a return date and must be served by the sheriff.
The provisional sequestration order is an interim order, until the court finally decides on the facts contained in the relevant application.
The court will, in the absence of proof that the estate is solvent, issue a final sequestration order.
FRIENDLY SEQUESTRATION
A debtor can have his estate sequestrated by an amicable creditor. An example of a friendly sequestration is where a friend to whom the debtor owes a debt, and whom he is unable to pay applies for the compulsory sequestration of the debtor on the basis that the debtor has committed an act of insolvency.
An application for forced sequestration brought by a creditor who is not at arm’s length is generally referred to as “friendly” sequestration.
The South African courts are however wary that where a debtor and creditor in sequestration proceedings are not at arm’s length, there is considerable potential for collusion and malpractice.
The courts scrutinise every friendly sequestration with particular care to ensure that the requirements of the Insolvency Act are not undermined, and that the interests of creditors are not prejudiced.
VOLUNTARY SURRENDER
An individual can apply for the sequestration of his/her estate for the benefit of creditors. This is referred to a “voluntary surrender” of the estate and the most popular form of debt relief for an overburdened debtor.
A court may accept the surrender if the debtor proves, among other things, that his liabilities exceed his assets.
The debtor’s aim in surrendering the estate is, as a rule, to escape a financial position which has become intolerable.
Voluntary surrender was primarily designed for the benefit of creditors, and not for the relief of harassed debtors.
The court therefore considers various factors in having such an order granted including the fact that the surrender will be to the advantage of creditors.
