Understanding the Sequestration process in South Africa: A lifeline for Debtors and Creditors

At the same time, it provides much needed relief for the debtor from crippling financial burdens. The process can be initiated in two ways: voluntary surrender by the debtor or compulsory sequestration by the creditors.

Voluntary Surrender

For individuals who realize they can no longer meet their financial obligations, voluntary surrender provides a way out. It allows a debtor to proactively approach the court, seeking relief by declaring their estate insolvent. 

However, this option comes with strict procedural steps that must be followed carefully.

1. Notice to creditors and the public

• The applicant is required no more than 30 days and no less than 14 days before the date of the application publish a notice of a surrender in the Government Gazette and in a newspaper circulating in the magisterial district where he or she resides

2. Copy of the Notice to all known address

• The debtor must send a copy of the Notice to all known addresses of possible creditors within seven days from the date of publication of the Notice of surrender. The debtor must further within the seven day period furnish a copy of the Notice to the South African Revenue Service and every registered trade union that to the applicant’s knowledge.

3. Statement of affairs

• The debtor is required to provide a comprehensive statement of affairs in accordance with Form B outlining their assets and liabilities. This document, which is sworn under oath, provides a transparent view of the debtor’s financial situation. It must lie open for inspection for fourteen days from the date of Notice of Surrender at the Master’s Office.

Compulsory sequestration

When a debtor fails to meet their financial obligations, creditors may initiate compulsory sequestration. Unlike voluntary surrender, this process is driven by creditors looking to recover debts by liquidating the debtor’s assets. 

The steps involved are similar to voluntary surrender but with some key distinctions:

1. Notice to the debtor

• Creditors must serve the debtor with a formal notice of the sequestration application. This ensures that the debtor is fully aware of the legal proceedings initiated against them.

2. Court Application

• The creditor applies to the court using a prescribed notice Form 2a to have the debtor’s estate sequestrated.

In both voluntary and compulsory sequestration cases, the court’s role is pivotal. It must decide whether sequestration will benefit the creditors.

What happens after sequestration?

Once the court grants a sequestration order, several key developments take place:

1. Stay of sales in execution

• All sales of the debtor’s assets aimed at satisfying judgement debts are halted. This ensures that the sequestration process is orderly and that assets are distributed fairly among creditors.

2. Appointment of a curator

• A curator bonis may be appointed to manage the debtor’s estate temporarily, safeguarding assets until the process is finalized.

3. Suspension of legal proceedings

• Any ongoing legal actions against the debtor are paused, and control of the estate passes to a trustee appointed by the court.

Sequestration offers a way out for those trapped in unmanageable debt, while also ensuring creditors are treated fairly. Whether through voluntary surrender or compulsory sequestration, the process is designed to protect the interests of all parties involved.

If you find yourself considering sequestration, or if you are a creditor seeking to initiate the process. Feel free to reach out to us for assistance.

The content does not constitute legal advice, are not intended to be a substitute for legal advice and should not be relied upon as such. Kindly contact us on info@cklaw.co.za or 021 556 9864 to speak to one of our attorneys.