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Are you facing financial difficulty? Find out here how a sequestration can benefit you!

Are you having sleepless nights worrying about how you will be able to make payment to your creditors? Are you avoiding answering your phone for fear of speaking to loan sharks, debt collectors, or maybe even the sheriff?  Not able to concentrate on earning an income or moving forward with your life because of financial restraints? Read this article to find out if sequestration is an option for you.   
Broadly speaking, being “insolvent” means that your liabilities exceed your assets.  Should you find yourself in this unfortunate situation, you can make an application to the high court, with the necessary jurisdiction, for the voluntary surrender of your estate, provided that you meet certain requirements:  You need to have enough realisable assets (or cash) to pay the administration costs in respect of your sequestration and at least 20 cents in the Rand to defray creditors.
If the court is satisfied that:
1.              there are enough funds in your estate to cover the administration costs;
2.              the sequestration will be to the benefit of your creditors;  and
3.              you are indeed insolvent;
the court may grant a sequestration order.  The latter is a formal declaration that a debtor – the Applicant - is insolvent.  
Having been declared insolvent entails that the insolvent’s estate, consisting of assets and liabilities, be placed in the hands of a trustee.  The trustee will then administer the insolvent’s estate by reducing all the assets to cash and by distributing the proceeds amongst the insolvent’s creditors (in order of preference). 
What happens if there are not enough funds to pay the creditors?
Not all your creditors, as listed in your application for voluntary surrender, will necessarily lodge a claim against your (insolvent) estate and consequently, if they do not lodge a claim, they will not be paid by your trustee.  Here it is necessary to differentiate between the different types of creditors.   There are three types of creditors:
1.              Preferential creditors – these are creditors who are entitled to get paid before other creditors. For example, South African Revenue Services;
2.              Secured creditors – these are creditors whose claims are secured by means of a bond, a tacit hypothec, pledge or lien.  They are second in line to get paid by the trustee, after preferential creditors. For example, bondholder.
3.              Concurrent creditors – these are creditors who are not preferential or secured and they stand last in the line of getting paid by the trustee. For example, credit cards, personal loans, etc.
If there is a shortfall in your estate, in other words; not enough funds to pay the administrative costs of your voluntary surrender then, and in that event, the proven concurrent creditors will need to each make a payment towards the insolvent estate in respect of the administration costs.  This may very well be the reason why concurrent creditors will think twice before they lodge a claim against an insolvent estate.
For an in-depth discussion on sequestration contact our office for a consultation.
Written by Talita Erasmus – a practising attorney at Alan José Incorporated.


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