Hilary Muza 
FALLING into debt may be necessary, but there are problems that come with it. More often than not, the debtor ends up enslaved to the creditor if one defaults in payment.
Insolvency, sequestration and liquidation are terms that people hear about frequently, but rarely have they paid attention to them.
In these harsh economic times where to fall into debt can be a curse, people need to understand better the subject of insolvency so as to avoid embarrassment of being publicly declared an insolvent.
Generally an act of insolvency is committed when one is ensnared in debt to the extent that his liabilities will outweigh his assets.
The Insolvency Act Chapter 6:04 also provide for the circumstances that constitute acts of insolvency. As an illustration, an act of insolvency shall be committed in one of these circumstances:
* When the debtor leaves Zimbabwe or departs from his dwelling with the intention of delaying payment.
* When a court has given judgment against a debtor and there is failure by him to settle that debt after the deputy sheriff has not found sufficient disposable property.
* Where he makes attempts to dispose of his property to the prejudice of his creditors or preferring one creditor above another.
One time or the other, we have all passed through an insolvency phase.
However, what is of importance is the degree of insolvency as it is the number of creditors and their claims that measure it. Some men of straw will live their whole lives in a state of insolvency, while others of means incur debt for one reason or another culminating in their sequestration.
The process of insolvency is a precursor of sequestration.
Thus sequestration, a process that involves the surrender of the estate of the debtor, takes place at the instance of the creditors only after an act of insolvency has been committed.
By definition therefore, sequestration is a legal process provided for under the Insolvency Act allowing for creditors to petition the High Court seeking the surrender of a debtor’s estate into the hands of a trustee.
Under the Act, it is also possible for a debtor who is heavily laden with debt to, out of his own initiative, petition the Court of the surrender of his estate.
The accepted rationale for placing a debtor’s estate into the hands of a trustee is that since the debtor will have failed to manage his own affairs by failing to pay his debts timeously, then another responsible independent person will have to be appointed to cater for the interests of both the creditors and the debtor.
The petition for the sequestration of the estate of a debtor who is insolvent and who has committed act of insolvency may be made by a creditor who has a liquidated claim of an amount not less than that stated in the Act. Two or more creditors or the agent of a creditor or creditors may also apply.
A liquidated claim is one that is obviously and easily ascertainable. For example, a claim for damages that are still to be proved is not a liquidated claim. The Master of the High Court is mandated to handle all estates that are under provisional or final sequestration.
It must be remembered that this is the same office that administers deceased estates and company liquidation among other duties.
Joint estates, for example, matrimonial estates can be surrendered where it can be proved that both spouses while acting in common purpose when they incurred the debt or debts.
The effect of sequestration of the estate of an insolvent shall be to divest his estate and vest it in the Master of the High Court.
Further, all civil proceedings of an insolvent for or against his benefit shall be stayed. A trustee to run the affairs of the insolvent shall be elected by the creditors and such appointment may be made by election.
If no trustee is selected and there is no provisional trustee, the Master may appoint one, and in the event of failure by him, the court may set aside the sequestration.
The process of the sequestration is a complex one involving a lot of consultation between the office of the Master, the trustee and the creditors.
However, the overall intention of this process is to protect the interests of the various creditors or a creditor against a debtor who has been proved to be incapable of running his own affairs.
Various options are available to the insolvent to settle his debts after an order for sequestration. One such option is offering a composition to prevent the sale of all his assets and a distribution of the proceeds among creditors.
Typical compositions are cash payments usually provided by relatives or friends of the insolvent. Another example is when a scheme is devised whereby the insolvent is allowed to continue his business under the supervision of a trustee and a committee of creditors.
Where no composition has been agreed, the trustee must promptly sell the property of the estate and distribute the proceeds among creditors.
All the estate’s property except the insolvent’s clothes and bedding and part of all his furniture, tools and other essential means of subsistence shall be sold.
Rehabilitation of an insolvent is possible after a satisfactory distribution of proceeds to creditors.
Muza is a Harare-based legal practitioner. He writes in his personal capacity.
