Voluntary sequestration is a legal process in South Africa that allows individuals who are overwhelmed by debt to start over financially. While it may seem like a drastic step, it can provide welcome relief from the burden of creditors, garnishee orders, and threats of legal action. In this guide, we take a closer look at what voluntary sequestration is, how it differs from voluntary insolvency and voluntary liquidation, and the step-by-step process to follow.
Understanding Voluntary Sequestration
Voluntary sequestration involves a debtor voluntarily applying to the High Court to be declared insolvent. This is typically done when an individual’s liabilities exceed their assets and there is no reasonable prospect of settling debts through normal repayment. The debtor’s estate is surrendered to the court, and a court-appointed trustee takes over the administration and sale of the assets in order to pay creditors.
Unlike voluntary liquidation, which applies to companies, voluntary sequestration is designed for private individuals and sole proprietors.
Voluntary Insolvency vs Voluntary Sequestration
The terms voluntary insolvency and voluntary sequestration are often used interchangeably, but there are slight differences. Voluntary insolvency is a broader term that includes any formal process where a debtor acknowledges insolvency and seeks legal relief — whether through sequestration (for individuals) or liquidation (for companies).
Voluntary sequestration, on the other hand, is a specific type of voluntary insolvency that applies to natural persons or individuals.
Step-by-Step Process of Voluntary Sequestration
1. Assess Your Financial Situation
Before starting the process, you should obtain a full overview of your finances. This includes listing all your debts, assets, monthly income, and expenses. If your debts significantly outweigh your assets, voluntary sequestration may be a viable option.
2. Consult with an Insolvency Practitioner or Attorney
Voluntary sequestration is a legal process, and you will need the assistance of a qualified insolvency attorney or practitioner. They will help you determine if you meet the requirements and guide you through the legal proceedings. This consultation will also include a feasibility assessment and a preliminary estimate of how much your assets are likely to recover for creditors.
3. Prepare a Statement of Affairs
With the help of your legal representative, you will draft a statement of affairs — a detailed document outlining your financial status. This is submitted to the Master of the High Court and includes a list of creditors, assets, liabilities, and other supporting documentation.
4. Place the Advertisement
South African law requires a notice of your intention to apply for voluntary sequestration to be published in the Government Gazette and a local newspaper. This informs creditors of the pending application and gives them an opportunity to object if they believe it is unjustified.
5. File the Application with the High Court
After the notice period, your attorney will file the formal application for voluntary sequestration with the High Court. A hearing date is set, and your legal team will present evidence showing that your estate is indeed insolvent and that sequestration is the most appropriate solution.
6. Attend the Court Hearing
Although your attorney usually appears on your behalf, you may be required to attend the court hearing. If the court is satisfied that the application meets all legal requirements and that sequestration will benefit your creditors, it will grant the sequestration order.
7. Trustee Appointment and Asset Administration
Once the order is granted, a trustee is appointed to take control of your estate. The trustee is responsible for selling your assets and distributing the proceeds among your creditors according to legal priorities.
8. Debt is Written Off and Rehabilitation Follows
Once the process is complete and creditors have been paid as far as possible, the remaining debt is usually written off. You can then apply for rehabilitation — a separate legal process that clears your name and restores your financial status, usually after four years (or sooner, under certain conditions).
Voluntary Sequestration vs Voluntary Liquidation
While voluntary sequestration is focused on individuals, voluntary liquidation applies to businesses. If a company cannot pay its debts and chooses to wind up operations, it can apply for voluntary liquidation. The company’s assets are sold and used to pay creditors, much like in sequestration. However, the key difference is that the entity being dissolved is a legal business, not a private person.
Voluntary sequestration is a powerful tool for South Africans facing severe debt challenges. It provides a legal pathway to financial freedom and peace of mind. While it requires giving up your assets temporarily, the long-term benefits of starting fresh can far outweigh the short-term sacrifice.
If you’re feeling overwhelmed by debt, consult with a professional who can help you explore all your options — including voluntary insolvency, voluntary sequestration, or voluntary liquidation — and choose the path that best fits your personal or business circumstances.