Abstract:
In South Africa, two principles apply to the exclusion of certain
assets from an insolvent estate. First is the common-law
principle that even the desperate insolvent is entitled to the basic
necessities of life. Hence his entitlement to keep certain assets
and to protect assets belonging to third parties. Secondly, the
"creditor advantage" principle requires the trustee of the
insolvent estate to collect assets to benefit the creditors of the
estate. One of the assets excluded from the insolvent estate is
the life and disability insurance policy benefits of the insolvent.
These benefits are excluded, however, only if the beneficiary is
the insolvent and the exclusion will not apply where the
beneficiary is a third party such as a solvent spouse. However,
section 21 of the Insolvency Act 24 of 1936 vests the assets of
the solvent spouse in the trustee of the insolvent estate upon the
latter's sequestration. This vesting is out of sync with the
principle aimed at protecting assets belonging to third parties. In
England and Wales a trust is created to protect the insurance
policy benefits of a spouse or child of the bankrupt but does not
extend to any other third party. In the United States of America
the proceeds of a life insurance policy benefit will form part of
the estate if the bankrupt owned it before the bankruptcy began
or if the debtor acquired or became entitled to it within 180 days
after the filing date. Where the debtor nominated a third party as
the beneficiary of an unmatured policy, the power of
appointment becomes part of the estate of the debtor. As the
nominated third party acquires only an inchoate expectation, the
third party's expectation of that unmatured life insurance policy
benefit forms part of the bankrupt estate. This paper compares
the treatment of life and disability insurance benefits in insolvent
estates in South Africa with the position in England and Wales
and the United States of America to establish whether there are
lessons to be learnt which may assist in modelling an insolvency
law process for South Africa which will consider the affected
members of society.
