Legislative exclusions or exemptions of property from the insolvent estate

Abstract

A fundamental to the general policy in South African insolvency law is that the maximum quantity of assets must be recovered and included in the insolvent estate, to the advantage of the creditors. This means that all property that is owned by an insolvent at the date of sequestration, as well as all property which he acquires prior to his rehabilitation, forms part of the sequestrated estate. There are, however, several exceptions to this rule and an asset that is the subject of such an exception may not form part of the insolvent estate. The Insolvency Act, however, does not expressly distinguish between excluded and exempt assets, so various problem areas have consequently arisen in this regard. Uncertainty concerning such assets has existed in the past and given rise to litigation, and will probably continue to do so in the future. The fundamental difference between excluded and exempt assets is that excluded assets, in the author's opinion, should never form part of an insolvent estate. They should be beyond the reach of the creditors of the insolvent estate. Exempt assets, however, initially form part of the insolvent estate, but in certain circumstances those assets, or a portion thereof, may be exempted from the estate for the benefit of the insolvent debtor. Both excluded assets and exempt assets could also carry that status because they may belong to a third party. It is therefore possible for an insolvent to build up a (new) solvent personal estate with these excluded or exempt assets, which cannot be applied to for the payment of his debts in his insolvent estate.