When will the trustee be obliged to release a solvent spouse's assets during sequestration proceedings?

• Jurisdiction: South Africa
• Citation: (2019) 5(1) JCCL&P 42
• Date: 21 November 2019
• Pages: 42-58
• Author: Marumoagae, C.
• Published date: 21 November 2019

42

WHEN WILL THE TRUSTEE BE

OBLIGED TO RELEASE A SOLVENT

SPOUSE’S ASSETS DURING

SEQUESTRATION PROCEEDINGS?

CLEMENT MARUMOAGAE†

Senior Lecturer, School of Law, University of the Witwatersrand

ABSTRACT

This article reflects on the interaction between section 21(1) and

section 21(2) of the South African Insolvency Act. Section 21(1) has

been subject to controversy relating to whether it enables the trustee

to acquire ownership of the assets that constitute the solvent spouse’s

estate where spouses married out of community of property have

colluded to defraud the insolvent spouse’s creditors. Section 21(2)

seems to be intended to ensure that the trustee does not permanently

take control of the solvent spouse’s property if the solvent spouse can

prove that there was no collusion between the spouses and that he or

she has valid title to any property that vested in the trustee due to the

sequestration of the insolvent spouse. Through selected cases, this

article demonstrates that the trustees of an insolvent spouses’ estates,

in their quest to maximise the benefits, that should be derived by

the insolvent spouses’ creditors, usually refuse to release assets that

belong to the solvent spouses on the basis that spouses married out

of community of property have colluded. This article interrogates the

concept of collusion when the solvent spouses’ assets have vested in

the trustees of the insolvent spouses’ estate. Furthermore, it argues

that solvent spouse who has benefited from the financial assistance

of his or her insolvent spouse, at the time when the insolvent spouse

had not been insolvent, should not be punished for that assistance

when the insolvent spouse is later sequestrated.

Keywords: Insolvency Act; collusion of spouses married out of

community of property; section 21 of the Insolvency Act; trustees

holding assets of solvent spouses; insolvent spouse married out of

community of property; insolvency

† LLB, LLM (WITS), LLM (NWU), Diploma in Insolvency Law and Practice.

(2019) 5(1) JCCL&P 42

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43

WHEN WILL THE TRUSTEE BE OBLIGED TO RELEASE A SOLVENT SPOUSE’S

ASSETS DURING SEQUESTRATION PROCEEDINGS?

I INTRODUCTION

It is trite that the sequestration of a person’s estate results in the

diminution of that person’s status.1 The legislature has prescribed

certain requirements that must be proved to satisfy the court

that it is justifiable to grant a sequestration order. In relation to a

person who voluntarily surrenders his or her estate, the court must

be satisfied that it is not only to the advantage of that person’s

creditors but also that ‘there is reason to believe that [sequestration]

will be to the advantage of creditors of the debtor if his estate is

sequestrated’.2 Sections 6(1), 10(c) and 12(c) of the Insolvency Act

24 of 1936 demonstrate the premium that the legislature places on

the benefit that should be derived by creditors as a group during

the sequestration process.3 When an application for sequestration is

brought either by the debtor or any of his or her creditors, the court

has a duty to assess whether the contemplated sequestration will be

to the advantage of creditors through payment in accordance with

their order of ranking.4

The court has held that advantage to creditors ‘… means that there

should be a reasonable prospect of some pecuniary benefit to the

general body of creditors as a whole’.5 Evans correctly says that ‘South

African insolvency law aims to provide for an equitable distribution

1 Strutfast (Pty) Limited v Uys & another 2017 (6) SA 491 (GJ) para 32.

2 Section 6(1) of the Insolvency Act 24 of 1936 (Insolvency Act). There are also

various substantive and procedural requirements that must be met, provided for

in ss 4 and 6 of the Insolvency Act. For instance, in terms of s 4 of the Insolvency

Act, the debtor must publish a notice of surrender in the Gazette and in the local

newspaper not more than 30 days and not less than fourteen days before the date

of the contemplated application to court. Such a debtor is obliged to deliver or

post a copy of the notice of surrender to his or her every creditor whose address

is known to him or her. He or she is also bound to lodge with the office of the

Master of the High Court his or her statement of affairs. Once all the procedural

requirements have been met, the debtor must in terms of s 4 of the Insolvency

Act, satisfy the court that he or she owns realisable property that may cover all

costs of sequestration once realised.

3 See Trust Wholesalers and Woollens (Pty) Ltd v Mackan1954(2)SA109(N) at 111A–

C, where it was held that ‘…“the advantage of creditors” which suggests that this

particular requirement of the subsection is satisfied if there is reason to believe

that asubstantial proportionof the total of the debtor’s creditors, whetherreckoned

by number or value, will derive advantage from a sequestration’. See also Fesi &

another v ABSA Bank Ltd 2000 (1) SA 499 (C) at 505. J Pepler Advantage for Creditors

in South African Insolvency Law — A Comparative Investigation (unpublished LLM

thesis, UP, 2014) at 18 ‘[t]he advantage of creditors must be in favour of the group

of creditors as a whole. This requirement is fulfilled where it is established that

there is reason to believe that there will be advantage to a “substantial proportion”

or the “majority” of the creditors reckoned by value’ (footnotes omitted).

4 Stratford & others v Investec Bank Limited & others 2015 (3) SA 1 (CC) para 45 and

Meskin & Co v Friedman1948 (2) SA 555(W) at 559.

5 Body Corporate of Empire Gardens v Sithole & another 2017 (4) SA 161 (SCA) para 10.

See also Howard Chitimira‘Advantage to creditors in compulsory sequestration

proceedings — Body Corporate of Empire Gardens v Sithole’ (2019) 82THRHRat 342.

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