Basic requirements for the granting of a sequestration order

In the case of voluntary surrender the court has discretion to grant a sequestration order if it is satisfied that:

  • The debtor is insolvent (Liabilities exceeds Assets);
  • There is sufficient free residue to cover sequestration costs ;
  • Sufficient advantage to creditors; (20% of their debt recovered)
  • That the formalities in section 4 of the Insolvency Act were complied with.

Sequestration however is viewed as  a drastic measure and courts will therefore also consider alternatives to sequestration when considering such an application. As In the case of Ex parte Ford the court used its powers in terms of section 85 of the National Credit Act which provides that, in any court proceeding in which a credit agreement is being considered, the court may refer it to a debt counsellor for debt review and a recommendation if a consumer appear to be over-indebted.
Alternatively, the court itself may declare the consumer over-indebted and make an order contemplated in section 87 to relieve the consumer’s over-indebtedness which could lead to one or more of the consumer’s credit agreements being declared reckless, resulting in the setting aside of the agreements or the suspension of the force and effect thereof.
In view of the aforementioned, the court deemed it fit to call upon counsel for the applicants to present argument as to why the over-indebtedness of the applicants should not more appropriately be addressed by using the mechanisms of the NCA  instead of the blunter instrument afforded in terms of the voluntary surrender remedy under the Insolvency Act.