Sequestration & Rehabilitation

Three things have to be shown before a court will accept the surrender of your estate. That your estate is in fact insolvent. That you own property that can be sold for enough to cover the costs of the sequestration itself. And that sequestration will be to the advantage of your creditors.

That third requirement is the one that catches people, and it is harder in practice than it sounds. The court is not there to give the debtor a way out - it has to be satisfied that creditors will actually do better out of a sequestration than without one, and that comes down to the figures in your particular estate. It is also why having too little to your name can, oddly, be a bar.

Yes. That is compulsory sequestration, and it runs the other way round from a surrender. A creditor holding a liquidated claim applies to court, showing either that you have committed one of the acts of insolvency the Act lists or that you are in fact insolvent, and that there is reason to believe sequestration will benefit creditors.

The court grants a provisional order first, together with a rule calling on you to appear and show cause why the order should not be made final. That return day is your opportunity, and it is not a formality. If you have been served with a provisional order, come and see us before the return day rather than after it.

You need a straight answer, so: sequestration takes your estate out of your hands. Everything you own vests first in the Master and then in the trustee appointed to your estate. From that point the trustee, not you, decides what is sold and when.

Not everything goes. The Act excepts your clothing and bedding from the sale, along with as much of your household furniture, tools and other essential means of subsistence as the creditors allow you to keep, or the Master where no claim has been proved. You also keep as much of your earnings as the Master regards as necessary to support you and those who depend on you.

A bonded house is a different question. The bond does not fall away. The property is sold, and the proceeds go first to the cost of keeping and selling it, the trustee's fee on that sale, a share of the Master's fees and up to two years of arrear rates. What remains goes to the bank on its bond. If it does not cover what is owed, the shortfall becomes an ordinary claim in the estate and is discharged on rehabilitation. Where a sale to the bondholder can be arranged quickly, that is often the least destructive way through it - but that depends entirely on the numbers.

A financed vehicle works along much the same lines. What happens to a particular house or car turns on what is owed on it, what it is worth and who holds security over it. Bring the figures to the consultation - and read the next answer before you picture the lorry arriving.

In a voluntary surrender - the route where you approach the court yourself - the answer, in certain circumstances, is yes. And it is the part of sequestration almost nobody knows. Once your estate vests in the trustee, the trustee's task is to turn it into money for the creditors. The Act's default is a public auction, but it allows the creditors to direct that property be sold in another manner - and in that opening lives an agreement in terms of which you purchase your own assets back from the estate.

Here is why these agreements are, in practice, almost always achievable: they are better for the creditors too. Goods sold on auction seldom fetch anything near their value. And before the creditors see a cent of even that, the costs of realisation come off the proceeds - the Act says so in terms - and those costs are the whole parade: collecting the goods, transporting them, storing them, advertising the auction, finding premises to hold it, and the auctioneer's fees. A buy-back agreement makes every one of those costs disappear, and the price you pay arrives in the estate whole. The trustee is spared the hassle, the creditors receive more, and you keep your things. That is why we negotiate these agreements with confidence.

It works like this. The assets need not even be taken - your furniture stays exactly where it stands. The purchase price is payable in equal instalments over a period of between one and 24 months, and on the purchase amount there is no interest and there are no hidden costs, even over the full 24 months. What your assets would cost to buy back, and what the monthly instalment would be, is estimated at the first consultation.

This is the part almost nobody expects. Where spouses are not living apart under a judicial order of separation, sequestration of the one estate also vests the property of the solvent spouse in the trustee, as though it formed part of the sequestrated estate.

It is not lost. The trustee must release property the solvent spouse proves was theirs before the marriage, was acquired under a marriage settlement, was acquired during the marriage on a title valid against the insolvent's creditors, or was bought with any of those. But it has to be proved, and proving it is a great deal easier where the paperwork was kept. If you are married, bring your spouse and bring the documents.

They pull in opposite directions. Debt review keeps the debt and changes the payments: you apply through a debt counsellor to be declared over-indebted, and your obligations are re-arranged so that you carry on paying, usually over a longer period.

Sequestration ends the arrangement altogether. Your estate is surrendered, a trustee realises it, creditors are paid what the estate can pay, and the matter concludes with rehabilitation.

One practical limit worth knowing: debt review is not available in respect of a credit agreement where the credit provider has already taken enforcement steps under section 129 of the National Credit Act. Leaving it too late closes that door.

There is more than one route, and only one of them happens by itself.

Six months after sequestration, if no claim at all has been proved against your estate, your estate was not sequestrated before, and you have not been convicted of the offences the Act lists. Uncommon, because a creditor usually proves.

Around a year and a half to two years in practice. The Act permits an application twelve months after the Master confirms the first trustee's account - but it also provides that no such application will be granted before four years from the date of sequestration except on the recommendation of the Master. So the early route is real and it is used, but it turns on that recommendation.

Four years from sequestration, at which point the Master's recommendation is no longer needed.

At any time, once the Master has confirmed a plan of distribution that pays every proved claim in full, with interest and all the costs of sequestration.

Ten years, and this is the only one that is automatic. An insolvent not rehabilitated by a court within ten years of sequestration is deemed rehabilitated at the end of that period, unless a court orders otherwise before it expires.

Two things worth saying plainly. Rehabilitation is an application to court, not a form you submit - notice must be given and security furnished to the registrar three weeks beforehand. And you have no right to it. The court has a wide discretion and will look at how you conducted yourself, so full and frank disclosure matters. Which route fits you is a conversation for the consultation.

Notice of a sequestration is published in the Government Gazette, so it is a matter of public record rather than a private arrangement. Whether your employer in fact sees it is another question.

Some occupations carry their own consequences on insolvency. If your work touches trust money, financial services or a professional register, raise it at the first consultation rather than after the application has been brought.

Roughly one to four months to obtain the order. Most of that variation is the court roll - how soon a date becomes available for the matter to be heard.

That is the order, not the end of it. The trustee's administration of the estate, the liquidation account and the plan of distribution run on well beyond that, and rehabilitation is a separate application later.

Quoted after the consultation. It depends on the facts, on what is in the estate and on the extent of the debt, and a figure given before we have seen any of that would be a guess.

Worth knowing that the costs of sequestration are not merely a fee question. The court has to be satisfied that there is realisable property sufficient to cover them before it will accept a surrender at all, so they form part of whether the application can be brought.

We would prefer it. A great deal is lost over email, and these are matters where sitting across a desk from one another makes a real difference. Where the distance genuinely makes that impractical, we consult by video call instead.

No. We advise in consultation. A message is the right way to arrange an appointment, but not the right way to receive advice on something this consequential.

Whatever paperwork you have - statements, letters of demand, summonses, court papers. If you have nothing, come anyway. It is better to start the conversation than to delay it until the file is tidy.

Telephone 087 133 3595, or send the short form on this site. We will contact you to arrange a date and time.