Sequestration in South Africa: Voluntary and Compulsory

Sequestration is the process by which a person’s estate is declared insolvent and placed under the control of a trustee, who sells the assets and distributes the proceeds among creditors. It is governed by the Insolvency Act 24 of 1936 and applies to individuals (companies undergo liquidation instead).

Voluntary surrender

A debtor may apply to court to surrender their own estate. This is called voluntary surrender. The debtor must show that they are insolvent (liabilities exceed assets), that there will be an advantage to creditors, and that there are enough assets to cover the costs of sequestration. The application must be advertised in the Government Gazette and a local newspaper.

Compulsory sequestration

A creditor who is owed money may apply to have a debtor’s estate sequestrated. The creditor must prove a claim, show that the debtor has committed an “act of insolvency” (such as failing to satisfy a court judgment) or is actually insolvent, and demonstrate advantage to creditors.

The advantage-to-creditors test

In both routes, the court must be satisfied that sequestration will benefit creditors — meaning they are likely to receive a meaningful dividend. This is a central requirement, and applications often fail where there are too few assets to make sequestration worthwhile for creditors.

Consequences of sequestration

• A trustee is appointed to take control of and sell the insolvent’s assets.
• The insolvent loses the capacity to enter into certain contracts and may not hold specific positions, such as company director, without consent.
• Certain assets and income needed for basic living may be protected.
• The insolvency is recorded and affects the person’s credit standing.

Rehabilitation

An insolvent can apply for rehabilitation, which ends the sequestration and restores their normal legal status. Rehabilitation can be applied for after a set period (often four years from sequestration, or sooner in some circumstances) or automatically after ten years.

Sequestration is a serious step with lasting consequences, but it can also provide a fresh start by writing off unmanageable debt. Because the requirements are technical, these applications are almost always handled by attorneys.