Insolvency

Insolvency: Sequestration vs. Liquidation

If you are an individual and want to declare yourself insolvent, you need to file for sequestration.

If you are applying for Insolvency on behalf of a company or business, you will file for liquidation.

Why declare yourself insolvent?

• Sequestration (Personal Insolvency)

If you do not have a business, but as an individual cannot pay your debts, one or more of your credit providers can apply to have your estate sequestrated. Alternatively you can apply for voluntary sequestration. In instances where you have a large amount of debt, which is going to take over 10 years (excluding your home loan) to pay back, then sequestration may be a better option than Debt Review or Debt Management.

• Liquidation (Business Insolvency)

It is a sad fact that up to 80% of small and medium-sized businesses in South Africa will fail in the first 2 years of their existence. When a business fails and is unable to pay its debts it is usually placed in liquidation, where a liquidator will take charge of the estate and all of the business assets are sold by way of public auction. In many instances these auctions do not generate enough cash to pay back the debts and therefore the credit providers look to the personal sureties (usually the directors or members of the business) to pay the remainder of the outstanding debt. If the directors or members cannot settle the outstanding debts, then they have the option of including these debts under Debt Review or applying for sequestration in their personal capacity.

What is sequestration?

Sequestration should not be taken lightly - you will lose all your assets, sold to the highest bidder and it has serious implications to your credit record. You will not be able to borrow any money and you are listed at the credit bureaus for a period of 10 years. However, you are able to bring an Application for Rehabilitation five years after the date of sequestration. This application can be heard by a Magistrate or a Judge and permission for rehabilitation must be given by your trustee. Once your estate has been rehabilitated it is listed as such at the credit bureau, which will probably mean you are unable to access credit for a further 5 years.

How do I apply for Sequestration?

You must apply for sequestration and be heard in the Magistrate's or The High Court. The sequestration order will not necessarily be granted as it has to be to the benefit of the creditors, meaning you have to have assets that can be sold. If the court grants a provisional order of sequestration, a trustee (appointed by the court) takes control of your estate. The trustee will list all your assets, which will then be sold and each of the creditors who made a claim against your estate will be repaid a percentage of the debt. This is usually not less than 10c in every rand and the outstanding balance (up to 90%) is written off and the creditors cannot make any further claims. The constant phone calls and legal letters will also stop.

To see if Sequestration is right for you, contact a DebtBusters consultant using the Free Call Back service opposite or call us on 0861 663 328