Sequestration: What It Does, and Why You Can Be Too Poor For It

Debt counselling reschedules what you owe. An administration order does something similar for smaller debts. Sequestration is the end of that ladder: you hand your estate to the court, a trustee sells what there is, creditors take what that produces, and in time the outstanding debt stops being your problem.

It is also the step most widely misunderstood — and the one most likely to be refused for a reason nobody expects.

The court may not simply accept your surrender because you are drowning. It must be satisfied, among other things, that you own realisable property of sufficient value to defray all the costs of the sequestration, and that the sequestration will be to the advantage of creditors.

Which produces the strange result at the heart of this page: you can be too poor to be sequestrated. If there is nothing worth selling, there is no advantage to creditors and no way to pay the costs, and the door is closed — to precisely the people who most want it open.

What the court has to be satisfied of

For a voluntary surrender, the Act sets four requirements. All of them must hold:

1. that the publication formalities were complied with;
2. that the estate is insolvent — liabilities exceed assets;
3. that the debtor owns realisable property of sufficient value to defray all costs of the sequestration payable out of the free residue of the estate; and
4. that it will be to the advantage of creditors if the estate is sequestrated.

The third and fourth are where applications fail. Sequestration is not a debt-relief mechanism designed around the debtor; it is a collective process designed around creditors, and the debtor's relief is a consequence of it rather than its purpose. Read the fourth requirement again with that in mind and the whole structure makes sense.

The publication step, and the trap in it

Before the petition is presented, a notice of surrender must be published in the Government Gazette and in a newspaper circulating in the district where you live — or, if you are a trader, where your principal place of business is.

The timing is prescribed narrowly: not more than 30 days and not less than 14 days before the date stated in the notice as the date on which application will be made.

And there is a trap on the other side of it. If the court does not accept the surrender, or the notice is withdrawn, or you fail to make the application within 14 days of the date stated in the notice, the notice of surrender lapses. Where a curator has been appointed over the estate in the meantime, it is restored to you once the Master is satisfied that the costs already incurred are provided for.

That lapse matters because publishing a notice of surrender is a public act with immediate consequences for your credit and your creditors. Publishing one and then not following through leaves you with the damage and none of the relief.

What sequestration actually does

Three things happen, and the third is why people pursue it.

Your estate stops being yours. Sequestration divests you of your estate and vests it in the Master until a trustee is appointed — and then in the trustee.

Litigation stops. Civil proceedings by or against you are stayed until a trustee is appointed, apart from proceedings you are permitted to bring for your own benefit.

Execution stops. As soon as the sheriff whose duty it is to execute a judgment against you becomes aware of the sequestration, that execution is stayed, unless the court directs otherwise.

That third point is the practical engine of the whole thing. Sequestration is what ends an attachment in progress. It does not do so retrospectively and it does not do so quietly, but it does it.

What you may and may not do afterwards

Being an unrehabilitated insolvent is a status with rules attached, and they are narrower than the folklore suggests.

You may work. The Act says plainly that an insolvent may follow any profession or occupation or enter into any employment. Sequestration does not cost you your job or your trade.

But not in certain businesses without consent. You may not, without the trustee's written consent, carry on, be employed in any capacity in, or hold any direct or indirect interest in the business of a trader who is a general dealer or a manufacturer. If the trustee gives or refuses consent, either you or a creditor may appeal to the Master, whose decision is final.

Your contracts remain valid. The fact that you are insolvent does not affect the validity of a contract you enter into — provided you are not purporting to dispose of property belonging to the insolvent estate, and provided you do not, without the trustee's written consent, enter a contract by which the estate or a contribution you must make is or is likely to be adversely affected.

What you acquire belongs to the estate. Subject to the Act's own exceptions, all property acquired by an insolvent belongs to the insolvent estate. This is the part people find hardest, and it is the reason the status is not indefinite in practice.

You must keep records. You are required to keep a detailed record of all assets received, from whatever source, and all disbursements made in the course of your profession, occupation or employment — and, if the trustee requires it, to send a monthly statement verified by affidavit.

Getting out: rehabilitation

Rehabilitation is what ends the status. There are two routes.

By application to the court. The ordinary route requires not less than six weeks' notice to the Master, to the trustee and by advertisement in the Gazette, and may then be brought:

• after 12 months from the Master's confirmation of the first trustee's account in your estate;
• after three years from that confirmation if your estate had been sequestrated before; or
• after five years from the date of conviction of a fraudulent act in relation to this or a previous insolvency, or of certain offences under the Act.

But there is an overriding proviso that catches people out: no application on this route may be granted before four years have elapsed from the date of sequestration, except on the Master's recommendation. So the twelve-month trigger is when you may apply, not when you will be rehabilitated.

There are two faster doors. Where a Master's certificate shows provision for payment of not less than half of every claim proved or to be proved — the Act still expresses it as "10 shillings for every pound", which is the currency of 1936 — application may be made on three weeks' notice. And an insolvent may apply after six months from sequestration where the Act's conditions for that route are met, again on six weeks' written notice to the Master and trustee.

By the passage of time. Any insolvent not rehabilitated by the court within 10 years from the date of sequestration is deemed to be rehabilitated at the end of that period — unless a court, on application by an interested person and after notice to you, orders otherwise before the ten years expire.

Where such an order is made, the registrar sends it to every deeds registrar in the country, who enters a caveat against the transfer of any immovable property, or the cancellation or cession of any bond, in the insolvent's name.

Ten years is a long time. It is also an automatic exit that requires nothing of you, which is worth knowing if an application has become unaffordable.

Before you go anywhere near this

Sequestration is the most serious step on the ladder and the least reversible. Work through what sits below it first.

1. Establish whether you have realisable assets. Without them the third and fourth requirements cannot be met, and the application will fail.
2. Compare it with debt review, which reschedules payments without divesting you of anything — our guides to what debt review is and what debt counselling costs set out that route.
3. Compare it with an administration order, which is aimed at smaller debts; our guide to administration orders versus debt review explains the difference.
4. Cost the application properly. The costs come out of the estate's free residue, which is part of why the property requirement exists.
5. Understand the timeline you are choosing. Realistically, four years to a court rehabilitation, and ten to an automatic one.
6. Get advice from an insolvency practitioner or attorney. This is not a form-filling exercise, and the consequences of a lapsed notice of surrender are real.

One flag rather than an answer: if you are married in community of property, sequestration affects the joint estate, and that is a substantial subject in its own right. Raise it specifically with whoever advises you.

For everything else, start at our money guides.

Frequently asked questions

What is sequestration? A court order placing your estate in the hands of a trustee for the benefit of creditors. It divests you of the estate, which vests in the Master until a trustee is appointed and then in the trustee.

Can I apply to sequestrate my own estate? Yes. An insolvent debtor may petition the court for the acceptance of the surrender of the estate for the benefit of creditors.

Why would a court refuse my surrender? Because it must also be satisfied that you own realisable property of sufficient value to defray all the costs of the sequestration, and that the sequestration will be to the advantage of creditors. Without assets, neither requirement is met.

Does sequestration stop a sheriff from attaching my things? Once the sheriff whose duty it is to execute a judgment becomes aware of the sequestration, that execution is stayed unless the court directs otherwise.

Can I still work? Yes. An insolvent may follow any profession or occupation or enter into any employment. You may not, without the trustee's written consent, carry on, be employed in, or hold any interest in the business of a trader who is a general dealer or manufacturer.

Are my contracts still valid? Insolvency does not affect the validity of a contract, provided you do not purport to dispose of estate property and do not, without the trustee's written consent, enter a contract likely to affect the estate adversely.

What happens to money I earn or receive afterwards? Subject to the Act's exceptions, property acquired by an insolvent belongs to the insolvent estate, and you must keep a detailed record of assets received and disbursements made.

How long before I am rehabilitated? On the ordinary application route, no rehabilitation may be granted before four years from the date of sequestration except on the Master's recommendation, even though the application may be brought after 12 months from confirmation of the first trustee's account.

Is there rehabilitation without going back to court? Yes. An insolvent not rehabilitated by the court within 10 years from the date of sequestration is deemed rehabilitated, unless a court orders otherwise before that period expires.

How much notice must I give to apply for rehabilitation? Not less than six weeks to the Master, the trustee and by advertisement in the Gazette on the ordinary route, or three weeks where a Master's certificate shows provision for at least half of every proved claim.

What is the difference between sequestration and debt review? Debt review reschedules your obligations while you keep your property. Sequestration divests you of your estate so that a trustee can realise it for creditors, and ends only on rehabilitation.