Entails the bankruptcy of a natural person, though it can also be applied to a trust. The process entails the surrendering of the natural person’s estate, whereby the person applies to court to be declared insolvent. Once the court approves the application, a trustee is appointed to manage the distribution of benefits from the sale of assets in the natural person’s estate. The creditors receive the benefits and the person remains sequestrated until an application is made to court and approved for rehabilitation of the person’s estate and thus financial status.

Through the sequestration process, the applicant’s debt is written off. The insolvent party’s assets are sold and the debt paid. The remainder is paid in cash or by means of a down-payment agreement. The debtor then pays the remaining debt off over a period of 18 to 24 months. Once the debt is paid in full, the debtor can apply for rehabilitation. One question often asked is whether the creditors can still take legal steps against the debtor before the sequestration process is completed. Fortunately, the answer is no. Once the notification of the applicant’s application for sequestration is published in the Government Gazette and a local newspaper, the creditors must submit their objections to court. They cannot harass the debtor, attach any asset, demand payment, or add interest to the debt.

By law, the applicant may not give preferential treatment to one creditor over another. As such, once the application process begins, the debtor must stop payment of debt to all the creditors. The period from the date of deciding to sequestrate to the advocate appearing in court on behalf of the applicant is usually about seven weeks. During the entire period, the applicant is protected against further prosecution by any of the creditors. That is, provided the debtor didn’t wait too long, making it difficult to have the notifications published in time to prevent legal action from the creditors.

Another question sometimes asked is whether it is possible for the court to refuse the sequestration application on the grounds that the applicant doesn’t have enough money. The answer is yes, simply because the Insolvency Act states that the sequestration can only be awarded if it is to the benefit of the creditors. However, the creditors must at minimum receive 20 cents out of the rand. If the applicant doesn’t have immovable property, the applicant must have enough other unencumbered assets that can be surrendered and sold to ensure sufficient benefit for the creditors.


Liquidation typically occurs when a limited company has reached a point where, for one reason or another, it has been decided that the business will not continue. In this case, you might consider liquidating your company; which basically means turning your assets into cash.

Turning assets into cash is typically done in order to pay off a variety of debts, depending on investments made into the business by creditors, or loans taken out in growing the business, for example.

Liquidating leads to dissolving the company, and bringing all activity to a close. It is a way for a business that has run out of funds (is insolvent) to cover any remaining debts.

Why a company would liquidate

The main reason a business would choose to liquidate their assets is due to insolvency. Insolvency essentially means that a business reaches a point where it is not able to make necessary payments when they are due. Choosing liquidation converts the business assets to cash, which is then used to make these payments.


You may be forced to consider liquidation because your company is no longer solvent. If the company remains solvent it can still be controlled by the directors of the company but when it is insolvent, you can place the company in control of a liquidator who will then deal with the aspects of the liquidation or winding up of the company.

If the company is deemed insolvent any remaining assets will be sold in order to pay off any remaining creditors. Any amount remaining after all necessary payments have been made is then distributed amongst any shareholders.

The three kinds of liquidation

While liquidation might seem generally straightforward, there are in fact three different circumstances under which a company can be sent into liquidation. For each of the types of liquidation outlined below, there is a specific process that must be followed:

Members’ voluntary liquidation

In some cases, the business owner might choose to discontinue the company for a variety of reasons. In this case, members’ voluntary liquidation means that the business is in fact still able to make its payments on time, but it is the choice of the business owner or partners to wind-up.

Creditors’ voluntary liquidation

This occurs when the director of a company realises that the business is not able to pay off its debts and can begin the process of liquidation after conducting a vote with the shareholders. If the majority of shareholders (75% or more) vote to liquidate, then the process can start.

Compulsory liquidation

In this situation, the company is completely unable to make payments to its debts and the director applies direct to the court to request that the liquidation process is implemented.

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