What is sequestration? (Part 2)
WE SAID LAST MONTH THAT ONCE THE COURT HAS GRANTED A SEQUESTRATION
ORDER, AN INDEPENDENT PERSON IS APPOINTED TO ACT AS THE
INSOLVENT'S TRUSTEE. THE TRUSTEE TAKES CHARGE OF ALL THE ASSETS
OF THE INSOLVENT AND HAS THE JOB OF WORKING OUT WHO THE
INSOLVENT'S CREDITORS ARE AND IN WHAT ORDER THEY ARE TO BE PAID.
WHAT DOES THE INSOLVENT ESTATE CONSIST OF?
The insolvent estate basically consists of all property owned by the insolvent
at the date of sequestration (including property in the hands of the sheriff
under a writ of attachment) and all property which the insolvent acquires
during the sequestration. Some property is excluded from the insolvent estate:
The insolvent's trustee must collect the assets in the estate, sell them, and
distribute the proceeds amongst creditors in the order of preference set out in
the Insolvency Act. The trustee has rights over and control over the insolvent
estate until a court sets aside the sequestration order, or until the insolvent's
creditors agree to an offer of composition which provides that the insolvent's
property will be restored to him or her, or until the insolvent is rehabilitated.
- The insolvent may keep, for his or her own use, clothing, bedding, household
furniture, tools and other means of earning a living as the creditors may (by
- Although money which an insolvent earns by working may have to be paid
to the trustee of the insolvent estate to contribute towards creditors' claims, the
insolvent may keep enough money back to support him- or herself and his
or her dependents. Any compensation for loss or damage which an insolvent
may have suffered, whether before or after the sequestration of the estate,
because of defamation or personal injury is also excluded from the insolvent
estate. Certain insurance policies also do not fall into the insolvent estate.
In a marriage which is subject to the accrual system, the right of a spouse
to share the estate of the other spouse does not form part of the insolvent
estate of the first spouse. (There are certain other exclusions which apply.)
HOW IS THE INSOLVENT PERSON AFFECTED?
If your estate has been sequestrated, there are a number of restrictions on your ability to
perform certain activities during the period in which the sequestration order remains in
place. Your capacity to contract, earn a living, litigate (in other words sue in court) and
hold office are limited.
- There are restrictions on an insolvent's capacity to enter into contracts. The
insolvent may not, for example, enter into a contract to sell assets in the insolvent
estate. The insolvent may not increase the debts of the sequestrated estate.
- There are some situations where an insolvent is permitted to institute litigation.
For example, an insolvent may litigate to ensure that his or her estate is properly
administrated by his or her trustee. An insolvent may also institute a divorce
action. In other cases the insolvent's trustee must litigate on the insolvent's behalf.
- There are various offices which insolvents may not hold:
- they may not be a
member of the National Assembly, Senate or a provincial legislature.
- They cannot be directors of a company, or take part in the management of a close corporation
of which they are members, without the court's permission: The court will only grant permission if there is no danger to the private interests of the members
or to the public who might be injured by dishonest trading.
- An insolvent may not be appointed as a trustee of someone else's insolvent estate.
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