Can a debtor waive rights to property envisaged in section 82(6) of the Insolvency Act 24 of 1936 in an application for voluntary surrender? : journal

• Author: Khanyisile Mthethwa,Roger Evans
• DOI: 10.10520/EJC-7978db009
• Published date: 01 January 2014
• Date: 01 January 2014
• Record Number: sapr1_v29_n2_a17
• Pages: 548-565

Hereinafter the ‘Act’ or the ‘Insolvency Act’.

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See Bertelsman et al Mars The law of insolvency in South Africa (2008) at 48 and the judgments

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referred to in notes 4 and 5, which include, amongst others, Ex Parte Anthony 2000 4 SA 116 (C).

Loubser ‘Ensuring advantage to everyone in a modern South African insolvency law’ 1997 SA Merc

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LJ 326. See also Roestoff ’n Kritiese evaluasie van skuldverligtingsmaatreëls vir individue in die

Suid-Afrikaanse insolvensiereg LLD Thesis UP (Pretoria) (2002) for a comprehensive discussion

of consequences of the ‘advantage to creditors requirement’ in South African law. See generally

Evans ‘Unfriendly consequences of a friendly sequestration’ 2003 SA Merc LJ 437. For more recent

debate concerning consumer insolvency see Boraine and Roestoff ‘Revisiting the state of consumer

insolvency in South Africa after twenty years: The courts’ approach, international guidelines and

an appeal for urgent law reform’ (part 1) 2014 THRHR 351 and (part 2) awaiting publication soon,

and Boraine and Roestoff ‘The treatment of insolvency of natural persons in South African law: An

appeal for a balanced and integrated approach’ 2014 (5) The World Bank Legal Review 91.

Can a debtor waive rights to property

envisaged in section 82(6) of the

Insolvency Act 24 of 1936 in an

application for voluntary surrender?

1 Introduction

The South African Insolvency Act 24 of 1936 creates two methods by which a

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debtor’s estate may be sequestrated, namely voluntary surrender of a debtor’s

estate and compulsory sequestration of a debtor’s estate. The voluntary

surrender of a debtor’s estate should be aimed at realising a not negligible

dividend for the debtor’s creditors. It is not a principal aim of South African

insolvency law to obtain the debtor’s release from his liabilities, but to ensure an

equitable distribution of the debtor’s assets for the benefit of his creditors, as is

expressly required by section 3(1) of the Act.2

So, as has often been observed, the golden rule is that the sequestration of

a debtor’s estate must be to the advantage of creditors. This requirement of

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course results in an obstacle in the way of debtors who desire to have their

estates sequestrated, often for unsavoury reasons, that will prove to be

disadvantageous for creditors, and usually then an abuse of the court process in

Can a deb tor waive rights to p roperty envisag ed in section 82(6) 549

See amongst others Ex parte Mark Shmukler-Tshiko and Emma Shmukler-Tshiko and 13 other

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cases 2012 ZAGPJHC 209. For an international view on this subject see Keay ‘Balancing interests

in bankruptcy law’ 2001 Comm L World Rev 206 at 208. See also Ex parte Arntzen (Nedbank Ltd

as Intervening Creditor) 2013 1 SA 49 and Plumb on Plumbers v Lauderdale 2013 1 SA 60 (KZD).

In this respect Holmes J in Ex parte Pillay 1955 2 SA 309 (N) 311 said ‘the procedure of voluntary

surrender was primarily designed for the benefit of creditors, not for the relief of harassed debtors’.

See generally Ex parte Mark Shmukler-Tshiko and Emma Shmukler-Tshiko (n 4) Ex parte Arntzen

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(Nedbank Ltd as Intervening Creditor) (n 4).

Ex Parte Kroese North West High Court (Mafikeng) Case No 145/13 dated 18 April 2013 and Ex

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Parte Hattingh North West High Court (Mafikeng) Case No 144/13 dated 18 April 2013. For the

purpose of convenience this note will simply refer to the ‘applicants’ or to ‘Ex Parte Kroese’. See

Ndou ‘Waiver of rights in insolvency’ 2014 De Rebus 45.

Hereafter referred to only as ‘rights’.

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Section 6 of the Insolvency Act 24 of 1936 regulates the acceptance by the court of the surrender

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of the debtor’s estate, and it encompasses the ‘advantage’ requirement. The relevant part of s 6

reads as follows: ‘6 Acceptance by court of surrender of estate (1) If the court is satisfied that

the provisions of section four have been complied with, that the estate of the debtor in question is

insolvent, that he owns realizable property of a sufficient value to defray all costs of the

sequestration which will in terms of this Act be payable out of the free residue of his estate and that

it will be to the advantage of creditors of the debtor if his estate is sequestrated, it may accept the

surrender of the debtor’s estate and make an order sequestrating that estate. (2)

insolvency proceedings. Dishonesty of this nature places a burden on creditors

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and socio-economic interests in the country.5

In the recent judgments in Ex Parte Kroese and Ex Parte Hattingh the

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question of advantage to creditors in a voluntary surrender application was

considered by Landman J. More specifically, Landman J considered the question

whether certain ‘rights’ or ‘benefits’ that may be granted to the debtor could be

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waived so as to inflate the debtor’s estate, thereby complying with the

requirement of advantage to creditors in an application for voluntary surrender of

a debtor’s estate. The rights in question which the debtors in these applications

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were proposing to waive are those referred to in section 82(6) of the Act.

Section 82(6) provides that:

From the sale of the movable property shall be excepted the wearing apparel and

bedding of the insolvent and the whole or such part of his household furniture, and

tools and other essential means of subsistence as the creditors, or if no creditor

has proved a claim against the estate, as the Master may determine and the

insolvent shall be allowed to retain, for his own use any property so excepted from

the sale.

In the Ex Parte Kroese judgment Landman J concluded, amongst others, as

follows:

The effect is in my view that the advantage to creditors cannot lawfully be

increased by the action contemplated by the applicants.