Abstract:
Natural person insolvency in South Africa has primarily been governed by the Insolvency Act 24 of 1936, which is almost a century old. Despite a major jurisprudential shift that transpired in 1996, the Insolvency Act remains rigid to holistic transformation to align with the spirit of the Constitution of the Republic of South Africa, 1996 and international best practices regarding the treatment of the insolvency of natural persons. The South African insolvency system is still premised on the archaic policy of “advantage for creditors” as opposed to a fresh-start policy, the latter of which is widely commendable.
International trends and guidelines promote the discharge of all pre-sequestration debts, with some exceptions. These exceptions, among others, include the exclusion of maintenance debt from the discharge to ensure that the human rights of maintenance creditors are maintained and sustained. International trends and guidelines advocate for a balanced approach, which seeks to balance the competing interest of both insolvent debtors and maintenance creditors. However, the South African approach, falls-short of the international best practices, because it does not exclude maintenance debt from the discharge. This approach is dangerous and problematic, because it potentially compromises certain human rights guaranteed in the Constitution. Furthermore, maintenance claims do not enjoy any preference when the insolvent debtor’s estate is being distributed. The maintenance creditors only have a concurrent claim against the insolvent estate. The implication of this, among others, is that maintenance creditors are burdened with liability for contribution, as envisaged in section 106(c) of the Insolvency Act, should there be insufficient funds in the free residue account to cover the costs of sequestration. International trends and guidelines are leaning towards affording maintenance creditors’ claims preference, with an aim to promote the public policy of family support and human rights. The study argues that the South African position on the ranking of maintenance creditors’ claims compromises the constitutional rights of maintenance creditors and this necessitate urgent legislative attention.
The violation of constitutional rights of maintenance creditors through the legal position of the discharge of maintenance obligations, and the ranking of maintenance claims, does not comply with the proportionality test, that is applied when assessing whether a violation of a right guaranteed in the Bill of Rights is justifiable and reasonable in an open and democratic society based on human dignity, equality and freedom, taking into account all relevant factors.
