What is a sequestrated estate?
A sequestrated estate refers to the estate of an individual, who is insolvent and unable to pay his or her debts due to specific circumstances (such as over-indebtedness), that is surrendered to the High Court as determined by the Insolvency Act.
The Insolvency Act referred to is Act 24 of 1936, as amended several times, which is enforced in South Africa.
A person can only have a sequestrated estate after he or she has been declared insolvent. (See the article, ‘Personal Insolvency in South Africa Explained’ for a detailed explanation of insolvency and the consequential sequestration.)
Questions asked by people who are concerned about the implications of a sequestrated estate
The term ‘implications’ is used per the definition of the Cambridge Dictionary: ‘The effect that an action or decision will have on something else in the future.’
Is a person allowed to open a bank account after sequestration?
Yes. However, he or she will not have the right to an overdraft facility or a loan.
What is the state of affairs with SARS of a person whose estate is sequestrated?
After sequestration, SARS (the South African Revenue Service) must provide a taxpayer with a new tax number to enable him or her to start with a clean record.
All debits and credits that were payable to and due from SARS before the sequestration date remain in the person’s insolvent estate.
Is an insolvent person allowed to enter into contracts and agreements?
Yes and no.
With the written permission of the sequestrated estate’s trustee, an insolvent can enter into a vehicle finance agreement.
An insolvent is allowed to enter into employment agreements and agreements to conduct business without the written permission of the trustee. However, section 23 (3) of the Insolvency Act states that an insolvent ‘may not, during the sequestration of his estate without the consent in writing of the trustee of his estate, either carry on, or be employed in any capacity or have any direct or indirect interest in, the business of a trader who is a general dealer or manufacturer.’ (Accentuations are by the article writer.)
It is out of bounds for an insolvent to sign any contract that will negatively affect the sequestrated estate. (Section 23 (2) of the Insolvency Act)
The insolvent cannot enter into any contract that sells any assets (moveable and immovable) that belong to the sequestrated estate.
If an insolvent party enters into a contract after sequestration that is prohibited, the contract becomes voidable but not necessarily void, implying that it is not inevitably invalid. The trustee has the choice to go ahead with the contract or to cancel it.
If the trustee decides to proceed with the contract, then it is binding on all the relevant parties. Consequently, the proceeds from the contract will be paid into the sequestrated estate, benefitting the estate and the creditors and not the insolvent.
If the trustee refuses to honour the contract, the insolvent person is required to pay back any monies he or she has received from the contract – to the other party involved in the contract and to the sequestrated estate.
When an insolvent purchases assets after sequestration and does not inform the other party of his or her legal status when entering into the agreement, the contract continues to be valid. Although, the other party to the agreement is obliged to prove that he or she was unaware of the insolvent’s legal status.
Are rental contracts, such as a cell phone contract, still valid after sequestration?
Yes, they are. Rental contracts are not rescinded with a sequestration. Individuals are obliged to continue payments as per agreement and maintain an acceptable payment record.
What about fines pertaining to road traffic offences? Are they still payable after sequestration?
Parking tickets and speeding fines are still to be paid because they are not part of a sequestrated estate.
Is maintenance still to be paid to an ex-spouse?
Yes, indeed. The sequestration order by a court does not nullify the direction to pay maintenance to an ex-spouse by a maintenance court.
A husband and wife are married in community of property. The wife inherited property from her deceased father. Will the property be included in the couple’s sequestrated estate?
The South African law states that in a community of property marriage, all the assets and liabilities that belong to the spouses are consolidated in one joint estate. When one of the spouses declares insolvency and applies for sequestration, both spouses are considered insolvent, and the joint estate is sequestrated.
Thus, all the assets and liabilities of the joint estate vest in the trustee of the sequestrated estate.
However, there are some exceptions in this regard. For instance, if the will of the wife’s father stipulated that the inherited property should be excluded from the joint estate, it will not be part of the joint estate, implicating that the property will not be included in the sequestrated joint estate.
Are retirement annuities and pensions included in a sequestrated estate?
With regard to this question, section 37B of the Pension Funds Act (Act 24 of 1956), amended numerous times and hereafter referred to as the Act, has reference. (Noteworthy, the Conduct of Financial Institutions (CoFI) Bill, currently (June 2025) in its final stage, proposes that the name of the Pension Funds Act be changed to the Retirement Funds Act.)
Concerning the arrangements of ‘pension benefits upon insolvency,’ section 37B of the Act states:
‘If the estate of any person entitled to a benefit payable in terms of the rules of a registered fund (including an annuity purchased by the said fund from an insurer for that person) is sequestrated or surrendered, such benefit or any part thereof which became payable after the commencement of the Financial Institutions Amendment Act 1976 (Act No. 101 of 1976), shall … not be deemed to form part of the assets in the insolvent estate of the person and may not in any way be attached or appropriated by the trustee in his insolvent estate or by his creditors, notwithstanding anything to the contrary in any law relating to insolvency.’ (Accentuations are by the article writer.)
However, the regulation is subjected to a pledge in accordance with section 19 (5) (b) (i) of the Act, which refers to a pledge by a member of a pension fund that was granted a loan by the fund.
In addition, section 37B of the Act is subjected to conditions in sections 37A (3) and 37D, namely:
- Section 37A (3) refers to the reducing of a member’s debt or obtaining a settlement by a registered fund.
- Section 37D allows a fund to make certain deductions from pension funds, for instance, with regard to a loan granted to a member in terms of section 19 (5).
Is the money that a person has received from a pension fund before declaring insolvency, excluded from sequestration?
No. The protection that pensions have under the Act ends the moment the pension money is paid to an individual. Hence, in this scenario, the pension money received before the declaration of insolvency, will form part of the sequestrated estate.
What is the situation with regard to a life insurance policy?
Thankfully, a life insurance policy is protected against creditors, provided that a beneficiary is nominated for the policy. However, it is crucial to make sure that the beneficiary is not at risk to become insolvent at any time in the near or distant future.
When a beneficiary of the life insurance policy of an insolvent is an unrehabilitated insolvent, an insurer is required to make a payment directly to the trustee of the sequestrated estate with the insolvent’s death.
However, if the payment is made directly to the beneficiary who is an unrehabilitated insolvent, the beneficiary is obliged to pay the money of the policy to the trustee of the insolvent estate.
If no beneficiary is nominated, the proceeds of a life insurance policy will be paid into the sequestrated estate of a deceased insolvent.
Can a person with a sequestrated estate be employed as a director of a company?
No. According to section 69 (8) of the Companies Act (Act 71 of 2008), a person is disqualified to be a director of a company if the person is an ‘unrehabilitated insolvent’, implying the person’s estate is still under sequestration.
Furthermore, amongst other things, an insolvent person is prohibited to:
- be involved in the management of a close corporation of which he or she is a member,
- be a member of the National Assembly of Parliament,
- be a member of the National Council of Provinces,
- be a member of a provincial legislature,
- be a key individual or representative of a financial service provider (FSP).
Can the salary of an insolvent person be attached by a creditor or someone else?
Thankfully, no creditor or someone else is allowed to attach the salary of an individual whose estate is sequestrated, neither with a garnishee nor via a salary stop order.
Can an employee be fired by his or her employer after the sequestration of his or her estate?
A condition in a Letter of Appointment that prohibits an employee to be insolvent while employed by the employer may enable the employer to dismiss the insolvent employee.
Without such a condition the dismissal will be considered unfair and unreasonable.
Will the tools of trade of a tradesperson be confiscated with sequestration?
Definitely not. The tools of trade of tradespeople such as electricians and plumbers are excluded from a sequestrated estate. Thus, a tradesperson will be able to carry on with his or her trade, making money to afford, among other things, housing, food, and school fees for his or her children.
What is the situation with regard to the furniture of an insolvent in a sequestrated estate?
If the furniture is still financed, then the credit provider has the legal right to repossess the furniture.
Furniture owned by the insolvent, after appraisement by the trustee of the sequestrated estate, can be bought back from the estate by the debtor.
Can a person obtain credit during sequestration?
As a general rule, definitely not, because the main purpose of voluntary sequestration is to get rid of the chains of over-indebtedness and to start with a clean slate, improving a dire financial situation.
Furthermore, credit providers will be wary to extend credit to a person who has a sequestrated estate.
However, there are circumstances that compel an insolvent person to apply for credit. For example, such a person needs a vehicle, computer, tools, or other equipment to earn an income.
Under such circumstances, a person will be granted the right to apply for credit under the following conditions:
- Written permission must be obtained from the trustee of the sequestrated estate. Applying for credit without the trustee’s written permission is an act of fraud.
- The credit provider (creditor) must be informed of the status of the insolvent person. Failing to inform the creditor is a criminal offence according to section 137 of the Insolvency Act.
Is a person allowed to apply for credit after sequestration?
Yes, indeed. After rehabilitation, the rehabilitated insolvent’s legal status is restored, allowing him or her to apply for credit.
However, it will be reckless and unwise to use this new-found freedom to start a new spiral of over-indebtedness.
Should a person keep on paying creditors after sequestration?
No. The purpose of sequestration is exactly to get rid of creditors in a legal way. Besides, to keep on paying specific creditors to the detriment of other creditors is illegal according to South African laws.
Note: This article does not intend to provide legal advice. Its purpose is solely informative.
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