Taxation 2A

Study Notes
Study unit 3: Consequences of Sequestration

PURPOSE
The purpose this study guide is to enable learners to explain the consequences of sequestration.

LEARNING OUTCOMES
⬧ Explain the sequestration of insolvent estates.
⬧ Describe the consequences for the insolvent.

DEFINITION OF CONCEPTS

Concursus creditorum
“Coming together” of the creditors and this prevents a situation where one creditor receives his/her
full payment from the insolvent estate while another receives nothing.

Debt-set-off
When two parties owe debts to one another, set-off can occur.

EFFECTS OF SEQUESTRATION
The effect of a Voluntary Sequestration Court Order is that creditors must claim from the separate
insolvent estate / surrendered estate. Creditors cannot claim any money from you as their individual
execution steps are stopped.

The trustee takes control of the entire estate and executes the administrative tasks. This process
creates a concursus creditorium whereby the individual creditor’s actions stay; and all creditors are
handled by an orderly collective collection process administrated by the trustee.
Can “they” take my salary?

There are certain sections in the Insolvency Act as well Court decisions which deal with this question.
Once you are sequestrated no creditor is allowed to attach your salary, either by Garnishee Order
against your salary or by simply grabbing your salary which is paid into your bank account. Your
Trustee has discretion in terms of Section 23(5) of the Insolvency Act in terms whereof he can attach
any part of your salary which the Trustee deems not necessary for your normal expenditure.

Will I lose my furniture?

In terms of the Insolvency Law, there are certain assets which your Trustee has to attach. Regarding
your household furniture, there are certain exceptions. We have done about 2300 insolvency matters,
and in every instance, we have succeeded in negotiating on behalf of our client for the household
furniture to be excluded from the Insolvent Estate. The worst-case scenario is that your furniture is
appraised, and you have to buy back your furniture from your Insolvent Estate, while the furniture
stays in your possession. The “insolvency value” of furniture is very low because it is evaluated at a
forced sale value, such as when it is sold in execution by a sheriff.

Can “they” take my tools of trade?

In terms of Section 82(6) of the Insolvency act, your trustee is not allowed to take your tools of trade.
Bear in mind, that if the assets are under finance, ownership has not fully vested in you, and these
assets will fall in your insolvent estate. If you don’t owe any money on your tools of trade, no one can
take it from you. Many years ago, we dealt with a matter where our client was a singer. His mixing
desk, amplifiers, microphones, speakers etc was of substantial value but his trustee could not attach
it.

Can “they” take my children’s assets?

No. Your child’s estate belongs to him/her. The devil lies in the detail. If your son plays cricket, it is
rather easy to prove that the cricket bat in your son’s room belongs to him. When your son is born
and grandpa and grandma bring him his first present, that child is starting to accumulate his own
estate – it belongs to him, not his parents. It will obviously be difficult to prove that the new BMW
parked in front of your house belongs to him.

The process of sequestration

All movable and immovable property of the debtor before and after the sequestration, fall within his
insolvent estate and is available for distribution. Upon the sequestration of an insolvent, his estate is
handed over to the Master of the High Court (the Master) who appoints a trustee for the insolvent
estate.