 The negative consequences of debt:
Judgment taken by a Creditor stands for THIRTY YEARS or until such time as the debt, interest and costs have been settled in full. Assets will be attached to sell on an execution sale and the debtor remains liable for the balance of the debt after the sale for the full 30 years or until the debt has been settled in full. In the current economical circumstances low prices are fetched on execution sales and the banks do not put reserve prices on the property. This means that a debtor will not easily recover in his or her lifetime and a creditor can proceed to collect the debt over the next thirty years. This means you can never build up assets again in fear or creditors attaching them to satisfy there claims. In these instances it would make more sense to sequestrate as a successful sequestration would get rid of debt, leaving a person free to start a new life as soon as possible.
Let’s take an example. Let’s say the bond on your house is R1million.
You owe other creditors about R200 000.
The bank is a preferential creditor and the balance of creditors are called concurrent creditors. On the day of application, we must be able to prove that the property's value is enough to cover the bond of R1 million and there will be a balance of 20c in the rand for creditors. In other words, the day we make the provisional application, we must be able to prove to the court that the value of the house will be at least R1,0040,000,00 (One Million Forty Thousand Rand) . (R1million bond in full and 20c in the Rand for the R200 000's concurrent creditors). (Leave the sums to us, it is quite technical, but this will give you an idea. Talk to us first before you think that there is not enough equity in the property.)
Remember, when the bank sells the house in an execution sale, statistics show that they get between 45-50% of the outstanding bond on the sale. This means you will still be liable for the balance. With insolvency sales we get higher prices because (a) it is better advertised by the auctioneer (have you noticed any of the very fine printed “Sale in execution”” advertisements placed by the banks? It is small adverts that nobody really reads). The auctioneers advertise insolvency auctions well, as you may have noticed, plus the curator will place a reserve price on the auction and if the property is not sold for that price or higher, the auction may be cancelled and a fresh auction scheduled. The banks normally sells at any price it can get. Sometimes nobody pitches at their auctions!
Let’s say the court granted the sequestration order and the house is sold on an auction and only fetches R900 000. In our example, after the deduction of the auctioneer and the Master of the Supreme Court and the Curator’s fees, the bank would get the balance of the full purchase price. Any outstanding monies to the bank must be written off and all other creditors will get no money and they must write off the debt.
The person who is sequestrated has no more debt.
How do I know that I must sequestrate or liquidate?
The questions to ask are the following:
DO YOU WANT TO MANAGE YOUR DEBT OR GET RID OF IT?
IF YOU WANT TO MANAGE IT, THE NEXT QUESTION IS: CAN YOU?
IF YOU CANT, THE ANSWER IS OBVIOUS: YOU HAVE TO GET RID OF IT AND THEREFORE YOU SHOULD CONSIDER SEQUESTRATION:
If you can’t pay back your debt or if it would burden you down for the next 5 or 7 or 10 years, it is not a good idea to proceed with that option. If you knew of a way to completely get rid of your debt and for the next 5 or 7 or 10 years you can SAVE the money that you would have paid your creditors, would you rather take that option or would you attempt to pay your debt? The answer is simple: sequestration for individuals affords you exactly that opportunity: to get completely rid of your debt and start fresh on the same day that you decide to sequestrate.
LIQUIDATION: The Companies Act, the Trust Act and the Close Corporation Act determine that no business is allowed to continue doing business if their liabilites exceed their assets. Therefore, by law, one is supposed to liquidate a Company, Close Corp/Trust that are in financial difficulties to such an extent that it can’t pay creditors. Even if you realise that your business is not going to make it whilst it is still liquid, it is a good time to liquidate the business before you hit troubled waters. It is not the end of the world, if you wish to proceed to earn an income from your business, talk to us, there are solutions to this even if you liquidate or sequestrate. It is not the end of the road for you.
The advantages of SEQUESTRATION:
The moment you decide to sequestrate, you stops paying all debt. To pay any further debt at this stage would be throwing good money after bad. The monies that would have been paid towards debt can be used to pay the costs of application. Once the application costs have been paid, all the money that is earned is yours as there are no creditors to pay.
During the period of sequestration, it is possible to enter into debt, start a business or buy a house (*this statement is conditional – subject to the approval of the curator).
You can also make an offer to the curator to purchase back your property or assets if you are in a position to do so.
None of the current creditors can EVER demand payment or proceed with steps against you. If they do not get any monies from the proceeds of the assets sold, the debt MUST be written off by them
You can carry on with your life as per normal.
DISADVANTAGES
I can’t really think of any disadvantages. THE INSOLVENT ALWAYS WINS.
LIQUIDATION ADVANTAGES:
You don’t need to have assets in the business to liquidate
You don’t have to prove a minimum of 20c in the Rand to each creditor
You do not have to stop trading – we help you to set up a new entity or you can trade in your own name
You can purchase back assets from the curator if your offer is received and the chances are good that it will
DISADVANTAGES
Again, I can’t think of any disadvantages. Number one by law it is a requirement that an insolvent business must liquidate and secondly, because of the requirement under number one, no assets are required.
A disadvantage could be that if you signed surety for any of the business entity’s debt (and you surely have) you will have to sequestrate as well. |
