Sequestration
Sequestration is a High Court process in South Africa through which an insolvent person, partnership, or trust surrenders their estate to the Master of the High Court for administration and distribution by a trustee. It is governed by the Insolvency Act 24 of 1936 and provides a structured legal means to resolve unmanageable debt while protecting both debtor and creditor rights.
When liabilities exceed assets and repayment is no longer possible, sequestration offers a formal route to financial rehabilitation. It allows insolvent individuals or entities to settle outstanding debts through the controlled surrender and liquidation of assets under court supervision.
Types of Sequestration
Sequestration may be initiated in one of two ways—compulsory sequestration by a creditor or voluntary surrender by the debtor. Both are governed by the Insolvency Act 24 of 1936 and fall under the jurisdiction of the High Court.
Compulsory Sequestration
Compulsory sequestration occurs when one or more creditors apply to court for the sequestration of a debtor’s estate. To succeed, the creditor must prove that the debtor is insolvent—either because their liabilities exceed their assets, or because they have committed an act of insolvency. Acts of insolvency include failing to satisfy a judgment debt, concealing or disposing of assets to prejudice creditors, leaving the country to avoid payment, or admitting inability to pay debts.
The process begins with a formal High Court application served on the debtor. If the court is satisfied that the debtor is insolvent and that sequestration will benefit creditors, it grants a provisional sequestration order. This temporary order has a specified return date, allowing the debtor to oppose the application. If no valid opposition is presented, the court issues a final sequestration order, placing the estate under the control of a trustee.
Voluntary Surrender
Voluntary surrender is initiated by the insolvent person, partnership, or trust. In this case, the debtor applies directly to the High Court, declaring their inability to meet financial obligations. Before the hearing, the debtor must publish a notice of intention to surrender in the Government Gazette and a local newspaper, and submit a detailed statement of affairs. Once the court is satisfied that all statutory requirements have been met and that sequestration will advantage creditors, it grants a final sequestration order. Unlike compulsory sequestration, this process is ex parte—there is no opposing party at the initial stage.
Legal Consequences of Sequestration
Once a sequestration order is granted, it immediately alters both the debtor’s legal status and the handling of their estate. The law imposes several direct effects to protect creditors and regulate how assets are administered.
Change in legal status
The insolvent person’s legal capacity becomes restricted. They may not, without the trustee’s or court’s consent, enter certain contracts, manage business affairs, or hold specified offices. This limitation continues until the person is formally rehabilitated.
Vesting of assets
All assets belonging to the insolvent vest first in the Master of the High Court and then in the appointed trustee. The trustee assumes control over the estate, realises the assets, and distributes proceeds among creditors in accordance with their ranking.
Stay of proceedings and executions
Once sequestration takes effect, all civil actions and executions against the insolvent are automatically stayed. Creditors can no longer pursue individual claims or attach property independently. All claims must be proved through the trustee during the administration of the estate.
Effect on secured and instalment assets
Assets purchased under instalment or credit agreements—such as vehicles or equipment—fall into the insolvent estate, but the creditor retains a security right (hypothec) over them. The trustee must either settle the claim or release the item, depending on the estate’s financial position.
Publication of notice and creditor protection
Where a debtor intends to voluntarily surrender their estate, the notice published in the Government Gazette triggers a temporary protection: any property attached by the Sheriff may not be sold in execution pending the sequestration application. This ensures that the estate remains intact for equitable distribution.
Rehabilitation After Sequestration
Rehabilitation is the legal process that restores an insolvent person’s financial status and capacity to act as before sequestration. It formally ends the period of insolvency and releases the person from the restrictions imposed by the sequestration order.
Rehabilitation can occur in several ways under the Insolvency Act 24 of 1936. The most common is through an application to the High Court after a set period—usually four years from the date of sequestration. However, earlier rehabilitation may be granted if all proved claims have been paid in full or if the trustee has distributed the final liquidation account.
Once rehabilitation is approved, the individual’s legal disabilities fall away. They regain the ability to hold office, enter contracts freely, and build new credit without the limitations that apply to insolvent persons. Their name is also removed from the insolvency register maintained by the Master of the High Court.
Rehabilitation does not erase the historical record of sequestration, but it marks the legal conclusion of the process and allows a genuine financial restart.
VDM Attorneys – Sequestration and Debt Collection Attorneys
Sequestration is a technical process that must be handled within the framework of the Insolvency Act and the rules of the High Court. It requires accurate preparation, full disclosure, and strict compliance with procedure. Proper legal guidance ensures that the process runs correctly and that right of both debtors and creditors are protected throughout.