When you cannot pay your debts (because they exceed your assets), you are said to be insolvent.

Although insolvency itself is not a crime, criminal charges can often follow the sequestration of an estate. These may be for not having kept proper records of transactions or for common law crimes such as fraudI (for instance, by obtaining credit by claiming that you can pay for goods when you know that you cannot).

If you’re insolvent, you can seek an out-of-court settlement with your creditors, surrender your estate, or in some cases apply to the magistrate’s court for an administration order. In certain circumstances, your estate may be sequestrated as insolvent at either your own initiative or that of acreditor.

Sequestration proceedings are designed to freeze an insolvent estate and to place it in the hands of a trustee, who liquidates it and distributes the proceeds among its various creditors.

If your estate is sequestrated after you have become insolvent, you may, subject to certain conditions, apply for rehabilitation. If your application is successful (if you are rehabilitated), the court will declare that you are no longer an insolvent and that you are free to trade and contract.

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