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Analyses: Can An Inheritance Evade An Insolvent Communal Estate?
Analyses: Can An Inheritance Evade An Insolvent Communal Estate?
Analyses: Can An Inheritance Evade An Insolvent Communal Estate?
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(2003) 15 SA Merc LJ
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Du Plessis v Pienaar
The Supreme Court of Appeal recently had the final word as to
whether the `separate property' of spouses married in community of
property is excluded from the insolvent joint estate. In Du Plessis v
Pienaar (supra), the question of separate assets again arose where the
appellant inherited a considerable amount of movable and immovable
property from her father in 1983. The appellant was married in
community of property when the inheritance accrued to her. Her
father, the testator, bequeathed the property to her, subject to a
stipulation, amongst others, that it was to be excluded from the joint
estate of the appellant and her husband, and that it was to be excluded
from `any possible insolvent estate'. In March 2000, the joint estate of the
appellant and her husband was finally sequestrated as a result of her
husband's failed business venture. The trustees (the respondents) claimed
the appellant's separate property for the benefit of the creditors of the
insolvent estate. Following Badenhorst v Bekker NO (supra), Van der
Westhuizen J in the court of first instance dismissed the appellant's
application to prevent the trustees from selling the property for the
benefit of the creditors, and to restore the property to her.
On appeal, the appellant submitted that the debts that had given rise to
the claims against the insolvent estate were debts incurred by the joint
estate and so could be recovered only from the property of the joint
estate, and not from her separate property that was excluded from the
joint estate. But the court accepted the respondents' submission that the
debt is incurred by the person who is the debtor, and not by the person's
estate; the latter is merely the source from which the debt is recovered. So
the insolvent debtors are both spouses, because the debts incurred by one
spouse are generally the debts of both of them in a marriage in
community of property. The spouses, not the joint estate, are therefore
insolvent debtors.
Nugent JA stated that once it is accepted that debts are incurred by
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(2003) 15 SA Merc LJ
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But the communal estate to which Rabie AJA referred could not have
been the insolvent communal estate, since the `betaalde vergoeding' to
which he referred was an asset that was excluded from the insolvent estate
by virtue of section 23(8). So this asset would not have been subject to the
claims of the creditors of the insolvent communal estate. I shall again
consider the status of assets of this nature below.
In Santam Ltd v Norman & another 1996 (3) SA 502 (C), the underlying
purpose of section 23(8) and the other provisions of section 23 was
considered. The court quoted Steyn J in Kruger v Santam Versekeringsmaatskappy Bpk 1977 (3) SA 314 (O) at 317CF:
`Die Wetgewer is deur middel van die Insolvensiewet prime r daarop ingestel om die
insolvent en sy bates van mekaar te skei, beheer van die boedel aan die kurator oor te dra
en die bates na die krediteure op 'n sekere rangorde van voorkeur oor te skuif. Die
liggaam van die insolvent word egter nie so oorgeskuif nie. Sy persoonlike integriteit bly
onaangetas en sy status gedeeltelik ook. . . . In daardie sin is die insolvent se liggaam 'n
``bate'' wat hy tot voordeel van homself en sy familie na sekwestrasie kan
aanwend. . . . Skade aan sy vlees of gees berokken is gevolglik sy skade en vergoeding
daarvoor kom hom persoonlik en vir sy eie voordeel toe' (original emphasis).
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(2003) 15 SA Merc LJ
Thirdly, the insolvent may recover pensions for his or her own benefit
(s 23(7)). These benefits, it appears, do not form part of the debtor's
insolvent estate (Matanzima v Minister of Welfare and Pensions & others
1990 (4) SA 1 (TkA)).
Does the Insolvency Act Recognize Separate Estates in Insolvency?
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in relation to one estate and not insolvent in relation to the other' (at
677E). The Matrimonial Property Act, the court concluded, recognized
the existence of separate property in the relationship between the spouses
between themselves, but it did not affect the rights of third parties (at
677EF).
But the above discussion has shown that it is not so startlingly
anomalous to find that a debtor may be insolvent in relation to one estate
but not insolvent in relation to another. One last example where this
`anomaly' again may occur is where a spouse, married in community of
property, has recovered damages for a delict committed against him or
her. Section 18(a) of the Matrimonial Property Act excludes such
damages from the joint estate; the damages become the spouse's separate
property. At the same time, damages for defamation or personal injury
are excluded from the spouses' insolvent estate by section 23(8) of the
Insolvency Act. So assets emanating from such damages may be out of
reach of one of the spouses between themselves, and, at the same time,
they may be out of reach of the creditors of the insolvent (joint) estate.
Where, then, do assets of this nature reside? Is this not a separate
estate within a communal marital estate? If it is, can such separate and
excluded income, or assets acquired with such income, ever form part of
an insolvent estate?
Conclusion
Although questions may arise from both the Badenhorst and the Du
Plessis judgments, it appears that, generally, the only assets that may be
excluded from a communal insolvent estate are those that are specifically
excluded by virtue of the provisions of the Insolvency Act, or some other
legislation such as the Long-Term Insurance Act. Such assets are beyond
the reach of the creditors of the communal estate. But as long as both
spouses in a marriage in community of property are considered to be the
debtors in respect of debts incurred by either of them, it is apparently not
possible, other than by legislation, in a marriage in community of
property, to create a separate estate beyond the reach of the creditors
of the joint estate. The primary problem with this scenario is, of course,
the particular marital bed of roses that the spouses have chosen to share.
It has proved to be thorny in both the Badenhost and the Du Plessis cases,
one that may have been avoided if the parties had been advised to enter
into a marriage out of community of property, or to change to such a
regime before blood was drawn.
It is interesting to note that in many foreign jurisdictions the institution of
a marriage in community of property is unknown. Generally, in those
jurisdictions, the problems encountered here are also unknown. In his
concluding remarks the judge in the Badenhorst case said that `[d]ie resultaat
mag onbillik voorkom, maar dit is myns insiens 'n onafwendbare gevolg van
die applikante se huwelik binne gemeenskap van goed' (at 172C).
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(2003) 15 SA Merc LJ
The results of these cases certainly leave one with feelings of inequity,
and where a will is involved, with the image of a testator turning in his or
her grave. One can also but wonder why this issue was not considered
thoroughly by the drafters of the Matrimonial Property Act. That Act
appears to be misleading when it refers to the creation of `separate
estates' for spouses married in community of property but then fails to
consider the rights of third parties as against these estates. Legislative
intervention is perhaps overdue.
It is also ironic that although a testator cannot exclude an inheritance
from an insolvent estate by means of a clause such as that used in the Du
Plessis and Badenhorst cases, the heir can attain the result that the
testator had in mind by the mere act of repudiation (see Kellerman NO v
Van Vuren & others 1994 (4) SA 336 (T); Klerck and Scharges NNO v Lee
& others 1995 (3) SA 340 (SE); Boland Bank Bpk v Du Plessis 1995 (4) SA
113 (T); Simon NO & others v Mitsui & Co Ltd & others 1997 (2) SA 475
(W); Durandt NO v Pienaar NO & others 2000 (4) SA 869 (C); Wessels
NO v De Jager en 'n ander NNO 2000 (4) SA 924 (SCA); RG Evans
`Should a Repudiated Inheritance or Legacy Be Regarded as Property of
an Insolvent Estate?' (2002) 4 SA Merc LJ 690; JC Sonnekus `Adiasie,
Insolvensie en Historiese Perke aan die Logiese' 1996 TSAR 240;
JC Sonnekus `Delatio en Fallacia in die Hoogste Hof' 2000 TSAR 793;
Richard Stevens `RIP Testator: Wessels NO v De Jager en 'n ander NNO'
(2001) 118 SALJ 230). While the heir will lose all rights to the inheritance
if he or she repudiates, he or she will also ensure that the inheritance is
excluded from the insolvent estate. The inheritance will then, generally,
devolve upon another person, either in terms of the relevant will or under
the law of intestate succession. This result, one may argue, is more in line
with what the testator probably intended.
To conclude: administrators of estates should be aware that it is not
possible to exclude testamentary assets from an heir's insolvent estate
merely by inserting in a will an exclusionary clause like that in the above
cases. An inheritance will not by this method evade an insolvent
communal estate. This observation of course applies in respect of any
heir, and not only an heir who may be married in community of property.
If a flawed clause of this nature is included in a will, and the insolvent heir
adiates, then that inheritance becomes part of his or her insolvent estate
for the benefit of the creditors. But should the heir repudiate the
inheritance, it will evade the insolvent estate, joint or single.