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Question:
I RECENTLY read about a well-known sportsman being sequestrated. Does it necessarily mean the end for him, or will his debt simply be written off so he can start over?
Answer:
It is important to understand that sequestration can only take place through a court order. A person cannot declare themselves bankrupt in order to bypass their responsibilities. A sequestration order can be granted on either the debtor’s request – known as voluntary surrender of your estate – or through one of a person’s creditors – known as compulsory sequestration.
The test a court applies to determine if someone’s estate is insolvent is to ascertain whether a person’s reasonably calculated liabilities exceeds his reasonably appraised assets, which then means the person is “factually insolvent”.
The purpose of a sequestration order is to liquidate an insolvent’s assets and to, according to the ranking of creditors, divide the revenue from the sale of assets pro rata among the creditors, as determined by the Insolvency Act.
As soon as a provisional sequestration order is granted, a curator takes charge of the insolvent’s estate and affairs and the insolvement may no longer take on any further responsibilities or debts or deal with his estate assets. The insolvent may then also not do certain things himself (or only to a limited extent), may only conclude certain contracts and may not hold certain positions.
Insolvency is not permanent. An insolvent can be rehabilitated and then act and transact as before. An insolvent is automatically rehabilitated after ten years, calculated from the date on which the provisional order has been granted. In addition, there are different circumstances and periods within which the insolvent can approach the court for rehabilitation.
The benefit of sequestration, though not the primary purpose thereof, is that once the insolvent has been successfully rehabilitated, he is free from all debt that existed prior to his sequestration order (with some exceptions). This means that, even though a person will no longer have his previous assets, he can start again from scratch. A sequestration order is therefore not the end of the world, but it is certainly not a pleasant experience, and can for as much as ten years have a dramatic effect on a person’s life.
Z Dawie Kotzé, Associate, Phatshoane Henney Attorneys
