Frequently Asked Questions
How long does it take before the employees receive their dividend (if any)?
The employees will receive their dividend (if any) when the Master confirms the liquidation and distribution account which includes their dividend.
The liquidation and distribution account must be submitted within six months from the date of final appointment (which is on or about two months after the final liquidation/sequestration order is granted) . The liquidators can ask the Master to postpone this period if they have valid reasons. In a nutshell, and not committing to the time, it takes 9-12 months before they receive a dividend (if any).
Where do employees rank as creditors?
Employees are considered to be Preferent creditors.
The employee’s preferent claim is limited to R32, 000 (made up as follows):
- salary or wages, for a period not exceeding three months, due to an employee (current maximum is R12,000);
- any payment in respect of any period of leave or holiday due to the employees which has occurred as a result of his or her employment by the insolvent in the year of insolvency or the previous year, whether or not payment thereof is due at the date of sequestration/liquidation (current maximum is R4000)
- any payment due in respect of any other form of paid absence for a period not exceeding three months prior to date of the sequestration of the estate (current maximum is R4000);
- any severance or retrenchment pay due to the employee in terms of any law, agreement, contract, which regulation measure, or as a result of termination (current maximum is R12,000)
If the employee is not paid in full he can prove a claim against the estate as a concurrent creditor.
How does the liquidation effect the employee's Provident Fund?
The Provident fund of the employees do not vest in the insolvent estate and therefore the liquidators will not be involved in the liquidation or transfer of your Provident fund.
How do I obtain my IRP5 document?
The liquidators will submit your IRP5 to SARS.
In the event that the company did not keep adequate records allowing the liquidators to compile IRP5’s for the employees, the liquidator will provide you with a letter which you can submit to SARS explaining the circumstances why we are unable to provide you with a IRP5. In the event that we are not able to compile IRP5’s due to a lack of funds in the estate we will give the information to a service provider which you can pay directly to obtain your IRP5.
How do I claim unemployment insurance?
When your contract is suspended you are entitled to unemployment benefits in terms of section 35 of the Unemployment Insurance Act.
Which creditors are paid first?
All creditors are not equal when it comes to the distribution of dividends in the Insolvent estate.
The secured creditors will be paid first out of the proceeds from the sale of the property over which they hold security. If the secured creditor’s claim is paid in full, the remaining dividend will be brought over to the unencumbered asset account.
The unencumbered asset account is made up of all the proceeds from the sale of the unencumbered assets (no security was held over it) and the free residue from the encumbered assets.
If all the costs of sequestration/liquidation are paid out of the unencumbered asset account, then the free residue will be applied in the following order:
- Employees (to a maximum of R32,000.00 per employee)
- Workmen’s Compensation commissioner
- General bond holders
- Concurrent creditors (trade creditors/ creditors who hold no security for their claims.)
What type of creditor am I ?
There are three types of creditors. Secured, Preferent and Concurrent creditors.
- A creditor who enjoys security for his claim, that is, a preferent right over property by virtue of a special mortgage, a landlord’s legal hypothec, an instalment agreement hypothec, a pledge, or a right of retention are considered secured creditors.
- Employees, SARS and Workman’s Compensation Commissioner are considered to be preferent creditors.
- All other creditors are concurrent creditor.
How long does the liquidation/ sequestration process take ?
Liquidations and sequestrations have the following steps with the following estimated time periods between the steps. There are many exceptions and each liquidation and sequestration is different. Please note that trustees will be referred to as liquidators and a sequestration will be referred to as a liquidation for ease of writing.
The Liquidation application is issued. 6 weeks until the next step.
The provisional liquidation order is granted. 2-4 weeks until the next step.
The provisional appointment of the liquidators are made by The Master of the High Court. The provisional liquidators can only take charge after they have been issued with their certificate of appointment in accordance with the Master’s directives. 2-4 weeks until the next step.
The final order is granted. 9 weeks until the next step.
The Master convenes the first meeting of creditors (except in the case of a Closed Corporation where the liquidator is obligated to convene the first meeting of creditors). At this meeting of creditors the final liquidators are appointed and the creditors prove their claims. 1 week until the next step.
The liquidators submit an asset report with the Master. 3-4 weeks until the next step.
The Master furnishes the liquidators with their final certificate of appointment. 3-6 weeks until the next step.
The liquidators furnishes the creditors with a creditors report. The report will be sent per registered post to all know creditors in the case of a sequestration (a person/trust). In the case of a liquidated company or closed corporation it will be made available on the website as soon as possible but at the latest at the second meeting of creditors. 2 weeks until the next step.
The second meeting of creditors takes place. The liquidators convene the second meeting of creditors where additional claims can be proven and the resolutions are adopted which gives the liquidators directions on, amongst other things, how to sell the assets in the estate. 1 week until the next step.
Preparations are made to sell the assets in the estate via auction, tender or private treaty. If the assets are sold via auction it will take on or about 6 weeks to convene the auction. 5 weeks until the next step.
The liquidation and distribution account is submitted to the Master for any queries. If the Master is satisfied with the account it can be advertised. The account will be advertised for 2 weeks in order for the public to inspect the account. 3 weeks until the next step.
Master confirms the account. 1 week until the next step.
The distribution of funds to creditors take place. 2 weeks until the next step.
The liquidators provide the Master with proof that all the funds have been distributed to the creditors. 2 weeks until the next step.
The liquidators file an affidavit with the Master which releases them form the estate and effectively ending the liquidation.
An uncomplicated liquidation takes on or about 10-12 months to complete.
What is contribution ?
Where there is no free residue (funds received from the sale of the unencumbered assets) in an insolvent estate or when the free residue is insufficient to meet all the costs of sequestration then all creditors who have proved claims against the estate shall be liable to make good any deficiency.
The non-referent creditors (please refer to the section on this page “types of creditors”) each in proportion to the amount of his claim and the secured creditors each in proportion to the amount for which he would have ranked upon the surplus of the free residue, if they had been any: provided that:
If all the creditors who have proved claims against the estate are secured creditors who would not have ranked upon the surplus of the free residue, if they had been any, such creditors shall be liable to make good the whole of the deficiency, each in portion to the amount of his claim.
If a creditor has withdrawn his claim, he shall be liable to contribute in respect of any deficiency only so far as is provided in section 51 of the Insolvency Act, and if a creditor has withdrawn his claim within five days after the date of any resolution of creditors he shall be deemed to have withdrawn the claim before anything was done pursuance of that resolution.
If all the creditors who would have ranked upon the surplus of the free residue, if they had been any, have withdrawn their claims and, after payment of their contribution in terms of the above paragraph there is still a deficiency, the remaining creditors whose claims have been proved against the estate shall, notwithstanding the fact that they would not have ranked upon to the surplus of the free residue, if they had been any, be liable to make good such deficiency, each in portion to his claim.
What are Costs of Sequestration/Liquidation ?
Any free residue of an insolvent estate shall first be applied to pay the funeral and deathbed expenses of a deceased insolvent where after it will be used to pay the Costs of Sequestration which are:
- Sheriff’s fees;
- A Proportion of the fees payable to the Master;
- Miscellaneous charges, viz:
- tax costs of sequestration which means the costs incurred in connection with the petition of the debtor for acceptance of the surrender of his estate or of a creditor’s for the sequestration/liquidation of the debtor’s estate, but it does not include the cost of opposition to such a petition, unless the court directs otherwise;
- the fee allowed to a person assisting the insolvent to draw up the statement of his affairs;
- a portion of the remuneration of the trustee;
- a proportion of the trustees surety bond premium;
- all of the costs incurred to administer the estate.
The costs of sequestration are different for secured creditors when it comes to encumbered assets. The following costs will be considered cost to which security are subjected:
- Funeral and deathbed expenses if the free residue is insufficient to pay them;
- Cost of maintaining, conserving and realizing encumbered assets;
- A portion of the Masters Fees,
- The surety bond premium
- Trustees remuneration.
- Certain preference charges which is created by statutes of than the insolvency act.
In certain instances, the secured creditor who proved his claim against the estate can be held liable for all costs of sequestration/liquidation.
When, where and how do I prove my claim ?
As a general rule a creditor who wishes to share in the distribution of the assets in an insolvent estate must prove his/her/its claim against it at any meeting of creditors therein to the satisfaction of the office presiding at such meeting, the only exception being former employees of the insolvent company or person having claims for salary, wages, leave or holiday pay, payment in respect of any other form of paid absence, severance or retrenchment pay.
The creditor will have two standard opportunities to prove his/her/its claim against the estate, namely, at the first and second meeting of creditors. These meetings are advertised in the government Gazette and in one or more newspapers circulating in the district in which the insolvent resides or his principal place of business is situated. If the creditor did not prove his claim at either of the above-mentioned meetings he has a further opportunity to prove his claim at a special meeting of creditors which can be convened on his request but at his own expense.
Any person or the representative of any person who has a liquidated claim against an insolvent estate, the cause of which arose before the sequestration/liquidation of that estate, may, at any time before the final distribution of that estate prove a claim against the estate in the manner set out hereunder.
There are two ways that you can prove your claim at these meetings of creditors:
1) You can deliver the original claim documents (affidavit, supporting documents, blank power of attorney and board resolution (if the creditor is a company)) to our offices one week before the scheduled meeting and we will arrange a representative to prove your claim at no additional cost or alternatively;
2) You can submit your claim to the officer that is to preside at the meeting 24 or more hours before the time advertised for the commencement of the meeting of creditors.
The claim should be proven by way of affidavit and in the specific form which can be found at the documents page on this website. You can simply download the claim form and fill in the requested information, attach all supporting documents, power of attorney (if you are using a representative to prove your claim) and a board resolution (if the creditor is a company).
We will not prove your claim, unless you specifically request us to do so, if there is a danger of contribution. The creditors should carefully consider his/her/its position before proving a claim against the estate due to the possibility of contribution. For more information regarding contribution you can view the “what is contribution” section on the FAQ page.
There are three essential elements to prove a successful claim:
1) The claim must be a liquidated claim;
2) The claim must be submitted in a prescribed affidavit form with supporting documents;
3) The presiding officer must be satisfied that the claim is valid.
Until the creditor has proven his claim he has no locus standing to challenge the trustee’s/ liquidator’s administration of the estate.
The creditor has no right to a dividend until the liquidator/trustees account is confirmed by the Master.