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Insolvency, Sequestration & Liquidation
Our firm has a specialised department, lead by Joelene Brown dealing with Insolvency and related matters. When an individual or business is unable to meet its financial obligations, South African law provides for formal mechanisms to deal with financial distress. Sequestration (for individuals) and Liquidation (for companies and close corporations) are legal processes designed to protect creditors, ensure orderly asset distribution, and create a structured way forward for financially distressed persons or entities.
What Is Sequestration?
Sequestration is a formal insolvency process under the Insolvency Act where an individual is declared insolvent by the High Court. Once sequestrated:
- All assets are handed over to a court-appointed trustee.
- The trustee realises (sells) the assets.
- Proceeds are distributed to creditors in accordance with insolvency law.
To succeed with a sequestration application, it must be shown that:
- The individual is insolvent (liabilities exceed assets), and
- Creditors will receive a measurable benefit from sequestration.
Sequestration may be voluntary (self-initiated) or compulsory (initiated by a creditor).
What Is Liquidation?
Liquidation also known as winding-up is the legal process by which a company or close corporation is dissolved when it can no longer pay its debts. In a liquidation:
- A liquidator is appointed by the Master of the High Court.
- The liquidator investigates the affairs of the liquidated company, gathers, secures and sells company assets.
- Proceeds are distributed to creditors in the statutory order of preference.
- The company ultimately ceases to exist.
Liquidation can be brought:
- Voluntarily by the company’s directors or members, or
- Compulsorily by a creditor who is owed money.
Unlike sequestration, a company does not need to show benefit to creditors, only that it is commercially or factually insolvent or unable to pay its debts.
Voluntary vs Compulsory Applications
Both sequestration and liquidation can proceed in two ways:
1. Voluntary Applications
- Initiated by the individual or by the company’s directors/members.
- Often quicker and more cost-effective.
- Allows a controlled and strategic approach to financial distress.
2. Compulsory Applications
- Launched by creditors through the High Court.
- Often pursued when debtors fail to pay, ignore demands, or dispute liability.
Rehabilitation After Sequestration
Rehabilitation restores the solvent status of an individual and discharges the remaining debts included in the sequestration. Rehabilitation can occur:
- Automatically after 10 years, or
- Earlier through a High Court rehabilitation application, provided certain statutory requirements are met.
Why Insolvency Advice Is Critical
Insolvency law is highly technical. Whether you are an individual facing overwhelming personal debt or a company in financial distress, early legal advice can:
- Protect assets
- Prevent unlawful dispositions
- Avoid director liability
- Provide alternatives (such as informal wind-downs or business-rescue related strategies)
- Ensure compliance with the Insolvency Act and Companies Act
- Improve outcomes for creditors, shareholders and stakeholders
Our Insolvency Department at BBV Attorneys provides specialised advice and representation in:
- Voluntary and compulsory sequestration
- Voluntary and compulsory liquidation
- Business insolvency strategies
- Informal winding down of companies
- Creditor claims and proof of claims
- Director liability and corporate governance in insolvency
- Opposed and unopposed court applications
- Asset recovery and collections linked to insolvency
- Insolvency Enquiries
- Rehabilitation applications
Have a legal question, or need expert advice?
Our team at BBV Attorneys is here to assist you.
Schedule a consultation and let us help you navigate your legal matters with confidence.