The Culture of Bankruptcy · of primarily the Insolvency Act 24 of 1936. 22 Prior to 1987, some ad hoc working documents, such as South African Law Commission, Preferences on Insolvency

(2015) 3 NIBLeJ 5

The Pro-Creditor Approach in South

African Insolvency Law and the Possible

Impact of the Constitution

André BORAINE,* Roger EVANS,** Melanie ROESTOFF*** and

Lienne STEYN****

I - Introduction

1 Human rights considerations have assumed increasing significance in recent

decades in insolvency law and practice in many jurisdictions. In the preface to the

third edition of The Law of Insolvency,1 Fletcher conveyed, in relation to England

and Wales, that:2

“…[t]he Human Rights Act 1998 has necessitated a comprehensive review of the operation

of the insolvency law and procedure in the light of the requirements of the European

Convention of Human Rights, as the validity of established domestic provisions comes to be

challenged with increasing frequency before the courts.”

2 Having discussed historical developments in and reform of the law of insolvency

in England and Wales, Fletcher observed:3

“…[I]t is now the duty of every court and tribunal to construe and give effect to all primary

and subordinate legislation, whenever enacted, so far as it is possible to do so… in a way

that is compatible with Convention Rights.”

3 In INSOL International’s Consumer Debt Report II,4 the following is stated:

* André Boraine is a Professor in the Faculty of Law at the University of Pretoria.

** Roger Evans is a Professor in the Faculty of Law at the University of South Africa.

*** Melanie Roestoff is a Professor in the Faculty of Law at the University of Pretoria.

**** Lienne Steyn is an Associate Professor in the School of Law at the University of Kwazulu-Natal. 1 I. Fletcher, The Law of Insolvency (3rd ed) (2002, Sweet & Maxwell, London). 2 Ibid., at vii. 3 Ibid., at 23, reiterated in I. Fletcher, The Law of Insolvency (4th ed) (2009, Sweet & Maxwell,

London), at 7. 4 Consumer Debt Report II: Report of Findings and Recommendations (2011, INSOL International,

London), at 3.

60 Nottingham Insolvency and Business Law e-Journal

“…[I]t should be noted that the UNCITRAL Legislative Guide state[s]:5

…[T]he rights of a natural person debtor in Insolvency Proceedings may be affected by

obligations under international and regional treaties such as the International Covenant on

Civil and Political Rights (CCPR) and the European Convention on Human Rights (EHRC).

Both the European Convention… [and] the UN Covenant ha[ve]… provisions [in relation]

to respect of the privacy, the home and the correspondence of the debtor or for the

protection of property of both the debtor and the creditor. The debtor’s rights and human

dignity should be respected at all stages of the enforcement proceedings without

infringement of the rights of creditors. It should introduce enforcement alleviation

procedures, including the protection of the essential assets of the debtor and garnishment of

part of their revenue, which take into account the need to strike a balance between the

protection of at least the basic living needs of the debtor and their family and the efficiency

of debt recovery.”

4 Similarly, in South Africa, introduction of the new Constitution6 containing a Bill

of Rights, which came into operation in 1994, brought about significant changes to

South African jurisprudence and the legal system.7 All law is subject to, and

therefore must comply with, the provisions of the Constitution, the supreme law of

the land,8 and all law must be interpreted in such a way as to promote the spirit,

purport and objects of the Bill of Rights.9 Human rights considerations now

permeate every aspect of the law, including insolvency law and debt enforcement

procedures, which are required to conform to constitutional imperatives. Statutory

provisions and well-established principles and practices may now be challenged

constitutionally.

5 A number of debt- and insolvency-related statutory provisions have been declared

invalid on the basis of their unjustifiable infringement of various fundamental rights

recognised in the Bill of Rights, while others, arguably offensive to it, remain open

to challenge. Currently, an issue before the high court,10

which relates directly to

statements from INSOL International’s Consumer Debt Report II, quoted above, is

whether sections of the Magistrates’ Courts Act11

that permit garnishment of

5 Chapter IIA, UNCITRAL Legislative Guide, Part Two, at paragraph 19. 6 The Constitution of the Republic of South Africa, Act 200 of 1993, hereafter the “interim

Constitution”, was later replaced by the Constitution of the Republic of South Africa, Act 108 of 1996,

hereafter the “final Constitution” or the “Constitution”. 7 See L. Steyn, “Human Rights Issues in South African Insolvency Law” (2004) 13 International

Insolvency Review 1-25, at 1-2, 1; A. Boraine and R. Evans, “The Law of Insolvency and the Bill of

Rights”, Chapter 4A in Y. Mokgoro and P. Tlakula (consulting eds), Bill of Rights Compendium (2014,

LexisNexis, Durban), at 4A-11-4A-12; S. Woolman and J. Swanepoel, “Constitutional History”,

Chapter 2 in S. Woolman and M. Bishop (eds), Constitutional Law of South Africa (loose-leaf edition,

Juta, Cape Town), at 2-48. 8 Section 2, the Constitution. 9 Ibid., section 39(2). 10 W. Appelbaum, “Unsecured Lending Battle Kicks Off in High Court”, Moneyweb, available at:

<http://www.moneyweb.co.za/moneyweb-financial/unsecured-lending-battle-kicks-off-in-high-court>

(last viewed 21 February 2015). 11 32 of 1944, hereafter “the Magistrates’ Courts Act”.

http://www.moneyweb.co.za/moneyweb-financial/unsecured-lending-battle-kicks-off-in-high-court

Boraine, Evans, Roestoff and Steyn: The Pro-Creditor Approach 61

debtors’ salaries12

pose an unconstitutional infringement of the right of access to

courts13

and also the right to dignity14

in that they deprive a person of their means

of support or impair their ability to access their socio-economic rights.15

6 South African insolvency law has traditionally been, and is still regarded as, a

pro-creditor system. This notion is reflected in some of the basic characteristics of

the system. For example, a court may not grant a sequestration order if it has not

been shown that sequestration will be to the advantage for creditors. It is only upon

rehabilitation, which follows sequestration, under the Insolvency Act,16

which

regulates treatment of creditors’ claims against, and the assets of, insolvent persons,

that a debtor may obtain a statutory discharge from liability for pre-sequestration

debt. Frequently, in reported judgments – some reported as recently as in the last

couple of years - high court judges have proclaimed that insolvency law primarily

exists for the benefit of creditors and is not intended to bring relief to harassed

debtors.17 The Insolvency Act and most of its amendments were enacted well

before the introduction of the Constitution and the reality is that:

“[t]he values and principles upon which the Constitution is built differ radically from many

of the values, principles and policies that are the foundation of the Insolvency Act.”18

7 In this article the authors will consider aspects of insolvency law that reflect the

extent to which the Constitution has served, or which may yet serve, as a catalyst to

bringing about a shift towards a more debtor friendly insolvency regime in South

Africa.

12 Large-scale abuses of the debt collection process by imposition of garnishee orders have come to

light. These were cited as a primary reason for the Marikana mining workers’ protest that led to tragedy

in August 2012; see C. Benjamin, “Business Garnishee Abuse Order of the Day”, available at:

<http://mg.co.za/article/2013-10-25-00-garnishee-abuse-is-order-of-the-day> (last viewed 21 February

2015). See also; A. Boraine, “Some Thoughts on the Reform of Administration Orders and Related

Issues”, (2003) 36 De Jure 217-251, at 230; National Credit Regulator, Credit Bureaux Monitor

Fourth Quarter (December 2012), available at:

<http://www.ncr.org.za/publications/CBM%20Dec%202012.pdf> (last viewed 23 February 2015). 13 Section 34, the Constitution. 14 Ibid., section 10. 15 The Bill of Rights expressly recognises a number of socio-economic rights, for further discussion of

which see S. Liebenberg, Socio-Economic Rights: Adjudication under a Transformative Constitution

(2010, Juta, Cape Town). 16 24 of 1936; hereafter “the Insolvency Act”. 17 See R v Meer 1957 (3) SA 614 (N) at 619; Ex Parte Pillay; Mayet v Pillay 1955 (2) SA 309 (N) at

311; Ex parte Ford 2009 (3) SA 376 (WCC), hereafter “Ex parte Ford”, at 383; Ex parte Arntzen 2013

(1) SA 49 (KZP) at paragraph 13; Ex parte Shmukler-Tshiko [2013] JOL 2999 (GSJ), at paragraph 8. 18 R. Evans, “A Critical Analysis of Problem Areas in respect of Assets of Insolvent Estates of

Individuals” (2008, LLD thesis, University of Pretoria).

http://mg.co.za/article/2013-10-25-00-garnishee-abuse-is-order-of-the-day

http://www.ncr.org.za/publications/CBM%20Dec%202012.pdf


Foundations and Initiatives for Reform of South African Insolvency Law

8 The South African legal system has its roots in Roman Dutch law, which is

generally referred to as the South African common law. It has also been influenced

significantly by English law influences, especially in areas of mercantile law, such

as company law and the law of insolvency. The English system of precedents was

also adopted. South African law is not codified but legislation, the common law (in

so far any specific rule has not been altered or abolished by legislation), as well as

precedents set by the high courts, are primary sources.19

So, South African

insolvency law ultimately became rooted in English law but still has a civil law

foundation.20

The current Insolvency Act 24 of 1936 must thus still be read against

this background.21

9 Although both legal systems that influenced South African law, in other words the

civil law and English law, moved from a position where a discharge was not viewed

as a primary aim of insolvency and debtors received harsh treatment, even being

imprisoned for debt, both systems introduced a discharge notion. But English law

became more robust in this respect than civil law in general. It is submitted that

South African insolvency law today reflects both its English Law and civil law

roots in that it acknowledges a discharge but the specific requirements render it out

of reach for many over-indebted debtors.

10 In this respect the ultimate debt relief for over-indebted consumer debtors in

South Africa remains sequestration followed by rehabilitation in terms of the

Insolvency Act. Sequestration is unfortunately not freely available since it entails a

rather costly high court application and proof of a number of onerous statutory

requirements, including the “advantage to creditors” principle.

11 South African insolvency law has also been subjected to review since 1987,22

when the South African Law Commission, as it was then called, commenced an

investigation of the law of insolvency in its entirety and a Project Committee was

appointed to conduct and direct the review as Project 63. A series of working

papers for discussion dealing with selected topics, followed by reports,23

19 D. Kleyn and F. Viljoen, Beginner’s Guide for Law Students (2010, Juta, Cape Town), at 32. 20 See further C. Smith, The Law of Insolvency (1988, Butterworths, Durban), at 6; E. Bertelsmann et

al. (eds), Mars The Law of Insolvency (2008, Juta, Cape Town). See also Fey NO and Whiteford NO v

Serfontein 1993 (2) SA 605 (A). 21 For comprehensive discussion of this Act, see J. Kunst et al., Meskin Insolvency Law (loose leaf

edition 2014 update, LexisNexis, Durban) and works cited above note 20 for comprehensive discussion

of primarily the Insolvency Act 24 of 1936. 22 Prior to 1987, some ad hoc working documents, such as South African Law Commission,

Preferences on Insolvency Project 37 Working Paper 1 (1982) and its subsequent Report on the Review

of Preferent Claims in Insolvency Project 37 Interim Report (1984), were published. 23 In contrast to the position in the United States of America and England, the Project Committee did

not compile a full report regarding the investigation.


culminated in the Draft Insolvency Bill of 1996.24

This was replaced by the Report

and Draft Bill that was published by the South African Law Reform Commission in

2000. In 2003, Cabinet approved the notion of a single Unified Insolvency Act that

would apply to various types of debtors, i.e., natural person debtors (individuals)

and corporate and other entities. However, apart from a Working Document

produced by the Department of Justice in June 2010 and updated in 2013 and

2015,25

a formal Reform Bill has not yet been published and it is uncertain whether

the new legislation will ever materialise.

12 Although these research reports show signs of improvement of various aspects

of insolvency law, significantly, the “advantage to creditors” principle remains

firmly in place and there is no official proposal for any unilateral formal measure of

discharge from debt outside of the formal liquidation procedure.26

The

constitutional validity of proposals for treatment of assets of the spouse of an

insolvent person is questionable. There is no consideration of any specific

provision for treatment of an insolvent debtor’s home, which may infringe his or

her, or his or her children’s and dependents’ fundamental rights.

13 This article thus considers the extent to which the new constitutional

dispensation, with its liberal Bill of Rights, has served, or may yet serve, as a

catalyst for embracing a more pro-debtor approach in current insolvency law. The

main focus will be on the sequestration of debtors’ estates, involving liquidation of

non-exempt assets in terms of the Insolvency Act, and not specifically on

provisions regulating pre-sequestration debt collection and debt-restructuring

24 The 1996 Draft Insolvency Bill and Explanatory Memorandum were published for comment by the

South African Law Commission as the Review of the Law of Insolvency: Draft Insolvency Bill and

Explanatory Memorandum Working Paper 66 Project 63 (1996), hereafter the “Draft Insolvency Bill”

and “Explanatory Memorandum” respectively. See further A. Boraine and K. van der Linde, “The Draft

Insolvency Bill - An Exploration, Part 1” (1998) 4 Journal of South African Law (TSAR) 621-646; “The

Draft Insolvency Bill - An Exploration, Part 2” (1999) Journal of South African Law (TSAR) 38-62. 25 Unofficial draft documents on file with authors. 26 The South African Law Reform Commission has proposed that provision be made for a pre-

liquidation composition with creditors (see Report on the Review of the Law of Insolvency: Project 63

Vol. 1: Explanatory Memorandum and Vol. 2: Draft Bill (February 2000) Schedule 4). In the latest

unofficial version of the Draft Bill (dated February 2015) provision is made for a binding composition

between a debtor and creditors if accepted by the required majority in number and two-thirds in value

of the concurrent creditors who vote on the composition (see clause 118(17) of the unofficial working

document on file with the authors). However, if such composition is not accepted by the required

majority, the administrator to whom the offer of composition was submitted must declare that the

proceedings have ceased and that the debtor is once again in the position he or she was prior to their

commencement (clause 118(22)). In the 2015 version of the Bill, it is proposed, for the first time, that

provision be made for a discharge of debts of the debtor other than secured or preferred debts. In terms

of clause 118(22)(b) the Master of the High Court may, upon application by the debtor, grant a

discharge of debts if the Master is satisfied, after consideration of comments by creditors and the

administrator and the application by the debtor, that the proposed composition was the best offer which

the debtor could make, that the inability of the debtor to pay debts in full was not caused by criminal or

inappropriate behaviour by the debtor and that the debtor does not qualify for an administration order

in terms of section 74, Magistrates’ Courts Act 32 of 1944.


procedures,27

contained in the Magistrates’ Courts Act and the National Credit

Act,28

aspects of which will be referred to only where these are pertinent to the

discussion of insolvency law.

Application and Interpretation of the Bill of Rights

14 Section 7(1) of the Constitution provides that the Bill of Rights:

“is a cornerstone of democracy in South Africa … [that] enshrines the rights of all people in

our country and affirms the democratic values of human dignity, equality and freedom”.29

15 Section 7(2) provides that the state is obliged to:

“respect, protect, promote and fulfil the rights in the Bill of Rights”,30

which section 8(1) provides:

“applies to all law, and binds the legislature, the executive, the judiciary and all organs of

state.”

16 It also applies “horizontally” in that section 8(2) states that it:

“binds a natural or a juristic person if, and to the extent that, it is applicable, taking into

account the nature of the right and the nature of any duty imposed by the right.”

17 Section 39(1)(a) requires a court when interpreting the Bill of Rights “to

promote the values that underlie an open and democratic society based on human

dignity, equality and freedom.”31

The duty to promote emphasises that

27 Including voluntary debt restructuring, which is possible for some debtors; see below notes 109, 118,

119 and 120. 28 34 of 2005. For a detailed discussion of the South African statutory measures, see M. Roestoff and

H. Coetzee, “Consumer Debt Relief in South Africa; Lessons from America and England; and

Suggestions for the Way Forward” (2012) 24 South African Mercantile Law Journal 53-76; L. Steyn,

“Statutory Regulation of Forced Sale of the Home in South Africa” (2012, LLD thesis, University of

Pretoria), at 349; A. Boraine et al., “A Comparison between Formal Debt Administration and Debt

Review: The Pros and Cons of These Measures and Suggestions for Law Reform, Part 1” (2012) 45(1)

De Jure 80-103, and Part 2 (2012) 45(2) De Jure 254-271. 29 See H. Cheadle, et al., South African Constitutional Law (loose leaf edition, LexisNexis, Durban), at

paragraphs 2.1 and 3.1. 30 See I. Rautenbach and E. Malherbe, Constitutional Law (2009, LexisNexis, Durban), at 325; K.

O’Regan, “Introducing Socio-Economic Rights” (1999) ESR Review 2-3. 31 In terms of section 39(1)(a) and (b), a court must also consider international law and it may consider

foreign law. In terms of section 39(3), “[t]he Bill of Rights does not deny the existence of any other

rights or freedoms that are recognised or conferred by common law, customary law or legislation, to the

extent that they are consistent with the Bill.” On interpretation of the Bill of Rights, see I. Rautenbach,

“Introduction to the Bill of Rights”, Chapter 1A in Mokgoro and Tlakula (consulting eds), above note

7, at paragraph 1A9.


“transformative constitutionalism” and “a socially interconnected and embodied

concept of humanity” are envisaged.32

Section 39(2) provides that, when

interpreting any legislation, a court “must promote the spirit, purport and objects of

the Bill of Rights.” This means that courts must adopt “a value-based

interpretational approach”.33

18 Constitutional rights are not absolute. Section 36 (1) and (2) provides that the

rights in the Bill of Rights may be limited, but only in terms of law of general

application34

to the extent that the limitation is reasonable and justifiable in an open

and democratic society based on human dignity, equality and freedom, taking into

account all relevant factors, including, inter alia:35

the nature of the right; the

importance of the purpose of the limitation; the nature and extent of the limitation;

the relation between the limitation and its purpose; and less restrictive means to

achieve the purpose. The courts adopt a two-stage analysis to determine the

constitutional validity of a law. It must first be established whether the law

infringes36

the right in question and, if so, whether the infringement can be justified

as a reasonable limitation of the right according to the criteria set out in section

36(1).37

19 Some of the rights that have particular relevance for insolvency law, and which

will feature in the discussion below, are: the right to dignity,38

which also underlies

persons’ contractual rights;39

the right to freedom and security of the person;40

the

32 Liebenberg, above note 15, at 98-99. Significant, in this context, is the concept of ubuntu (associated

with concepts such as “humanity” and “menswaardigheid” (“human dignity”) and recognised as being

one of the values that section 39(1) requires to be promoted). See S v Makwanyane 1995 (3) SA 391

(CC), at paragraphs 130-131, 223-227, 237, 307-313, and 516; Everfresh Market Virginia (Pty) Ltd v

Shoprite Checkers (Pty) Ltd 2012 (1) SA 256 (CC) at paragraphs 23 and 61. See further L. Du Plessis,

“Interpretation of the Bill of Rights”, Chapter 2 in Woolman and Bishop (eds), above note 7; Y.

Mokgoro, “Ubuntu and the Law in South Africa” (1998) 1(1) Potchefstroom Electronic Law

Journal15-26; I. Kroeze, “Doing Things with Values II: The Case of Ubuntu” (2002) 13 Stellenbosch

Law Review 252-264. 33 According to which the content and scope of the rights enshrined in the Bill of Rights are determined

in light of the five fundamental values which “animate the entire constitutional enterprise: openness,

democracy, human dignity, freedom and equality”; see Rautenbach, above note 31, at paragraph 1A19;

S. Woolman and H. Botha, “Limitations”, Chapter 34 in Woolman and Bishop (eds), above note 7, at

34-17-34-18. See also Barkhuizen v Napier 2007 (5) SA 323 (CC); Everfresh Market Virginia (Pty)

Ltd v Shoprite Checkers (Pty) Ltd 2012 (1) SA 256 (CC), at paragraphs 1, 13, 16, 22-25, 30-34, 48, 61,

and 64. 34 This includes legislation, subordinate legislation, the common law (both private law and public law

rules) and customary law. See S. Woolman and H. Botha, “Limitations”, Chapter 34 in Woolman and

Bishop (eds), above note 7, at 34-47-34-67. 35 Courts are not precluded from taking any other relevant factor into account; see I.M. Rautenbach

“Fundamental Rights” in W.A Joubert and J.A. Faris (eds), Law of South Africa 10(1) (2008,

LexisNexis, Durban), at paragraph 322. 36 Or impairs or limits: see Woolman and Botha, above note 34, at 34-3-34-4. 37 Ibid., at 34-6-34-8 and 34-67-34-136. 38 Section 10, the Constitution. 39 Brisley v Drotsky 2002 (4) SA 1 (SCA), at paragraphs 94-95; Standard Bank (Pty) Ltd v Saunderson

and Others; Napier v Barkhuizen 2006 (4) SA 1 (SCA), at paragraphs 7 and 13; Barkhuizen v Napier


right to access to courts;41

the right to privacy;42

the right to equality;43

the right to

property;44

the right to freedom of trade;45

the right to have access to adequate

housing;46

and children’s rights.47

Some Areas that indicate Potential Policy Changes towards a More Debtor-

Friendly Insolvency System

Civil Imprisonment

20 Civil imprisonment for debt was officially removed from the statute book, well

before the introduction of the new constitutional dispensation, by the enactment of

the Abolition of Civil Imprisonment Act.48

However, section 20(1)(d) of the

Insolvency Act still provides that, if an insolvent is in prison for debt, the effect of

the sequestration of his or her estate allows him or her to apply to a court for his or

her release. It also provides that the court may not order the debtor’s release

without being satisfied that proper notice has been given to the creditor at whose

suit he or she was imprisoned. The clear aim of this section having been to deal

with the practice of civil imprisonment for a debtor’s failure to satisfy his or her

debts, it has been rendered redundant by the enactment of the Abolition of Civil

Imprisonment Act.

21 A somewhat camouflaged power to imprison debtors was retained in the debt

collection procedure provided for by sections 65A to 65M of the Magistrates’

Courts Act.49 A judgment debtor who failed to meet a judgment debt could be

required to attend an enquiry into his or her financial affairs with a view to issuing a

writ of attachment, or to compelling the debtor to repay the debt, for instance, by

way of instalments. The court was empowered to grant an order of committal for

contempt of court against any person who did not abide by a civil court order.

Therefore, if a debtor failed to repay a judgment debt he or she could still be

imprisoned.50 Judgment creditors, regarding this as a rather effective means of

extracting payment, continued to rely on this provision to imprison their judgment

2007 (5) SA 323 (CC), at paragraphs 11-15, 24-26, 29, 30 and 57; African Dawn Property Finance 2

(Pty) Ltd v Dreams, Travel& Tours CC 2011 (3) SA 511 (SCA), at paragraphs 15-16. 40 Section 12 of the Constitution. 41 Ibid., section 34. 42 Ibid., section 14. 43 Ibid., section 9. 44 Ibid., section 25. 45 Ibid., section 22. 46 Ibid., section 26. This right was introduced for the first time in the 1996 Constitution as one of the

socio-economic rights included in the Bill of Rights. 47 Ibid., section 28. 48 2 of 1977. 49 See Boraine and Evans, above note 7, at paragraph 4A3. 50 Section 3, Abolition of Civil Imprisonment Act 2 of 1977.


debtors. This coercive practice provided clear indications of abuse of this

provision, which attracted the attention of the Constitutional Court.

22 In a ground breaking judgment, in Coetzee v Government of RSA; Matiso and

Others v Commanding Officer, Port Elizabeth Prison and Others,51

the

Constitutional Court ruled that a judgment creditor could no longer use the section

65 procedure to imprison a judgment debtor for an inability to pay debts. It found

several parts of sections 65A to 65M to be fundamentally radical and held that

imprisonment for the failure to pay a judgment debt was an unjustifiable

infringement of a person’s constitutional right to freedom and security protected by

section 12 of the interim Constitution. The court stated:52

“On the face of it, the law seems to contemplate that imprisonment should be ordered only

where the debtor has means to pay the debt, but is unwilling to do so. However, on

examination of the provision in detail and taking notice of the actual carrying out of the

provisions, it is clear that the law does not adequately distinguish between the

fundamentally different categories of judgment debtors: those who cannot pay and those

who can pay but do not want to.”

23 A consequence of this decision was that section 65 of the Magistrates’ Courts

Act was amended to provide that a debtor, who fails to attend a section 65 financial

enquiry when summonsed to do so, may be found guilty of the offence of contempt

of court.53

It may be mentioned that, prior to the Coetzee decision, the South

African Law Reform Commission had conducted research into the need for the

section 65A procedure of the Magistrates’ Courts Act to be abolished.54 In its

Coetzee judgment, the Constitutional Court referred to the research project report

in which the Commission had relied, in particular, on the Bill of Rights contained

in Chapter 3 of the interim Constitution. Although, unlike the final Constitution, the

interim Constitution did not make specific provision forbidding imprisonment for

debt, the Commission considered a number of its provisions to have been

sufficiently enabling of such an interpretation.55 It also reasoned that as the practice

in question was outlawed by international law, international instruments and by

most western jurisdictions, its retention should equally be viewed as undesirable in

this country.56 This is particularly pertinent as, when international instruments are

adopted by Parliament, they are deemed to be part of the South African law by

virtue of sections 231 and 232 of the Constitution. It is for this reason that section

51 1995 (4) SA 631 (CC) at 664I–666F, hereafter “Coetzee”. See A. L. Stander, P. H. Myburgh & L.

Jansen van Rensburg, “Die einde van siviele gevangesetting in Suid-Afrika” (1996) 59 Tydskrif vir

Hedendaagse Romeins-Hollandse Reg, pp. 485-491 for a case discussion. 52 Coetzee, at 1389B. See also Coetzee, at 1390A and 1393G. 53 See sections 4, 8, 9, 10 and 13 of the Magistrates’ Courts Amendment Act 81 of 1997. 54 South African Law Reform Commission, Interim Report on Imprisonment for Debt Project 74

(1994), at 17. See Boraine and Evans, above note 7, at paragraph 4A4. 55 These included sections 11(1), 18, 25(1)(c), 26(1), 33(1), 33(2), 35(1), 35(3). 56 South African Law Reform Commission, Interim Report on Imprisonment for Debt, Project 74

(1994), at 6-15.


39 of the Constitution requires courts and tribunals to consider international law57

and entitles them to consider foreign law58

when interpreting the Bill of Rights.

24 Other provisions that may also militate against the Constitution are, for example,

section 137(a) of the Insolvency Act, which provides for imprisonment if a debtor,

while being an insolvent, obtains credit of no less than ZAR 20 without disclosing

the fact of his or her insolvency to the creditor.59

25 There is authority that the arrest of an insolvent who tries to escape the

jurisdiction of a court, thus being an arrest suspectus de fuga is also indictable. In

Elliot v Fourie,60 it was stated:

“There is nothing in the Act to indicate that the legislature intended to restrict the common-

law jurisdiction to order an arrest suspectus de fuga.”

26 In the same judgment it was stated further that:61

“The fact, therefore, that the effect of the sequestration order is to render it impossible for

the debtor personally to provide security does not per se entitle him to his release. The

object is not to keep him incarcerated indefinitely as a punishment; it is to ensure that he is

prevented from fleeing the country with the object of making it more difficult for, inter alia,

respondent to obtain execution of his judgment debt in the manner envisaged by the

Insolvency Act.”

27 In Malachi v Cape Dance Academy International (Pty) Ltd and Others,62

the

Constitutional Court, however, ruled section 30(3) of the Magistrates’ Courts Act

to be unconstitutional to the extent that it provided for the common-law process of

arrest tanquam suspectus de fuga, since the process constitutes deprivation without

a just cause of the constitutional right to freedom and security of person as

provided for in section 12(1) of the Constitution. It is submitted that the same

argument may be raised against the arrest of an insolvent in terms of section 137(a)

of the Insolvency Act and that the ratio in the Elliott decision will no longer

prevail.

57 Section 39(1)(b), the Constitution. 58 Ibid., section 39(1)(c). 59 Note that imprisonment for a failure to pay a debt in certain circumstances still exists in South

African law, i.e. failure to pay in terms of a maintenance order may result in imprisonment. See also

Omar v Government of the Republic of South Africa and Others (Commission for Gender Equality,

Amicus Curiae) 2006 (2) SA 289 (CC) at 303G–304B where the Constitutional Court considered other

civil imprisonment procedures in terms of the Domestic Violence Act 116 of 1998 and distinguished

these from the former section 65 civil imprisonment procedure which was in force prior to the Coetzee

decision. 60 1992 (2) SA 817 (C) 822E per Friedman JP; hereafter “Elliot”. 61 Elliot, at 823H. 62 2010 (6) SA 1 (CC).


28 Although some of the instances discussed above do not at first blush seem to be

in conflict with the provisions of the Abolition of Civil Imprisonment Act, further

enquiry may expose their being unconstitutional in light of the above.

Divestment of Solvent Spouse’s Property

29 In South Africa parties who enter into matrimony have a choice of one of two

marital regimes. They may enter into a marriage in community of property, or a

marriage out of community of property. Upon the sequestration of an estate parties

married in community of property have one joint estate which is under

sequestration. Both spouses are then insolvents.

30 In marriages out of community of property each spouse has his or her own

separate estate, and sequestration of the estate of one of the spouses does not result

in the other spouse becoming insolvent. But if the estate of one of these two

spouses married out of community of property is sequestrated, section 21 of the

Insolvency Act detrimentally affects the position of the other spouse, who remains

solvent.63

Section 21(1) of the Insolvency Act provides as follows:64

“The additional effect of sequestration of the separate estate of one of two spouses who are

not living apart under a judicial order of separation shall be to vest in the Master, until a

trustee has been appointed, and, upon the appointment of a trustee, to vest in him all the

property (including property or proceeds thereof which are in the hands of a sheriff or

messenger under a writ of attachment) of the spouse whose estate has not been sequestrated

(hereinafter referred to as the solvent spouse) as if it were property of the sequestrated estate,

and to empower the Master or trustee to deal with such property accordingly, but subject to

the provisions of the section.”

31 This section treats a solvent spouse in the same fashion as an insolvent debtor in

certain respects. It effectively applies the attributes of a marriage in community of

property to a marriage out of community of property. It dispossesses the solvent

spouse of her property in order to favour the creditors of the insolvent estate of her

insolvent spouse, while in reality she may never have had any dealings with them.

In both the High Court65

and the Constitutional Court,66

section 21 was held to have

the effect of a complete transfer (albeit temporarily) of ownership of the solvent

spouse’s property to the Master of the High Court or the trustee. The rationale here

is that the section prevents collusion between the spouses who may argue that the

property of the insolvent estate belongs to the solvent spouse, thereby placing it

63 Hereafter “the solvent spouse”. For the sake of convenience the solvent spouse will be referred to

using “she” or “her”. 64 A “Spouse” is defined broadly in section 21(13) as “. . . not only a wife or husband in the legal sense,

but also a wife or husband by virtue of a marriage according to any law or custom, and also a woman

living with a man as his wife or a man living with a woman as her husband, although not married to

one another.” 65 De Villiers NO v Delta Cables (Pty) Ltd 1992 (1) SA 9 (A) 16H–I. 66 Harksen v Lane NO 1997 (11) BCLR 1489 (CC), hereafter “Harksen” or “Harksen v Lane”.


beyond the reach of the insolvent spouse’s creditors. But even if there is no

collusion, the solvent spouse is automatically affected by the sequestration order.

Her rights to property and freedom are violated, while she is treated unequally to

other parties, such as third parties like family, friends or business associates, who

enter into transactions with the insolvent debtor.67

One essentially may argue that

section 21 discriminates against solvent spouses of persons married out of

community of property on grounds of marital status. But as will be discussed

below, the question is whether this treatment is justifiable within the confines of the

Constitution.

32 So it was not surprising that the provisions of section 21 of the Insolvency Act

were challenged in the Constitutional Court in Harksen v Lane. Mrs Harksen, the

applicant, was married to her husband out of community of property when his

estate was sequestrated and her property was attached in accordance with the

provisions of section 21(1). Amongst others, the applicant contended that section

21 violated the equality clause and the property clause contained in sections 8 and

28, respectively, of the interim Constitution. In the final Constitution, sections 9

and 25, respectively, are virtually the equivalent of the former two sections

protecting rights to equality and to property.

33 A small majority in the Constitutional Court found section 21 to be

constitutional. The majority ruled that section 21(1) did not amount to

expropriation as contended by the applicant and therefore did not infringe section

28. The court ruled that the divestment of the property was only temporary, for the

purpose of ascertaining what property belonged to the insolvent estate. The

majority found that section 21 contained measures which adequately safeguard the

interests of the solvent spouse.

34 Concerning the question whether section 21 infringed the equality clause and the

provisions regulating discrimination, contained in section 8(1) and (2) of the

interim Constitution, the court considered questions that required objective

judgment to establish infringement. It had to be established whether section 21

differentiated between people or categories of people and, if it did, the further

question was whether the differentiation had a rational connection to a legitimate

governmental purpose. If it did not serve such purpose, it would constitute an

infringement.

35 In its analysis the majority ruled that even if a differentiation was

discriminatory, a further question to consider was whether it was unfair

discrimination. To answer this question, the court ruled, one judges the impact of

the discrimination on the solvent spouse and others in his or her situation. If it did

67 See generally Evans, above note 18, in Chapter 10; R. Evans, “Sequestration of the Estate of a

Spouse: What Happens to the ‘Property’ of the Solvent ‘Spouse’?” (2014) 77 Tydskrif vir Hedendaagse

Romeins-Hollandse Reg 632-641.


amount to unfair discrimination then the provision had to be subjected to the

limitation clause in section 33 of the interim Constitution68

to decide whether it was

a justified limitation of rights. Upon subjecting section 21 of the Insolvency Act to

this analysis, the majority of the court found it was not unconstitutional.

36 Interesting for the development of the law relating to section 21, however, is the

fact that in the Harksen case, neither O’Regan J nor Sachs J, in each of their

separate judgments, concurred with the majority ruling in respect of section 8(3) of

the interim Constitution. O’Regan J found that section 21 was not justifiable under

the limitations clause. In all the dissenting judgments, the impeachment and

interrogative provisions contained in the Insolvency Act69

were regarded as

rendering section 21 superfluous.

37 Concerning the definition of the term “spouse” in section 21(13),70

the existence of

same-sex couples hampered the efficacy of section 21. They did not fall within the

definition of “spouse”, so section 21 did not apply to such relationships. However,

with the introduction of the Civil Union Act71

on 30 November 2006, the position was

partly resolved. This legislation affords same-sex couples the same rights,

obligations, status, benefits and responsibilities as opposite-sex couples. The

constitutional rights of same-sex couples are now recognised by virtue of the Civil

Union Act, a consequence of which, it is submitted, is that the definition of the term

“spouse” in the Insolvency Act has by implication been amended to include persons

of the same sex who have entered into a civil union. Therefore, section 21 now

applies to a civil union partner. However, a problem that may still exist where two

same-sex partners have not entered into a civil union but are merely living together.

Section 21 will probably not apply to that relationship.

38 Section 21 has received much criticism. For example, Van der Walt and Botha72

as well as Evans,73

have commented on the shortcomings of this legislation. These

are additions to numerous other comments, which have been made over a long

period of time, on the constitutional and other effects of section 21.74

Evans, for

68 Now section 36, the final Constitution. 69 See sections 64, 65 and 66 and also sections 26, 29, 30, 31 and 32, Insolvency Act. 70 See above note 64 for the definition. 71 17 of 2006. 72 A.J. Van der Walt and H. Botha “Coming to Grips with the New Constitutional Order: Critical

Comments on Harksen v Lane NO” (1998) 13 South African Public Law Journal 17-41 (hereafter

“Van der Walt and Botha”). 73 R. Evans, “The Constitutionality of Section 21 of the Insolvency Act 24 of 1936” (1998) 9

Stellenbosch Law Review 359-372. 74 See Van der Walt and Botha, above note 72, at 19; L. Stander, Die Invloed van Sekwestrasie op

Onuitgevoerde Kontrakte (1994, LLD thesis, University of Potchefstroom for CHE), at 26; R. Evans,

“A Critical Analysis of Section 21 of the Insolvency Act 24 of 1936” (1996) 59 Tydskrif vir

Hedendaagse Romeins-Hollandse Reg 613-625 and (1997) 60 Tydskrif vir Hedendaagse Romeins-

Hollandse Reg 71-83. See also W. Freedman, “Understanding the Right to Equality” (1998) South

African Law Journal 243-251; I. M. Rautenbach, “Die Konstitusionele Hof se Riglyne vir die


example, submits that the interrogatory provisions in sections 64, 65 and 66, and

the impeachment provisions in sections 26, 29, 30, 31 and 32, of the Insolvency

Act render section 21 superfluous.75

39 Under the present (“final”) Constitution it may be argued that section 21

discriminates on grounds of marital status. Marital status was not included as a

specified ground of discrimination under the interim Constitution when the Harksen

case was heard, but it is a specified ground of discrimination in the final

Constitution. Discrimination on specified grounds is presumed to be unfair. So in

future it may be difficult to establish that any discrimination is fair if there seems to

be no rational connection between section 21 and its purpose, which is to help the

trustee fulfil his or her duties and to protect creditors. Consequently, the possibility

remains that section 21 may once again be challenged on the basis that it

discriminates on grounds of marital status.

40 The South African Law Reform Commission at one point viewed section 21 as

out-dated legislation and possibly unconstitutional.76

To date, however, no

amendments have been introduced to section 21 of the Insolvency Act.

Insurance Policies: Discrimination against Married Persons

The Insurance Act 27 of 1943

41 Throughout most of the history of South African insolvency law, where it

overlapped with insurance legislation, the latter proved to contain provisions, which

today are considered discriminatory in one way or another. The last piece of

legislation that contained such discriminatory provisions was the Insurance Act.77

It

came before the Constitutional Court in the case of Brink v Kitshoff,78

the judgment

Toepassing van die Reg op Gelykheid” (1998) Tydskrif vir Hedendaagse Romeins-Hollandse Reg 316-

325; L. Stander and L. Jansen van Rensburg, “Weeg die Belange van die Skuldeisers Swaarder as die

Belange van die Solvente Eggenoot?” (1998) 2 Tydskrif vir Hedendaagse Romeins-Hollandse Reg 334-

343; E. Bertelsmann et al. (eds), above note 20, at 207; D.A. Ailola, “The Rights of the Separate

Creditors of a Solvent Spouse: Understanding Section 21 is the Key” (1993) 18 Journal for Juridical

Science 143-150; South African Law Reform Commission, Review of the Law of Insolvency (Voidable

Dispositions and Dispositions that may be Set Aside and the Effect of Sequestration on the Spouse of

the Insolvent) Project 63 Working Paper 41 (1991); and L. Jansen van Rensburg, “Die Weglating van

Artikel 21 van die Insolvensiewet 24 van 1936 – Bied die Konsep Insolvensiewet van 1996 Voldoende

Beskerming?” (1997) 2 Tydskrif vir Hedendaagse Romeins-Hollandse Reg 674-688. 75 See R. Evans, “The Constitutionality of Section 21 of the Insolvency Act 24 of 1936” (1998) 9

Stellenbosch Law Review 359-372. 76 See South African Law Commission, Review of the Law of Insolvency (Draft Insolvency Bill and

Explanatory Memorandum) Project 63 Discussion Paper 66 (1996). The possible reform of insolvency

legislation in South Africa is also considered by R. Evans et al., “Aspects of the Draft Insolvency Bill”

(1999) 11 South African Mercantile Law Journal 210-226. 77 27 of 1943, hereafter the “old Act”. 78 1996 (4) SA 197 (CC).


in which in part led to the entire Insurance Act being repealed and replaced by the

Long-Term Insurance Act.79

42 The old Act contained section 44,80

which restricted married women only, and

not men, to a portion of the benefits of life insurance policies where the estate of

the husband (who had either ceded or executed such a policy in favour of his wife)

was sequestrated. The crux of section 44 was that if a life insurance policy had been

ceded to a woman, or effected in her favour, by her husband more than two years

before the sequestration of her husband’s estate, she was entitled to no more than

ZAR 30,000 from the policy. If less than two years from date of sequestration had

expired, since it was ceded or taken out, the wife would receive no benefit at all. If

two years had in fact passed after the policy was ceded to a wife, or effected in her

favour, the bulk of the policy in excess of the ZAR 30,000 would form part of the

husband’s insolvent estate for the benefit of his creditors. This meant that the

proceeds of the policy in question could be attached by the judgment creditors of

the husband in execution of a judgment against him. However, a similar provision

did not exist regarding a life policy ceded to, or executed in favour of, a man by his

wife. When the interim Constitution came into effect, this provision was

challenged.

43 In Brink v Kitshoff,81

it was argued that section 44(1) and (2) of the Insurance

Act was discriminatory and violated section 8 of the interim Constitution, which

provided for equality of all persons before the law and for the equal protection of

79 52 of 1998. 80 Section 44, Insurance Act 27 of 1943 used to provide that:

(1) If the estate of a man who has ceded or effected a life policy in terms of section forty-two or forty-

three has been sequestrated as insolvent, the policy or any money which has been paid or has become

due thereunder or any other asset into which any such money was converted shall be deemed to belong

to that estate: Provided that, if the transaction was entered into in good faith and was completed not less

than two years before the sequestration –

(a) by means or in pursuance of a duly registered antenuptial contract, the preceding provisions of this

subsection shall not apply in connection with the policy, money or other asset in question;

(b) otherwise than by means or in pursuance of a duly registered antenuptial contract, only so much of

the total value of all such policies, money and other assets as exceeds thirty thousand rand shall be

deemed to belong to the said estate.

(2) If the estate of a man who has ceded or effected a life policy as aforesaid, has not been sequestrated,

the policy or any money which has been paid or has become due thereunder or any other asset into

which any such money was converted shall, as against any creditor of that man, be deemed to be the

property of the said man -

(a) in so far as its value, together with the value of all other life policies ceded or effected as aforesaid

and all moneys which have been paid or have become due under any such policy and the value of all

other assets into which any such money was converted, exceeds the sum of thirty thousand rand, if a

period of two years or longer has elapsed since the date upon which the said man ceded or effected the

policy; or

(b) entirely, if a period of less than two years has elapsed between the date upon which the policy was

ceded or effected, as aforesaid, and the date upon which the creditor concerned causes the property in

question to be attached in execution of a judgment or order of a court of law. 81 Above note 78.


all by the law, forbidding unfair discrimination based on, amongst other things,

gender and sex.

44 In the Constitutional Court, O’Regan J found that with the advent of section 22

of the Matrimonial Property Act,82

which abolished the common-law provision

which forbade donations between spouses, any benefits that section 44(1) and (2)

of the Insurance Act held for wives whose husbands had donated life insurance

policies to them before sequestration on attachment of such husband’s assets had

fallen away. In fact the opposite transpired. This was because these provisions

made it possible for the proprietary interests of a wife to be adversely affected in

favour of creditors with whom she had no connection, and created liabilities that

she had not incurred, against her. So this legislation actually created direct

entitlements for parties other than the wife herself. This legislation could not be a

justifiable limitation of the right to equality and property in an open and democratic

society.

45 O’Regan J found that section 44(1) and (2) treated married women and men

differently, and that this different treatment disadvantaged married women and not

married men.83

It therefore infringed section 8 of the interim Constitution and was

invalid. As already mentioned, the equivalent of section 8 under the final

Constitution is section 9.

The Long-Term Insurance Act 52 of 1998

46 The Long-Term Insurance Act replaced the Insurance Act and regulates the

position of long-term insurance policies generally, and specifically, the position

where insolvency visits the policy holder. To some extent parties involved are

treated equally, irrespective of their gender. However, as will be shown below, this

Act discriminates against “solvent spouses”, which constitutes discrimination based

on marital status. But it did secure equality to the position of male and female

policy holders under section 63.

47 Section 63 of the Long-Term Insurance Act was however amended recently.84

It

now reads as follows:

“63. Protection of policy benefits under certain long-term policies

(1) Subject to subsections (2), (3) and (4), the policy benefits provided or to be provided

to a person under one or more assistance, life, disability or health policies in which

that person or the spouse of that person is the life insured and which has or have been

in force for at least three years (or the assets acquired exclusively with those policy

benefits) shall, other than for a debt secured by the policy–

82 82 of 1984. 83 Brink v Kitshoff, at 217G. 84 By the Financial Services Laws General Amendment Act 45 of 2013, which came into effect on 28

February 2014.


(Words preceding paragraph (a) substituted by section 101(a) of Act 45 of 2013.)

(a) during his or her lifetime, not be liable to be attached or subjected to execution

under a judgment of a court or form part of his or her insolvent estate; or

(b) upon his or her death, if he or she is survived by a spouse, child, stepchild or

parent, not be available for the purpose of the payment of his or her debts.

(2) The protection contemplated in subsection (1) shall apply to policy benefits and

assets acquired solely with the policy benefits, for a period of five years from the date

on which the policy benefits were provided.

(Section 63(2) substituted by section 101(b) of Act 45 of 2013.)

(3) Policy benefits are only protected as provided in –

(a) subsection (1)(b), if they devolve upon the spouse, child, stepchild or parent of the

person referred to in subsection (1) in the event of that person’s death; and

(b) subsection (1)(a) and (b), if the person claiming such protection is able to prove

on a balance of probabilities that the protection is afforded to him or her under this

section.

(4) Policy benefits are protected as provided for in subsection (1)(a) and (b), unless it can

be shown that the policy in question was taken out with the intention to defraud

creditors.”

48 Section 63 essentially protects insurance benefits from forming part of an

insolvent estate of the insolvent policy holder, or if deceased, where the benefits

devolve upon the spouse or family members mentioned in section 63.85

The entire

policy benefit is therefore beyond the reach of the creditors of the insolvent estate.

Prior to its amendment, the protection so offered was limited to ZAR 50,000.

Anything exceeding that sum was available to the creditors. This amendment thus

clearly works in favour of the debtor and his dependants.

49 On the face of it, this is a legislative development towards a more debtor

friendly policy in insolvency law. Further, apart from possible interpretational

problems in relation to such aspects as the meaning of the terms “spouse”, and the

determination of which policies may qualify for protection, this section appears to

create equal treatment of male and female policyholders in insolvent and other

circumstances.

50 However, section 21 of the Insolvency Act was not taken into consideration in

the drafting of the new insurance legislation. As this insurance legislation presently

stands, it discriminates against spouses who are married out of community of

property, which is discrimination based on marital status. The problem in this

respect lies in the fact that, if the spouse who is married out of property has

accepted the relevant insurance benefit, by the mechanisms of section 21 such

benefit, upon the sequestration of the estate of the insolvent spouse, automatically

forms part of the insolvent estate. If the policy premiums were paid by the insolvent

spouse, it will probably be impossible for the solvent spouse to claim release of the

85 For a comprehensive discussion of the new insurance legislation and its effect on insolvent estates

prior to this amendment, see A. Smith, “The Protection of Insurance Policies from Insolvency under

Section 63 of the Long-Term Insurance Act 52 of 1998” (2000) 12 South African Mercantile Law

Journal 94-108 and R. Evans and A. Boraine, “Considerations Regarding a Policy for the Treatment of

Certain Beneficiaries of Life Insurance Policies in the Law of Insolvency” (2005) 38 De Jure 266-294.


benefits by virtue of section 21(2) of the Insolvency Act.86

The only way in which

the solvent spouse can avoid this, if she has not already accepted the benefits, will

be to repudiate the insurance benefit. The Supreme Court of Appeal has held that

an inheritance or an insurance benefit that has been repudiated by an insolvent

party does not form part of insolvent estate.87

51 The irony of this situation is that, if the spouses are married in community of

property, there will be only one insolvent estate, to which section 63 will therefore

provide protection, and so both spouses will be entitled to the benefits of the policy,

free from the claims of their creditors.88

Antenuptial Contracts

52 Section 27 of the Insolvency Act makes provision for a woman to receive

benefits under an antenuptial contract. Section 27(1) reads as follows:

“27(1) No immediate benefit under a duly registered antenuptial contract given in good faith

by a man to his wife or any child to be born of the marriage shall be set aside as a

disposition without value, unless the man’s estate was sequestrated within two years of the

registration of that antenuptial contract.”

53 It is submitted that this provision is discriminatory since it provides benefits for

women and certain children only, so it is open to constitutional challenge. Further,

it provides benefits only to children born within a marriage, thereby discriminating

against adopted and illegitimate children of the respective parties (whether married

or not).

54 Section 27 will also create conflict within the confines of the Civil Union Act.89

As stated above, the latter Act provides for the equal treatment of same-sex partners

who enter into a civil union. Now partners in a civil union will enjoy the same

consequences of a marriage in terms of the Marriage Act,90

but the reference in

section 27 to “wife” may cause interpretational problems that will question the

discriminatory nature of section 27. Further, same-sex couples who adopt a child,

86 R. Evans, “Release of a Solvent Spouse’s Property under Section 21(2)(c) of the Insolvency Act 24f

1936” (2004) 15 Stellenbosch Law Review 193-200. 87 See Wessels NO v De Jager 2000 (4) SA 924 (SCA) and R. Evans, “Release of a Solvent Spouse’s

Property under Section 21(2)(c) of the Insolvency Act 24 of 1936” (2004) 15 Stellenbosch Law Review

193-200 and generally comprehensively discussed in R. Evans, “Can an Inheritance Evade an Insolvent

Communal Estate?” (2003) 15 South African Mercantile Law Journal 228-236. 88 See generally Z. Mabe, “Life and other Insurance Policy Benefits and the Property of an Insolvent

Person” (2015) Tydskrif vir Hedendaagse Romeins-Hollandse Reg (forthcoming), a copy of which is in

possession of the authors; Z. Mabe, “The Exclusion of Life and Disability Insurance Benefits from the

Insolvent Estate and the Effect on Third Parties – Comparing South Africa and England” Paper

presented at INSOL International Academics’ Colloquium in San Francisco in March 2015, a copy of

which is in the possession of the authors. 89 See above note 71. 90 25 of 1961.


or who in a civil union conceive a child through artificial insemination, will be

faced with the same problems of discrimination discussed above.

55 A further problem is that section 27 may be in conflict with section 21 of the

Insolvency Act. Strictly speaking section 21 will apply to the benefit referred to in

section 27, so the benefit which is meant to devolve upon the solvent spouse, will

form part of the insolvent spouse’s insolvent estate. The solvent spouse will then

have to apply for the release of the benefit under the provisions of section 21(2)(c),

meaning that she must prove that she acquired the property by valid title. A court

will probably find that section 27 grants a valid title to a solvent spouse, but the fact

is that a person should not have to be burdened in this way merely because of her

marital status. The same irony referred to regarding long-term insurance contracts

is found here too. If the spouses are married in community of property the woman

in that marriage will be protected by section 27, but not so if she is married out of

community of property. It effectively overturns the entire rationale behind the

purpose of a marriage out of community of property, namely that each spouse in the

marriage will have sole control over his or her estate. This can also indirectly affect

any children in the marriage, since they can effectively be denied the fruits of the

benefits in question.

Discharge and “Advantage to Creditors”

56 Insolvency laws over the centuries developed from a rather formalistic pro-

creditor type of approach towards a situation where it was realised that a discharge

should be given more prominence. Thus, from cutting up the body of a debtor into

pieces or to sell him or her into slavery where he or she failed to pay his or her

debt, a discharge of debt obligations that affords a debtor some kind of a fresh start

has become a central concept of many modern insolvency laws.91

57 It is submitted that a decisive determining factor in the classification of a system

as pro-creditor or pro-debtor remains whether or not a discharge of debt is

acknowledged or granted in insolvency. In this regard the general attitude and

views of a particular culture are significant.92

Although the South African consumer

insolvency system provides for a discharge of debt obligations, the system is

regarded as exceptionally pro-creditor93

and has remained so, despite the world-

wide trend to assist and accommodate over-indebted and insolvent debtors and to

91 See in general Bertelsmann et al. (eds), above note 20, at 1-5. 92 As mentioned, “[t]he roots of insolvency law are embedded deep in our legal, social and economic

history.” See K. Cork “Report of the Insolvency Law Review Committee: Insolvency Law and Practice”

(1982) Cmnd 8558, at 14. 93 See A. Boraine and M. 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) 77 Tydskrif vir Hedendaagse Romeins-Hollandse Reg 351-374, at 354.


strive for a balance among the competing interests of debtors and creditors.94

The

Insolvency Act requires proof that sequestration will be to the “advantage of

creditors”.95

As a result our courts have hitherto generally shown an extremely

unsympathetic attitude as regards debtors’ interests when sequestration applications

have been brought with a view to obtaining, through the provisions provided for by

the Act,96

the discharge from liability for pre-sequestration debt.97

As mentioned

above, courts have on several occasions emphasised the legislator’s intention that

the Insolvency Act’s procedures are supposed to convey a benefit to creditors and

that the Act’s main aim is not to bring relief to harassed and unfortunate debtors.98

In a recent judgment reported in a division of the High Court, it was stated that a

natural person debtor applying for sequestration under the Insolvency Act does not

have a constitutional right to the granting of a sequestration order and the debt

relief that it offers.99

58 The insolvency of natural persons in South Africa is primarily regulated by the

Insolvency Act which provides that a sequestration order can be obtained upon

application by a creditor to the High Court for compulsory sequestration of the

debtor’s estate100

or upon application by the debtor for voluntary surrender of his or

her estate.101

The fact that a high court application must be brought makes the

procedure expensive.

59 The “advantage to creditors” requirement plays a pivotal role in the exercise of

the court’s discretion in sequestration applications. It is often on this basis that a

court will decline to accept the voluntary surrender or grant an order for the

compulsory sequestration of an estate even though all the other requirements for the

granting of a sequestration order have been satisfied. One of the most important

questions posed, to determine compliance with the advantage to creditors

requirement, is whether the creditors will receive a pecuniary benefit.102

The

94 Working Group on the Treatment of the Insolvency of Natural Persons, Report on the Treatment of

the Insolvency of Natural Persons (Insolvency and Creditor/Debtor Regimes Task Force, World Bank

2012; available at: <http://bit.ly/Oft3hp> (last viewed 21 February 2015>. 95 See sections 6(1), 10(c) and 12(1)(c), Insolvency Act. Only aspects relevant to this article are

discussed here. For comprehensive discussion of the advantage to creditors principle, see Kunst et al.,

above note 21, at paragraphs 2.1.4 and 3.2; Bertelsmann et al. (eds), above note 20, at 74-75 and 138-

141. 96 See section 129(1)(b), Insolvency Act, which provides for a discharge of all pre-sequestration debt as

one of the effects of a rehabilitation order. 97 Boraine and Roestoff, above note 93, at 354. 98 See cases cited above note 17. 99 See Ex parte Ford, above note 17, at 383.

100 See sections 8-12, Insolvency Act. 101 Ibid., sections 3-7. 102 See, for example, Ex parte Bouwer 2009 (6) SA (GNP) 382, at 386. In practice this relates to the

question whether unsecured concurrent creditors will receive at least a dividend based on the pari passu

principle. The size of the dividend is not prescribed in the Insolvency Act, but some courts require an

indication in the case of voluntary surrender that the dividend should be at least 20 cents to the ZAR;

see, for example, Ex parte Ogunlaja [2011] JOL 27129 (GNP), at paragraph 9.

http://bit.ly/Oft3hp


advantage requirement is more stringent in an application for voluntary surrender,

where the debtor has to prove actual advantage, as opposed to an application for

compulsory sequestration, where the advantage requirement has been relaxed and it

is necessary merely to allege that there is reason to believe that it would be to the

advantage of the creditors if the debtor’s estate is sequestrated.103 It must, however,

be noted that in the case of compulsory sequestration, a provisional sequestration

order, for which a prima facie case must be established, must precede the final

sequestration order, for which the ordinary onus of proof (i.e., proof on a balance

of probabilities) is required.

60 If a sequestration application is successful, a trustee will be appointed to collect

and realise the assets and to distribute their proceeds amongst the creditors in

accordance with the distribution rules of insolvency. The benefit of this procedure

is that the debtor may subsequently be rehabilitated, which procedure will grant

him or her a discharge from liability for unpaid pre-sequestration debt.104

61 Rehabilitation for a natural person in South Africa and thus a discharge of pre-

sequestration debt may take anything from six months to ten years.105

Usually, at

least four years pass after sequestration before rehabilitation may occur.106

In

comparison with other international insolvency systems, this is a relatively long

period before an insolvent debtor may obtain a discharge from debt. The question

therefore arises whether these provisions may be challenged on the basis of section

22 of the Constitution, which guarantees one a right to choose a trade, occupation

or profession freely. An individual must have the right freely to engage in economic

activity and to pursue a livelihood. Since an insolvent remains accountable to his or

her trustee for his or her economic activities conducted during the period between

sequestration and rehabilitation, the current rehabilitation provisions are potentially

open to challenge on the basis of being unreasonably burdensome in current times

and in view of developments internationally.

62 Apart from sequestration, which entails the liquidation of assets, other statutes

provide for debt restructuring procedures, namely administration, in terms of the

Magistrates’ Courts Act107

and debt review in terms of the National Credit Act.108

Where the debts amount to ZAR 50,000 or less, a debtor may apply for

103 See section 10(c), Insolvency Act. See also Meskin & Co v Friedman 1948 (2) SA 555 (W), at 558

where the court (per Roper J) stated: “The facts put before the court must satisfy it that there is a

reasonable prospect – not necessarily a likelihood, but a prospect which is not too remote – that some

pecuniary benefit will result to creditors.” 104 See section 129(1)(b), Insolvency Act. 105 Ibid., sections 124-129. When requested by court application, it must be noted that the granting of

the order remains exclusively within the discretion of the court – see Ex parte Lindstrom [2014) JOL

32093 (FB), at paragraph 6 and see further cases relied on in this case at paragraphs 6-10. 106 See the proviso to section 124(2), Insolvency Act. 107 Section 74, Magistrates’ Courts Act. 108 Section 86, National Credit Act.


administration.109

Administration and debt review give rise to repayment plans but

the repayment terms are not limited by statute and neither is provision made for any

measure of debt discharge. The inevitable consequence of this is that the only relief

offered is in the form of a reduction in the amount of each instalment that is payable

but that ultimately, the amount of the debt which is payable over a more protracted

period, is increased.

63 It is only through sequestration and subsequent rehabilitation, in terms of the

Insolvency Act, that an overburdened debtor may obtain a discharge of debt. Even

in cases where the unsecured creditors receive no, or a trifling dividend in lieu of

the original amount of the debt, as a rule the debtor will enjoy the benefit of the

discharge that is provided upon rehabilitation. But rehabilitation starts with the

granting of a sequestration order for which advantage to creditors, amongst others,

must be proved, failing which, no discharge is possible.110

64 On the other hand, however, a court is not bound to grant a sequestration order

where it is satisfied that the requirements in terms of the Insolvency Act have been

met, but it has a discretion whether to grant it or to refuse it. In line with the present

pro-creditor approach adopted in consumer insolvency law, our courts are generally

guided by considerations which are more favourable to the interests of the creditors

than those of the debtors.111

However, fact of the matter is that if advantage cannot

be proved, the estate will not be sequestrated and the debtor will ultimately not

receive the statutory discharge.112

Accordingly, as was aptly explained by

Rochelle,113

a consumer debtor in South Africa can be “too poor to go bankrupt”.

This situation clearly causes a differentiation between the “rich debtors” who are

able to prove advantage to creditors, and the “poor debtors” who cannot. The

question arises whether the currently applicable legislative regime is open to

constitutional challenge by these “poor debtors” on the basis that their exclusion

from a discharge procedure infringes their fundamental right of equality.114

109 Section 74(1)(b), Magistrates Courts’ Act, read with GN R 3441 of 31 December 1992. 110 In Ex parte Ogunlaja, above note 102, the court (per Bertelsmann J, at paragraph 36) remarked:

“Unless and until the Insolvency Act is amended the South African insolvency law requires and

advantage to creditors before the estate of an individual can be sequestrated. Much as the troubled

economic times might engender sympathy for debtors whose financial burden has become too much to

bear, the insolvency law seeks to protect the interests of creditors at least to the extent that a minimum

advantage must be ensured for the concurrent creditor when the hand of the law is laid on the insolvent

estate”. 111 See A. Boraine and M. Roestoff, “Discretion and Powers of the Court in Applications for

Sequestration: Body Corporate Palm Lane v Masinge [2013] JDR 2332 (GNP)” (2015) De Jure

(forthcoming). 112 See Ex parte Schmukler-Tshiko, above note 17, at paragraph 8; Ex parte Arntzen, above note 17, at

paragraph 13 for further support for this approach. 113 M. Rochelle, “Lowering the Penalties for Failure: Using the Insolvency Law as a Tool for Spurring

Economic Growth, The American Experience, and Possible Uses for South Africa” (1996) 2 Tydskrif

vir Hedendaagse Romeins-Hollandse Reg 315–330, at 319. 114 See R. Evans, “Friendly Sequestrations, the Abuse of the Process of Court, and Possible Solutions

for Overburdened Debtors” (2001) 13 South African Mercantile Law Journal 485–508, at 508. See


65 The plight and dilemma of many overburdened consumer debtors in South

Africa is illustrated by the judgment in Van Rooyen v Van Rooyen (Automutual

Investments (EC) (Pty) Ltd, Intervening Creditor).115

Two former members of a

close corporation, S and V, had bound themselves as sureties for the due

performance of certain contractual payments in favour of a creditor of the close

corporation. The estate of S was subsequently sequestrated but no dividend was

paid out to the creditors. In view of the sequestration of S’s estate, V became liable

for the total remaining debt of the close corporation on the basis of her suretyship

undertaking. Since V could not repay this debt, her mother brought an application

for the compulsory sequestration116

of her estate but the application was denied due

to the fact that the court did not accept that there sequestration would yield an

advantage for creditors. Since her debt amounted to more than ZAR 50,000 she

could also not apply for administration in terms of section 74 of the Magistrates’

Courts Act. Prior to the application for sequestration, she did in fact repay some of

her debts following a procedure in terms of section 65 of the Magistrates’ Courts

Act.

66 Although debt review followed by debt rearrangement in terms of the National

Credit Act117

is also a statutory debt relief measure, this procedure applies only in

respect of debts arising out of credit agreements as defined in that Act.118

As

mentioned above,119

the National Credit Act does not provide any discharge for

debtors and therefore amounts to no more than a reorganisation of the consumer’s

credit agreement debt.120

Also, courts have thus far been reluctant to grant orders

also Boraine and Evans, above note 7, pp. 4A-1-62, at paragraph 4A8; Steyn, above note 7, at 11;

Boraine, above note 12. 115 [2000] 2 All SA 485 (SE). 116 In practice compulsory sequestration applications by a friend or family member of the debtor are

termed “friendly sequestrations”. This phenomenon has developed in practice because of the fact that

the onus of proving advantage in the case of a compulsory sequestration application is less onerous

than in the case of a voluntary sequestration application. Unlike voluntary surrender, which requires

positive proof of advantage for creditors, compulsory sequestration requires only a “reasonable

prospect” that it will be to the advantage of creditors: compare the wording of sections 10(c) and

12(1)(c), Insolvency Act. Furthermore, no formal requirements are prescribed with regard to

compulsory sequestration; see C. Smith, “Friendly and Not So Friendly Sequestrations” (1981) 3

Modern Business Law 58-63, at 59. 117 This debt relief measure was not an available option at the stage when the Van Rooyen case was

decided. 118 Section 8, National Credit Act. 119 See above notes 27 and 28. 120 See Collett v FirstRand Bank Ltd 2011 (4) SA 505 (SCA), at 514. In Ex parte Ford, above note 17,

at paragraphs 16-23, the court considered the impact of the National Credit Act on applications for

voluntary surrender. Essentially it ruled that a debtor should in principle, and where this Act applies,

first consider the debt relief mechanisms provided for by this Act before entertaining sequestration. It is

submitted that this case does not detract from the reality that in certain cases some debtors may

ultimately receive a statutory discharge whilst others will not qualify.


available to it in terms of the National Credit Act121

which would afford the debtor

the opportunity of obtaining relief, albeit in the limited form of debt reorganisation,

provided for by the Act.122

It is thus clear that South African insolvency law does

not provide adequate alternative discharge mechanisms outside of insolvency for all

overburdened debtors123

and that the system ought urgently to be reformed.124

In

121 See section 85, National Credit Act, which affords a discretion to the court in any proceedings in

which a credit agreement is being considered to refer the matter to a debt counsellor for debt review or,

in the alternative, to itself grant an order for debt restructuring in terms of the National Credit Act. 122 M. Roestoff, “The Objective of Providing Debt Relief to Over-indebted Consumers and the

Interpretation of Section 85 of the National Credit Act: FirstRand Bank Ltd v Govender [2014) JOL

31572 (ECP)” (2015) Tydskrif vir Hedendaagse Romeins-Hollandse Reg (forthcoming). 123 There is also a tension between sequestration procedures provided in the Insolvency Act and debt

relief provided in the National Credit Act since it is not clear, for instance, if the estate of a debtor

subject to debt review should be eligible for sequestration as well. The question whether a notice to

creditors concerning a debt relief request would qualify as an act of insolvency in terms of section 8(g)

of the Insolvency Act of 1936, was raised, in De Klerk v Griekwaland Wes Korporatief Bpk [2014)

ZACC 20, but not decided – especially since the National Credit Amendment Act 19 of 2014, GN 389,

Government Gazette 37665, promulgated on 19 May 2014 amended section 8, Insolvency Act to make

it clear that it will not amount to an act of insolvency. (This Amendment Act is not yet in force, and

will come into operation on a date fixed by the President by proclamation in the Gazette.) Compare in

general A. Boraine and C. Van Heerden, “To Sequestrate or Not to Sequestrate in View of the National

Credit Act 34 of 2005: A Tale of Two Judgments” (2010) 13(3) Potchefstroomse Elektroniese

Regsblad 84–124; C.T. Chokuda, “An Application for Debt Review Does Not Constitute an Act of

Insolvency: FirstRand Bank Ltd v Janse van Rensburg” (2013) 130 South Africa Law Journal 5-18, at

5 and 14; J.M. Otto and R-L. Otto, The National Credit Act Explained (2013, LexisNexis,

Johannesburg), at 141-143; L. Steyn, “Sink or Swim? Debt Review’s Ambivalent ‘Lifeline’ – A Second

Sequel to ‘... A Tale of Two Judgments’: Nedbank v Andrews (240/2011) 2011 ZAECPEHC 29 (10

May 2011); FirstRand Bank Ltd v Evans 2011 (4) SA 597 (KZD); and FirstRand Bank Ltd v Janse van

Rensburg [2012] 2 All SA 186 (ECP)” (2012) 15(4) Potchefstroomse Elektroniese Regsblad 190-231,

at 217 and N. Maghembe, “The Appellate Division Has Spoken – Sequestration Proceedings Do Not

Qualify as Proceedings to Enforce a Credit Agreement under the National Credit Act 34 of 2005:

Naidoo v Absa Bank 2010 (4) SA 597” (2011) 14(2) Potchefstroomse Elektroniese Regsblad 171-180,

at 172 and 178 referred to in the De Klerk case in above notes 11 and 12. 124 See also Boraine and Van der Linde, above note 24; A. Boraine and M. Roestoff, “Developments in

American Consumer Bankruptcy Law: Lessons for South Africa” Part 1 (2000) 21(1) Obiter 33-66;

Part 2 (2000) 21(2) Obiter 241-270; A. Boraine and M. Roestoff, “Fresh Start Procedures for

Consumers in South African Bankruptcy Law” (2002) International Insolvency Review 1-11; M.

Roestoff and S. Renke, “Solving the Problem of Overspending by Individuals: International

Guidelines” (2003) 24(1) Obiter 1-26; M. Roestoff and S. Renke, “A Fresh Start for Individual

Debtors: The Role of South African Insolvency and Consumer Protection Legislation” (2005)

International Insolvency Review 93-109; M. Roestoff and S. Renke, “Debt Relief for Consumers – The

Interaction Between Insolvency and Consumer Protection Legislation” Part 1 (2005) 26(3) Obiter 561-

574; Part 2 (2006) 27(1) Obiter 98–110; C. Van Heerden and A. Boraine, “The Interaction Between the

Debt Relief Measures in the National Credit Act 34 of 2005 and Aspects of Insolvency Law” (2009)

12(3) Potchefstroomse Elektroniese Regsblad 22-63; Steyn, above note 28; M. Roestoff and H.

Coetzee, “Consumer Debt Relief in South Africa; Lessons from America and England; and Suggestions

for the Way Forward” (2012) 24 South African Mercantile Law Journal 53-76; A. Boraine, et al., “A

Comparison Between Formal Debt Administration and Debt Review – The Pros and Cons of These

Measures and Suggestions for Law Reform” Part 1 (2012) 45 De Jure 80-103; Part 2 (2012) 45 De

Jure 254-271; H. Coetzee and M. Roestoff, “Consumer Debt Relief in South Africa: Should the

Insolvency System Provide for NINA Debtors? Lessons from New Zealand” (2013) 22 International

Insolvency Review 188-210; A. Boraine and M. Roestoff, “The Treatment of Insolvency of Natural


this regard the observation may also be made that South African insolvency

legislation does not provide any procedure to deal with “assetless” estates or no-

income-no-asset (NINA) debtors.125

Treatment of the Home of the Insolvent and Children’s Rights

67 In South Africa, the home of a debtor has never enjoyed specific statutory

protection or exemption from sale in terms of insolvency law.126

Indeed, an

application for the compulsory sequestration of a debtor’s estate is often brought

for the very reason that the sale of the debtor’s home by the trustee in the course of

liquidation of the assets of the insolvent estate, will yield a pecuniary benefit for

creditors. There are no formal requirements under insolvency law, as there are in

some jurisdictions,127

for a court specifically to consider any relevant circumstances

or potential alternatives to the immediate sale of the home.

68 Various aspects of South African insolvency law tend to counter, rather than

support, protection of the insolvent’s home from creditors. An inheritance is not

protected from falling into the insolvent estate which means that an insolvent will

lose an inherited “family home”. Even where a spouse married in community of

property inherits a home that the testator specifically provided should be held

separately from the joint estate, the trustee may realise it to satisfy the claims of

creditors of the insolvent joint estate.128

Where an insolvent debtor is married out of

community of property and the home is registered in the name of the solvent

spouse, the effect of section 21 of the Insolvency Act is to vest the home in the

trustee of the insolvent estate. If the solvent spouse fails to prove that he or she is

entitled to its release, the home may ultimately be realised and the proceeds applied

to satisfy claims of creditors of the insolvent spouse’s estate.129

Persons in South African Law: An Appeal for a Balanced and Integrated Approach” (2014) 5 The

World Bank Legal Review 91-110. 125 Coetzee and Roestoff, above note 124. 126 For discussion of this topic, see L. Steyn “Treatment of a Debtor’s Home in Insolvency:

Comparative Perspectives and Potential Developments in South Africa” (2013) 22(3) International

Insolvency Review 144-170, at 146; Steyn, above note 28, Chapters 6 and 8; C. Van Heerden, et al.,

“Perspectives on Protecting the Family Home in South African Insolvency Law”, Chapter 9 in P. Omar

(ed), International Insolvency Law: Reforms and Challenges (2013, Ashgate, Surrey), at 247-295; R.

Evans, “Does an Insolvent Debtor have a Right to Adequate Housing?” (2013) 25 South African

Mercantile Law Journal 119-147; Evans, above note 18, at paragraph 11.4; Boraine and Evans, above

note 7. 127 See, for example, in England and Wales, sections 336, 335A and 337, Insolvency Act 1986, for

discussion of which, see I. Fletcher, above note 3, at 230ff; and in Scotland, section 40, Bankruptcy

(Scotland) Act 1985, as amended. 128 See Badenhorst v Bekker NO 1994 (2) SA 155 (N); Wessels NO v De Jager NNO 2000 (4) SA 924

(SCA); Du Plessis v Pienaar NO 2003 (1) SA 671 (SCA). But see also R. Evans, “Can an Inheritance

Evade an Insolvent Communal Estate?” (2003) 15 South African Mercantile Law Journal 228-236. 129 See sections 21(2), 21(4) and 21(5) of the Insolvency Act. See also R. Evans and L. Steyn, “Property

in Insolvent Estates – Edkins v Registrar of Deeds; Fourie v Edkins; and Motala v Moller” (2014)

17(6) Potchefstroomse Elektroniese Regsblad 2748-2779 and R. Evans, “Sequestration of the Estate of


69 Debt review, with consequent debt rearrangement, in terms of the National

Credit Act,130

may offer an alternative to sequestration and holds the potential to

avert the forced sale of a debtor’s home. However, the outcome of recent

judgments is that, even where the debtor has applied for, or is subject to, debt

review, a creditor (this would usually be the mortgagee) may bring an application,

and an order may be made, for the compulsory sequestration of the debtor’s

estate.131

This leaves the debtor in a vulnerable position and undermines the

efficacy of the debt relief measures contained in the National Credit Act and its

capacity to protect a debtor’s home from forced sale.132

A recent amendment to the

Insolvency Act may ameliorate the position in future.133

70 On the other hand, a debtor may prefer voluntarily to surrender his or her estate,

including a mortgaged home, in terms of the Insolvency Act,134

in order to avoid

mortgage obligations and ultimately, upon rehabilitation, to obtain a discharge from

liability for any balance owing if realisation of the home and other estate assets

does not yield proceeds sufficient to cover the mortgage debt.135

However, if the

applicant debtor is unable to establish that sequestration will be to the advantage of

creditors, the court cannot accept the surrender of the estate. If the mortgagee then

utilises the individual debt enforcement procedure to execute against the home, the

debtor will remain liable for any outstanding balance should the sale in execution of

the secured property yield insufficient proceeds to cover the mortgage debt.

Reported judgments indicate that homeowners obtain and submit to court inflated

valuations of their homes in an endeavour to meet the advantage to creditors

requirement and to have the voluntary surrender of their estates accepted.136

This

a Spouse: What Happens to the ‘Property’ of the Solvent ‘Spouse’?” (2014) 77 Tydskrif vir

Hedendaagse Romeins-Hollandse Reg 632-641. 130 Discussed above notes 27, 28, 109, 118, 119 and 120. 131 See Investec Bank Ltd and Another v Mutemeri 2010 (1) SA 265 (GSJ); Naidoo v ABSA Bank Ltd

2010 (4) SA 597 (SCA); FirstRand Bank Ltd v Evans 2011 (4) 597 (KZD); De Klerk v Griekwaland

Wes Korporatief Bpk, above note 124. 132 See L. Steyn “Sink or Swim? Debt Review’s Ambivalent ‘Lifeline’ – a Second Sequel to ‘ … a Tale

of Two Judgments’ Nedbank v Andrews (240/2011) [2011] ZAECPEHC 29 (10 May 2011); FirstRand

Bank Ltd v Evans 2011 4 597 (KZD) and FirstRand Bank Ltd v Janse van Rensburg 2012 2 All SA

186 (ECP)’ (2012) 15 (4) PER 189”; L. Steyn, “FirstRand Bank Ltd t/a First National Bank v Seyffert

and Another and three similar cases 2010 6 SA 429 (GSJ), Seyffert & Seyffert v FirstRand Bank Ltd

[2012] ZASCA 81 – Bringing home the inadequacies of the National Credit Act 34 of 2005”, [2012]

45 (3) De Jure 639-651. 133 Discussed above note 124. See section 19 of the National Credit Amendment Act 19 of 2014; De

Klerk v Griekwaland Wes Korporatief Bpk, above note 124; L. Steyn, “Potential Shortcomings of the

National Credit Amendment Act 19 of 2014 – viewed through a prism of reported cases”, paper

presented at the University of Pretoria International Consumer Law Conference, September 2014,

Pretoria. 134 See sections 3, 4 and 6, Insolvency Act 24 of 1936, discussed above note 102. 135 See, for example, Ex parte Ogunlaja, above note 102; Absa Bank Limited v Ackerman, In Re; Ex

parte: Ackerman (61678/2013) [2014) ZAGPPHC 472 (10 July 2014). 136 See, for example, Ex parte Ogunlaja, above note 102; Smit v ABSA Bank Ltd, Smit v ABSA Bank

Ltd (24086/10, 24088/10) [2011] ZAGPPHC 208 (8 November 2011).


suggests an abuse of the court process.137

Mortgagees may be inclined to intervene

to oppose the acceptance of the voluntary surrender,138

or an application for

compulsory sequestration,139

of a mortgagor’s estate in an endeavour to counter

abuse of process or the possibility of the mortgagor obtaining discharge from his or

her pre-sequestration obligations.

71 Even where the debtor and his or her family reside in leased premises, there is

no specific protection for them in terms of insolvency law. Section 37 of the

Insolvency Act provides that the trustee must elect whether to “continue” or

“determine” (terminate) the lease by notice to the lessor. In the absence of any

commercial reason to continue with the lease of the home, the trustee will terminate

it, necessitating the insolvent’s having to find alternative accommodation for the

family at short notice.

72 Clearly, insolvency law does not provide any protection for a debtor’s home

against creditors and it is conceivable that an insolvent and his or her family may be

rendered homeless by the sequestration of the estate. Failure on their part to vacate

their home exposes them to a possible application by the owner (either the

purchaser or the erstwhile lessor) for their eviction.140

It is only at this point that

any consideration is required to be given to their housing circumstances. This does

not occur by virtue of any provision of insolvency law, but in terms of the

Prevention of Illegal Eviction from and Unlawful Occupation of Land Act141

(“PIE”). This statute was enacted post-Constitution as part of a tranche of

legislation intended to recognise and support every person’s right to have access to

adequate housing and, more specifically, not to be evicted without an order of

court, provided for in section 26(1) and (3) of the Constitution. The Supreme Court

of Appeal determined that PIE applies where occupation was once lawful but has

subsequently become unlawful.142

Therefore, it is applicable where it is sought to

evict an insolvent person from his or her home after sequestration of the estate.143

73 Section 4 of PIE requires a court to issue an eviction order and only if, after

having considered all the relevant circumstances, it determines that it is just and

equitable to do so. Subsections 4(6) and 4(7) specifically require a court to

consider the rights and needs of the elderly, children, disabled persons and

137 See remarks per Bertelsmann J in Ex parte Ogunlaja, above note 102, at paragraphs 35-36. 138 As occurred, for example, in Absa Bank Limited v Ackerman, In Re; Ex parte: Ackerman above note

137. 139 As occurred, for example, in Mthimkhulu v Rampersad (BOE Bank Ltd, intervening creditor)

[2000] 3 ALL SA 512 (N) 514. This was what is referred to as a “friendly sequestration”, for discussion

of which, see above note 117. 140 See, for example, ABSA Bank Ltd v Murray 2004 (2) SA 15 (C). 141 19 of 1998. 142 See Ndlovu v Ngcobo; Bekker and Another v Jika 2003 (1) SA 113 (SCA). 143 A proposed statutory amendment to exclude the application of PIE in relation to applications for the

eviction of erstwhile lessees, mortgagors and previous owners was subsequently rejected. For more

detail, see Steyn, above note 28, at 85.


households headed by women. This reinforces section 28 of the Constitution, which

recognises that every child has the right to shelter144

and that:

“[a] child’s best interests are of paramount importance in every matter concerning the

child”.145

74 Only one reported case is specifically in point. In ABSA Bank Ltd v Murray,146

the joint estate of the spouses was sequestrated and the mortgagee bank purchased

the mortgaged property (their home) at the public auction held in terms of the

Insolvency Act. The bank sold it privately and was under an obligation to give

vacant possession to the purchaser. The insolvent spouses and their family refused

to vacate their home. The bank applied for their eviction.147

They had lived in the

home for twenty years. Before sequestration, the insolvent husband had applied a

portion of an employment retrenchment payment to reduce the mortgage debt. He

was conducting his business from the garage of the home, with the permission of

the trustee. He had offered to pay rent on the property and had asked for more time

pending the anticipated payment to his brother of a motor vehicle injury damages

award, with which he could repurchase the property. Their two-year old grandchild

and an eleven-year old girl lived with them. They had no alternative

accommodation.148

The court considered that interfering with the bank’s security

could have far-reaching, adverse consequences for the housing market. It took into

account that the insolvent spouses had known for more than a year that the bank

sought their eviction from the home. Regarding the insolvent husband as capable of

supporting his family, it held that it was just and equitable to grant the eviction

order.149

75 Although the insolvency law does not protect the home from creditors’ claims, it

is significant that, in the individual debt enforcement process, the combined effect

of the Constitutional Court’s decisions in Jaftha v Schoeman and Others; Van

Rooyen v Stoltz and Others150

and Gundwana v Steko Development CC and

Others,151

is that it is acknowledged that execution against a debtor’s home, even

where it has been mortgaged, may constitute an unjustifiable infringement of the

right to have access to adequate housing.152

Therefore, in every case in which

execution is sought against a person’s home, judicial oversight is required to

determine whether, in terms of section 36 of the Constitution, execution is

144 Section 28(1)(c), the Constitution. 145 Ibid., section 28(2). 146 2004 (2) SA 15 (C). 147 Ibid., at paragraphs 1-2. 148 Ibid., at paragraph 6. 149 Ibid., at paragraphs 44-50. 150 Jaftha v Schoeman and Others; Van Rooyen v Stoltz and Others 2005 (2) SA 140 (CC). 151 Gundwana v Steko Development and Others 2011 (3) SA 608 (CC). 152 Ibid.


justifiable in the circumstances.153

Further, a relatively recent amendment to the

Uniform Rules of Court, also applicable only in individual debt enforcement

proceedings brought in the high court, and not in the insolvency process, now

requires a court, and no longer permits a registrar, to order execution against “the

primary residence of a judgment debtor”.154

A court is required to undertake an

evaluation, in which it must consider “all the relevant circumstances”, to determine

whether execution against a person’s home should be permitted.155

76 In stark contrast, in the sequestration process, judicial oversight ordinarily takes

place only at the point at which a court considers whether to grant the sequestration

order. At this stage, the court is more concerned with whether sequestration would

be to the advantage of creditors than how it would affect the debtor’s housing

situation. On the one hand, it would make sense for this to be considered prior to an

application for sequestration,156

especially in light of the fact that sequestration

might not be to the advantage of creditors if the home, often the most valuable

asset, were to be placed beyond the reach of creditors and, therefore, the

sequestration order should not even be granted. However, often, not all relevant

circumstances are known at the time of the application, but are revealed only once

the trustee has been appointed and he has commenced his duties. It is therefore

important that the court should evaluate the housing situation of the insolvent and

his family at the earliest possible stage of the insolvency process, but that it should

not be completed until all relevant factors have been ascertained and, obviously,

that it should occur before the home is realised by the trustee for the benefit of

creditors.157

77 There have been no formal reform initiatives in insolvency law in relation to

treatment of the home of the insolvent. The South African Law Reform

Commission’s report and Draft Insolvency Bill, in 2000,158

did not make any

reference to it and neither have the 2010, 2013 and 2015 updated unofficial

working drafts done so, despite subsequent developments in the individual debt

enforcement process.159

A notable, very recent development is that, on 12 January

2015, South Africa ratified the United Nations International Covenant on

Economic, Social and Cultural Rights,160

which the late President Nelson Mandela

153 Jaftha v Schoeman and Others; Van Rooyen v Stoltz and Others above note 152; Gundwana v

Steko Development and Others, above note 153. 154 See the amended rule 45(1), Uniform Rules of Court, as published in GN R981 in Government

Gazette 33689 promulgated on 19 November 2010, effective 24 December 2010. 155 Idem. 156 Evans, above note 127. 157 See Steyn, above note 28, at 341-343 and 408. 158 See above paragraph 2. 159 Idem. 160 This covenant was adopted and opened for signature, ratification and accession by the United

Nations General Assembly in December 1966 and came into force in January 1976. For more

information, see: <http://www.ohchr.org/EN/ProfessionalInterest/Pages/CESCR.aspx> (last viewed 15

February 2015).

http://www.ohchr.org/EN/ProfessionalInterest/Pages/CESCR.aspx


signed in 1994.161

This may be regarded as affirmation of a renewed commitment to

upholding socio-economic rights, of which the right to have access to adequate

housing is one,162

and it is hoped that this heralds a revised approach to treatment

of the home of an insolvent person and his or her dependants.

78 In matters concerning execution against a debtor’s home in the individual debt

enforcement process, thus far the Constitutional Court has considered only the

debtor’s right to have access to adequate housing. This has meant that reported

judgments lack meaningful analysis of the position in terms of a wider range of

constitutional rights of all parties concerned.163

These might include: the right to

access to courts;164

the right to equality;165

the right to dignity166

(which also

underlies persons’ contractual rights);167

children’s rights;168

and the right to

property.169

It is anticipated that future developments concerning treatment of an

insolvent debtor’s home may involve consideration of some or all of these rights.

79 Academic commentators have made various suggestions regarding treatment of

the home of the debtor in the insolvency process.170

These include the enactment of

specific statutory provisions empowering the court to delay the realisation of the

insolvent’s home, where appropriate, in order to afford the insolvent a period of

grace within which to make suitable alternative accommodation arrangements,

especially in cases concerning children (particularly those with special needs), the

elderly and the infirm.171

This may also provide an opportunity for the insolvent to

reach a statutory composition with creditors or to make arrangements for the

refinancing of the home, or even for a family member to purchase it from the

insolvent estate.172

Another suggestion is for the legislature specifically to exempt

161 See D. McLaren, “Ratification of Human Rights Treaty Reaffirms SA’s Commitment to Socio-

Economic Rights and Internationalism” 30 January 2015 available at:

<http://sacsis.org.za/site/article/2264> (last viewed 15 February 2015). 162 See Liebenberg, above note 15, at 342-374. 163 Evans, above note 127, at 210; Steyn, above note 28, Chapter 6. 164 Section 34, the Constitution. 165 Ibid., section 9. 166 Ibid., section 10. 167 Brisley v Drotsky 2002 (4) SA 1 (SCA), at paragraph 94; Barkhuizen v Napier 2007 (5) SA 323

(CC), at paragraphs 11-15, 24-26, 28, 30 and 57. 168 Section 28(1)(c), the Constitution. 169 Ibid., section 25. 170 See Steyn, above note 28, at 412-418; Evans, above note 127; K. Els, “An Insolvent’s Right to

Access to Adequate Housing”, (2011) October De Rebus 20-23; A. Boraine et al., “Policy

Considerations Regarding Exempt Property: A South African-Canadian Comparison”, in J. Sarra (ed)

Annual Review of Insolvency Law (2007, Thomson Carswell, Toronto), at 637-689; Van Heerden et al.,

above note 126, at 289-294. 171 It may be noted that these suggestions are based largely on the statutory protection of the sort

provided for in England and Wales, for discussion of which see Fletcher, above note 3, at 230ff.; Steyn,

above note 28, at 450-497; Boraine et al., above note 170, at 694; Van Heerden et al., above note 126,

at 262; Evans, above note 18, at 474-475. 172 For instance, in Badenhorst v Bekker NO en andere 1994 (2) SA 155 (N), the insolvent spouses’

home was purchased by the wife’s father, from the insolvent estate, for them to continue to live in it.

http://sacsis.org.za/site/article/2264


homes of low value that have not been mortgaged in favour of any creditor.173

Consideration might also be given to reserving, and placing beyond the reach of

creditors, a portion of the equity held by the insolvent in a moderately valued

home.174

80 In the absence of specific legislative provisions applicable to the treatment of an

insolvent person’s home, it is possible that a court could exercise its discretion to

dismiss an application for a sequestration order175

in order to protect the section 26,

section 28 and other rights of an insolvent and his or her dependants. It is also open

to any court to exercise its power, in terms of section 172(1)(b) of the Constitution,

to make any order that is just and equitable.176

Conclusion

81 The South African law of insolvency which is mainly enshrined in the rather

antiquated Insolvency Act of 1936 aims at facilitating the equitable realisation and

distribution of insolvent estates for the benefit of creditors, while in fact avoiding

the sometimes inhumane treatment that debtors would have endured in the absence

of such legislation.177

An important consequence of this law, albeit not deemed to

be a primary objective, is to afford debtors the opportunity to be freed from their

burden of unpaid debt through the process of rehabilitation that ultimately follows

sequestration and the subsequent liquidation of the insolvent estate. It does this by

laying down appropriate procedures to be observed in obtaining sequestration,

realising assets of the insolvent, distributing the proceeds thereof and finally

rehabilitation of the debtor. In many ways these objectives are consonant with those

of the Bill of Rights. This is because there is an underlying objective of ensuring

fairness and equity.178

But, as discussed above, although some areas have already

been aligned with Constitutional imperatives, areas remain which should be further

considered to liberalise the treatment of debtors and to make the law equitable in all

respects.

173 Evans, above note 127; Boraine, et al., above note 170, at 694. Cf Jaftha v Schoeman and Others;

Van Rooyen v Stoltz and Others, above note 150, at paragraph 51, where the Constitutional Court

rejected the notion of a “blanket exemption” for the home; cf section 313A, Insolvency Act 1986

(England and Wales). 174 Evans, above note 127. 175 The court has the discretion, discussed above note 106, whether to grant or to refuse a sequestration

order, even where all the statutory requirements contained in sections 6, 10 and 12 have been met; see

Ex parte Ford, above note 17; Ex parte Hayes 1970 (4) SA 94 (NC); Ex parte Vallabh 1935 TPD 93

95; Julie Whyte Dresses (Pty) Ltd v Whitehead 1970 (3) SA 218 (D); Bertelsmann et al. (eds), above

note 20 at 141-144. 176 L. Steyn “Statutory Regulation of Forced Sale of the Home in South Africa”, above note 28, at 413,

536 and 570. 177 See Boraine and Evans, above note 7, at paragraph 4A2. 178 Ibid, paragraph 4A9.


82 Although the Constitution is essentially applied vertically, private relations

between corporate entities and individuals, and amongst individuals themselves,

often involve the exercise of power that may militate against basic constitutional

rights. It is for these reasons that the Constitutional Court has at least acknowledged

the indirect application of the Bill of Rights to private relations between litigants.

Procedural appropriateness of the actions of persons in authority is central to the

concept of human rights and the Bill of Rights in particular. The Bill of Rights thus

shares this value with the law of insolvency, which contains substantial elements of

procedural law, apart from its substantive principles.179

The relevance of the one to

the other is clear. A number of sections of the Bill of Rights180 are particularly

apposite to insolvency issues.

83 From the above discussion it should be clear that the Bill of Rights is indeed

setting the tone for South African insolvency law reform in many ways. Some

principles that apply outside the ambit of, but which have an indirect impact on,

insolvency, such as those concerning imprisonment for debt and individual debt

enforcement procedures dealing with execution of assets of a debtor, and in

particular execution against the family home, are somehow shaping the way South

African society views the treatment of over indebted debtors. More pertinently

certain aspects of insolvency law are already in line with the provisions of the Bill

of Rights or have been so placed by subsequent enactments or judgments. There

are, however, a significant number of areas in which legislative or judicial action is

required to harmonise or clarify the law. Here section 27 of the Act which

discriminates between men and woman, and between children under certain

circumstances, comes to mind. Furthermore, although the Constitutional Court has

ruled that section 21 of the Insolvency Act does not militate against the Bill of

Rights, this aspect of the judgment remains controversial. It is submitted that the

courts have not yet seen the last of any challenge to the constitutionality of section

21. For the reasons described above and particularly regarding its overlap with the

long-term insurance legislation, it will probably come before the court again. If

challenged on the latter ground, it is doubtful whether section 21 will be saved by

the limitation clause in section 36 of the Constitution. Section 21(13) that restricts

the application of section 21 to men and women living together as husband and

wife also clearly conflicts with the equality clause of the Bill of Rights. It is to be

noted that this aspect has to some extent been remedied by the Civil Union Act.

84 When compared to some other systems, South African law does not provide

sufficient alternative debt relief measures to sequestration that will assist

overburdened debtors by affording them a statutory discharge of part of their debt.

It may well be argued that since many creditors do not receive any significant

benefit from the sequestration of the estate of their debtors, in spite of the

advantage of creditors principle, that this principle is in fact causing unequal

179 Idem. 180 In particular see sections 8-13, 22, 25-26, 33-36 and 38-39, the Constitution.


treatment of debtors in that many are left without proper relief in the form of a

statutory discharge. It is submitted that the exclusion of many overburdened

consumer debtors from a discharge procedure infringes their basic constitutional

right of equality under the South African Constitution and the South African

personal insolvency system must thus urgently be reformed. The system must

abandon its creditor-orientated approach and must provide adequate debt relief and

equal treatment to all insolvent and over-indebted individuals.

85 Some of the constitutional challenges regarding insolvency law provisions have

been addressed by the proposed Draft Insolvency Bill but this Bill, as the last

officially published insolvency law reform report, is already to some extent

outdated since it was published in 2000 and it did not address all the potential areas

of conflict.181 It is to be hoped that these issues will be fully addressed in new

insolvency legislation.

86 In sum, it is clear that the Constitution, through re-interpretation of the courts,

and sometimes the legislature, has had a considerable impact on the development of

insolvency law in South Africa. While not all challenges to the provisions of the

Insolvency Act in the various courts have succeeded, many others have, and the

indications are that the latter judgments, respectively dealing with a broad spectrum

of insolvency law, are steering policy towards a more humane and debtor friendly

policy. The South African insolvency system is thus a case in point, regarding Ian

Fletcher’s observations in relation to the (English) Human Rights Act 1998 and

other human rights instruments necessitating a comprehensive review of the

operation of the insolvency law and procedure.

181 See South African Law Reform Commission, Review of the Law of Insolvency Report, Project 63

2000.


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The Culture of Bankruptcy · of primarily the Insolvency Act 24 of 1936. 22 Prior to 1987, some ad hoc working documents, such as South African Law Commission, Preferences on Insolvency

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