Sequestration & personal insolvency
Where a natural person or partnership can no longer meet its obligations, the estate is sequestrated rather than liquidated. Westrust practitioners act as trustees, and advise debtors and creditors on whether sequestration is genuinely the right route.
Two routes into sequestration
Personal insolvency in South Africa is governed by the Insolvency Act 24 of 1936. It applies to natural persons, partnerships, deceased insolvent estates, and trusts — anything other than a company or close corporation, which is instead wound up under the Companies Acts. The outcome is a court-supervised process in which a trustee takes control of the estate, realises its assets, and distributes a dividend to proven creditors.
Voluntary surrender
A debtor may apply to the High Court to surrender their estate. The application is preceded by strict formalities: publication of a notice of surrender in the Government Gazette and a local newspaper, notice to creditors and any employees, and the lodging of a statement of affairs at the Master's office for inspection. The applicant must satisfy the court that the estate is factually insolvent, that the costs of sequestration are covered, and that surrender will be to the advantage of creditors.
Compulsory sequestration
A creditor with a liquidated claim may apply for the compulsory sequestration of a debtor's estate. The applicant must prove the claim, prove either actual insolvency or an act of insolvency under section 8 of the Act — a failed payment, a notice of inability to pay, a disposition prejudicing creditors, or a nulla bona return, among others — and show reason to believe that sequestration will be to the advantage of creditors. As in corporate matters, the court grants a provisional order with a return day, followed by a final order.
The advantage-to-creditors test
This is the distinguishing feature of personal insolvency, and the point on which applications most often fail. The court must be satisfied that there is a reasonable prospect of a not-negligible pecuniary benefit to creditors as a body. There is no equivalent requirement in a corporate liquidation. Where the test cannot be met, sequestration is the wrong instrument, and debtors and creditors are better served by an administration order, a section 74 arrangement, or a negotiated compromise.
What the trustee actually does
On a provisional order, the Master appoints a provisional trustee; after the first meeting of creditors, a final trustee is appointed and furnishes security. From that point the insolvent's estate vests in the trustee, who must:
- Take control of the estate — including immovable property, vehicles, investments, policies, business interests, and any asset held in the name of a spouse where the solvent spouse's ownership cannot be established.
- Investigate the insolvent's financial affairs — tracing dispositions without value, voidable preferences, and collusive dealings, and pursuing recovery where the estate will benefit.
- Adjudicate claims — testing proofs at meetings before the Master or magistrate, and applying the statutory ranking of secured, preferent, and concurrent creditors.
- Realise assets and distribute — lodging liquidation and distribution accounts, and where the free residue is insufficient to meet costs, raising a contribution from proving concurrent creditors.
- Report on rehabilitation — an insolvent may apply for rehabilitation after the prescribed period, or earlier in defined circumstances; the trustee's report to the Master carries weight in that application.
Partnerships add a further layer: the sequestration of a partnership estate ordinarily carries with it the simultaneous sequestration of the private estates of the partners, other than partners who have undertaken to pay the partnership debts and furnished security.
How Westrust approaches these matters
Our practitioners administer insolvent estates of natural persons and partnerships across the full range — from modest estates where the discipline is cost control and speed, to high-value matters involving trusts, offshore assets, and disputed ownership. We advise creditors on whether an application is worth bringing, and we tell debtors plainly when sequestration will not achieve what they hope. Where the estate has been stripped before our appointment, we pursue recovery.