NEWSLETTER – JUNE 2009
Member of the phatshoane henney group of associated firms.
GEORGE: CAPE TOWN:
TEL: 044 874 1140 TEL: 021 421 6999
FAX: 044 873 4848 FAX: 021 418 2747
SEQUESTRATION OF INDIVIDUALS
Prepared by Lizelle Acker, Candidate Attorney (Cape Town) and Uys Fourie, Candidate
(Any reference to “his” also intends to mean “her”)
Anyone can apply for the sequestration of a debtor (or of himself) if the debtor owes R100.00
or more; where the debtor committed an act of insolvency (i.e. admitted that s/he cannot pay
the debt) or if there is any proper reason to believe that it is to the advantage of creditors of
the debtor if his/her estate is sequestrated – i.e., where a creditor’s position is such that there
is no reasonable prospect that the situation will improve, but will only continue worsening.
A creditor who initiates sequestration must do so on its own account until a Trustee is
appointed. For this reason, security must be given to the Master of the High Court for the
payment of all fees and costs which will accrue out of the sequestration until a Trustee is
appointed or if a Trustee is not appointed, for all fees and costs which will be incurred due to
the sequestration. So it is very important to at least try to ensure that if you want to
sequestrate someone, that person at least has enough assets with enough value, to cover the
costs of the sequestration process.
Always keep in mind, the new National Credit Act. According to section 88, a consumer may
apply to a debt counsellor to have the consumer declared over-indebted. Section 88 (3) states
that a credit provider may then not exercise or enforce by litigation or other judicial process
(which will include steps to sequestrate) any right or security under that credit agreement,
until the consumer is in default of any obligation in terms of a re-arrangement agreed between
the consumer and credit providers, or unless ordered by a court or the Credit Tribunal.
What are the consequences of sequestration?
Sequestration (in a nutshell) means that all the assets a person has (save for essentials to live
or carry on with a trade to enable him to still earn an income) will be sold in an attempt to
raise money, with which all “liquidated” debts which the insolvent had as at date of
insolvency, will be settled - albeit only partially. In all cases it means that the person’s
liabilities exceeded his assets as at date of sequestration, with the result, that creditors are
paid a ‘dividend’ in every rand. As such, an insolvent’s debts will in effect only be partially
settled, but with the purpose of allowing the insolvent to ‘start on a clean slate’.
When a person is sequestrated a Trustee is appointed to manage his affairs and take care of
his sequestrated estate, and to pay creditors whatever amount is available, once all available
assets have been sold in auction. The amounts that are raised by way of public auction are
then paid out in order of preference – i.e. secured claims (i.e. banks who have mortgage bonds
over property for example) or certain organs of state (such as local municipalities who are
entitled to arrear rates and taxes on property) will have ‘preferent’ claims, and only if and
when these claims are settled in full (from the proceeds of sales of the assets), will the balance
of unsecured (so-called ‘concurrent’) creditors have a bite of the cherry - or rather, of what
remains, if anything. If nothing remains, then those unsecured claimants will walk away with
nothing. This is the harsh reality of sequestration.
A person who has been sequestrated may sue or may be sued in his own name without
reference to the Trustee of his estate in any matter relating to status (such as divorce) or any
other right in so far as it does not affect his estate. He may also recover any compensation for
any loss or damage which he may have suffered, whether before or after the sequestration of
his estate, by reason of any defamation or personal injury, however he may not, without the
leave of the court, institute an action against the Trustee of his estate on the ground of
malicious prosecution or defamation.
Claims for damages, (where the amount being sued for is denied and needs to be proved first)
which had been instituted against an insolvent natural person before he was declared
insolvent, and before judgment was pronounced, will not be affected by his insolvency. Any
judgment for a debt (where liability was denied), which is obtained after sequestration,
remains enforceable in full, and does not form part of his insolvent estate. However, any
judgment, which was pronounced against him, prior to sequestration, will form part of his
Any claim for any damages or ANY money owing, where the “cause of action” arises after the
date of sequestration, is also not affected by the insolvent’s status as an “un-rehabilitated”
insolvent. i.e., he can still be sued then in his own right.
What about debtors who sell off assets in anticipation of sequestration, to avoid
creditors, or to favour one creditor above the other?
Section 29 of the Insolvency Act states that every disposition of his property made by a debtor
not more than six months before the sequestration of his estate or, if he is deceased and his
estate is insolvent, before his death, which had the effect of ‘preferring one of his creditors
above another’, may be set aside by the Court, if, immediately after the making of such
disposition, it can be shown that the liabilities of the debtor then exceeded the value of his
assets: Unless the person in whose favour the disposition was made, can prove that the
disposition was made in the ordinary course of business and that it was not intended thereby,
to prefer one creditor above another. The Trustee of the insolvent’s estate will have to decide
whether not to pursue such claims.
The mere fact that a person has been sequestrated doesn't have any effect on the validity of a
contract signed by him, unless it is a contract where the insolvent is trying to dispose his/her
assets. A person under sequestration must however have the consent of his Trustee before
signing any contract, which will result in any debt being incurred by him.
How long does the sword of insolvency hang over an insolvent’s neck?
Automatic ‘rehabilitation’ takes place after 10 years of date of sequestration. If an insolvent
wants to apply for rehabilitation before 10 years have gone by, the most common situation is
the following: An insolvent may apply for rehabilitation at any time after sequestration if he
can obtain a certificate from the Master of the High Court of the area where he was
sequestrated, which states that the creditors accepted an offer of settlement and where
payment has been made in full (of the sum offered and accepted), or for which security of
payment has been set, for not less than 50c in every rand that was due on date of
sequestration, SUBJECT THERETO THAT if an insolvent has been sequestrated before, 3
years must however run before he may apply for sequestration. So too, if the insolvent was
found guilty of a fraudulent act with regards to the sequestration of his estate, he can only
apply for rehabilitation after 5 years.
Effects of insolvency on one’s Spouse:
Out of community of property
When spouses are married out of community of property there are two separate estates. If one
of the spouses becomes insolvent, it is only that estate that is insolvent and not the estate of
the other spouse. That said, when an application is brought to sequestrate one spouse, the
other spouse is also cited as a Second Respondent and that spouse’s assets are also ‘frozen’
and control over that spouse’s estate also vests in the Trustee. The main reason behind this is
to ensure that no assets are disposed of until it can be established whom the assets actually
Unless the Trustee is satisfied that a spouse has been able to prove separate ownership, (in
which event those assets may be released), the ‘solvent’ spouse must approach the court by
way of a notice of motion with a supporting affidavit, with full particulars regarding the assets
that are being claimed, with details of any serious prejudice which it is alleged will be suffered
as well as the arrangements which the solvent spouse intends making to safeguard the
interest of the insolvent spouse. This may include any asset, which was the property of that
spouse immediately before her or his marriage; which was acquired under a marriage
settlement or which was acquired by that spouse during the marriage with the insolvent by a
title valid, as against creditors of the insolvent.
In community of property:
Where the parties are married in community of property the joint estate of the spouses get
sequestrated and both parties are sequestrated. It is therefore impossible for only one spouse
to be declared insolvent if he is married in community of property. This is the biggest risk
when marrying in community of property – the ship goes down completely...