Purpose of a sequestration order

16 Apr

At Dionne Lamprecht Inc. we've learned to embrace change and technology and not be afraid to try new things. We have seen numerous websites of our colleagues which makes provision for a blog with only "...coming soon..." written in bold letters. We vowed not to make the same mistake of postponing something to the extend that it never happens.

So - welcome to our blog and our first of many still to come...

The main purpose of a sequestration order is to ensure the orderly and equitable distribution of a debtor's assets, where they are insufficient to meet the claims of all his creditors.

Executing against the property of a debtor who is in insolvent circumstances inevitably results in one or a few creditors being paid, and the rest receiving little or nothing at all. The legal machinery which comes into operation on sequestration is designed to ensure that whatever assets the debtor has, are liquidated and distributed among all his creditors in accordance with a predetermined (and fair) order of preference.

The law proceeds from the premise that, once an order of sequestration is granted, a concursus creditorum (a “coming together of the creditors”) is established, and that the interests of creditors as a group enjoy preference over the interests of individual creditors.

The debtor is divested of his estate, and may not burden it with any further debts. A creditor's right to recover his claim in full by judicial proceedings is replaced by his right, on proving a claim against the insolvent estate, to share with all other proved creditors in the proceeds of the estate assets.

Apart from what is permitted in the Act, nothing may be done which would have the effect of diminishing the estate assets or prejudicing the rights of creditors. 

The court held in Walker v Syfret NO: “The object of the Act, is to ensure a due distribution of assets among creditors in the order of their preference [...]. The sequestration order crystallises the insolvent’s position; the hand of the law is laid upon the estate, and at once the rights of the general body of creditors have to be taken into consideration." 

"No transaction can thereafter be entered into with regard to estate matters by a single creditor to the prejudice of the general body. The claim of each creditor must be dealt with as it existed at the issue of the order.”

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