The income of an insolvent and sequestration under the Insolvency Act 24 of 1936

Abstract

In a recent case, the question arose as to whether the applicant in an application for the voluntary surrender of his or her estate may forfeit his or her salary with a view to establishing the requirement of advantage for creditors as envisaged by the Insolvency Act. Such forfeiture is impermissible, for example, because of the constitutional challenges that may arise should the insolvent in future require the forfeited amount for his or her basic needs. However, to exclude debtors from a debt relief measure because they do not have sufficient assets to prove advantage, may also be unconstitutional. It is argued in this article that the current system must be reviewed in order to afford these debtors relief in terms of an alternative discharge procedure. A comparative investigation into the manner in which certain foreign consumer insolvency systems deal with income contributions indicates that the Act does not regulate this issue fairly or adequately. However, income contributions as part of the sequestration process are not truly appropriate and it is submitted that the American approach, which provides for an exclusively asset-liquidation procedure and a separate income-restructuring procedure should be followed. It is concluded that an unconditional exclusion of an insolvent’s income from his or her insolvent estate could provide a mechanism through which the insolvent could be assisted to rebuild a new estate and eventually return to economic productivity.