INS311

2023
WEEK 6
Vesting of the assets of the solvent spouse
Marriage out of community of property

Professor Michel Koekemoer

 OUTCOMES FOR THIS WEEK
Understand the reasons for the vesting of the
assets of the solvent spouse in the trustee of the
insolvent spouse.
Explain on which grounds the solvent spouse’s
estate can be released.
To explain whether the provisions of section 21
aligns with the Constitution with reference to case
law.
 Meaning of ‘spouse’
This Photo by Unknown
Author is licensed under
CC BY

Extended meaning, not only what we refer to as the

‘traditional husband and wife’ scenario.
–A marriage according to any law or custom (only monogamous
marriages? Consider “separate estates of one of two spouses”); and
–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" (s
21(13)).
Civil Union Act 17 of 2006 "spouse" also includes same sex
civil union partners.
Customary marriages? See Mabe ‘Vesting of the assets of a solvents
spouse and customary marriages in South Africa’ 2019 (82) THRHR’
 Practical application: what must
the spouse do?

Duty to lodge a statement of affairs

The insolvent spouse is sequestrated.
Then, the sheriff must serve a copy of the sequestration order
on the solvent spouse.
The solvent spouse has 7 days to lodge the statement of affairs.

Postponement of vesting
The spouse can ask that the vesting be postponed for some or
all of her assets.
 An additional effect of sequestration?

Section 21(1)
The effect is intrusive yes, but does it withstand constitutional muster?
Applicable only to a marriage out of community of property.
Effect: temporarily divest the spouse of her property (Harksen paras
36-37).
The trustee must release the solvent spouse’s property if that spouse
prove on balance of probabilities that one of the grounds for release
in this section is present.
An acquisition during the marriage must vest the solvent spouse with a
valid title during the marriage.
– A donation between spouses could be allowed.
 Why does the estate of the
solvent spouse vest in the
trustee?
Possible prejudice or disadvantage of creditors
The financially distressed spouse transferred assets to the solvent spouse.
Before having section 21 (so before 1926), the trustee (NOT SPOUSE) had to prove that this
transfer was a simulated transaction. Common law.
Section 21 now places the burden on the solvent spouse to show it is her property (it
qualifies as property in a category listed above).
The court looks whether there is a collusive donation or ‘improper methods intended to
prejudice the creditors’.
Consider a link with impeachable dispositions (ss 26, disposition without value, or 31,
concerning collusive dealings).
Collusive donation: An important consideration is whether the debtor’s involvement in the
solvent spouse’s affairs was due to the anticipation of his sequestration.

Estates intertwined
It could be that it is difficult to distinguish between the property of each spouse.
 Grounds upon which the solvent
spouse’s estate must be released
Property owned before marriage to the insolvent
Property owned by solvent spouse immediately before the marriage.

Property acquired under a marriage settlement

The spouse must prove the genuineness of the settlement for it not to be set aside as a disposition.
Contractual provision certain on which property is included.
Consider the possible influence of sections 26 and 27 of the Insolvency Act.

Property acquired by valid title during the marriage

What does ‘valid title’ mean?
Usually bought with own income or donations from family and friends.
A donation from the husband is allowed, but s26 must then be considered.
– Consider whether the donation was made in good faith. It must be genuine.
– The test: was the donation made where the parties were aware of insolvency/imminent insolvency.
– Section 22 of the Matrimonial Property Act 88 of 1984 made title of donated property valid against creditors.

Property acquired with proceeds of above categories

 Onus of proof

The onus is on the solvent spouse that the property falls within
one of the categories mentioned above (exclusion categories).
The trustee may raise pertinent issues showing possible
collusion, and the solvent must address such issues, providing a
plausible explanation. Failure, causes property not to be
released.
No general rule that spouses cannot support each other.
–The question to ask: is the insolvent trying to protect his assets from
creditors by transferring it to the solvent spouse?
 Procedure and effect of release
Procedure
Nothing specified in the Insolvency Act.
Solvent spouse usually applies to the trustee, but she can approach the
court directly.
The spouse need only provide the property falls inside one of the
prescribed categories.
The spouse prepares an affidavit along with proper evidence as annexures.

Effect
The trustee can release the property, but still attempt to prove the property
belongs to the estate. How? By proving a disposition.
Using an interdict?
 What to do about the creditors
of the solvent spouse?
The creditors of the solvent spouse now get to prove their claims against the
insolvent estate.
However, they have different rights to the creditors of the insolvent estate.
They do not share in the proceeds from the insolvent estate.
They can only share in the proceeds from the realisation of the property of
the insolvent estate.
However, they also share in the proportionate part of sequestration cost. The
cost is deducated from the amount realised from sale of property.
 Harksen v Lane 1998 (1) SA 300 (CC)
Now we have to examine whether section 21 is constitutional or not.
You need not consider the part of the judgment that discusses interrogations
under sections 64 and 65 of the Insolvency Act.

Make sure you read this case. Bring along

your copy to the lecture as we are going to
do a class activity using this case.
 Harksen v Lane 1998(1) SA 300 (CC)
(majority judgment)
Remember this case dealt with the interim Constitution.
–‘marital status’ was not a listed ground for discrimination.
Mrs Harksen did not apply for the release of her
property ito s21(4).
Grounds for constitutionality:
S8(1) right to equality.
S8(2) right not to be unfairly discriminated against. [If there is no violation of
8(1), there may be a violation of 8(2)]
S28(3) expropriation without compensation
 Harksen v Lane 1998(1) SA 300 (CC)
(majority judgment)
S28(3), transfer of ownership of solvent’ spouse’s
property is expropriation without compensation.
Where any rights in property are expropriated pursuant to a law referred to in ss (2), such expropriation shall be permissible for public purposes only and
shall be subject to the payment of agreed compensation or, failing agreement, to the payment of such compensation and within such period as may be
determined by a court of law as just and equitable, taking into account all relevant factors, including, in the case of the determination of compensation, the
use to which the property is being put, the history of its acquisition, its market value, the value of the investments in it by those affected and the interests
of those affected.’

Meaning of expropriation? Public authority acquiring rights for a public

purpose.
What is the purpose of s21? Ensure that the insolvent estate is not deprived of
property placed with the solvent spouse (temporarily divest this spouse of
ownership). Not for a ‘public purpose’.
The solvent must hold the onus. Thus, it is understandable and justifiable, as
the spouse holds knowledge the Master or trustee would not have. [paras 36-
37]
 Harksen v Lane 1998(1) SA 300 (CC)
(majority judgment)
3 considerations related to section 8:
Is there differentiation? Equality
Is there discrimination? Discrimination
Is the discrimination unfair? Unfair
discrimination
 Harksen v Lane 1998(1) SA 300 (CC)
(majority judgment)
Class activity: 15 minutes for this activity
Take out a piece of paper or type this
on your computer. You get 5 minutes
for each activity. Write down your notes
and discuss this with a person sitting
next to you.
 Harksen v Lane 1998(1) SA 300 (CC)
(majority judgment)
Is there differentiation? Yes.
Is this unconstitutional? No
Section 21 makes a differentiation between solvent spouses and other persons who have
dealings with the insolvent.
What is the government purpose of the section?
 To prevent or at least hamper collusion between the spouses to the detriment of creditors.
Then, is there a rational connection between the differentiation and the purpose it wants to
achieve?
 There is a good reason for transferring such onus to the solvent spouse.
 The solvent spouse has specific knowledge the trustee would not have when ownership of property must
be established. (para 60).
 There is a legitimate purpose for the differentiation.
 Harksen v Lane 1998(1) SA 300 (CC)
(majority judgment)
Is there discrimination? Yes
When does the differentiation between solvent spouses and other
persons dealing with the insolvent constitute discrimination?
It is only the property of the solvent spouse vesting on the trustee.
The differentiation did result due to specific attributes or
characteristics, ie being the solvent spouse, thus on the basis of
marital status (para 62).
Yes, there is discrimination, but is it unfair?
 Harksen v Lane 1998(1) SA 300 (CC)
(majority judgment)
Is the discrimination unfair? No
 The effected group is solvent spouses.
 This group did not suffer discrimination in the past and they are not vulnerable.(para 64).
 The next question relates to the effect of the discrimination on the solvent spouse.
o the Master and trustee will act reasonable when the claim property, and an aggrieved party can also
approach a court (para 66).
o The statutory vesting of the property of the solvent spouse does not have as a consequence that such
property is necessarily removed from the possession of the solvent spouse. The spouse can still present
balance of probability that it is her property.
o Yes, there is some burden in having to go to court perhaps, but this is not a burden any other citizen would
not have when having to resort to litigation (para 68).
o The burden to resist a claim does not lead to an impairment of a fundamental dignity.
o There is also not an impairment of a comparably serious nature.
 The discrimination is not unfair.(para 69)
 Need for reform?
Section 21 survived a constitutional challenge.
This was under the interim Constitution though.
– How would the approach be different under the Final Constitution? (hint: see Roestoff at
page 440). Presumption discrimination is unfair? Limitation clause?
Is it in line with international trends though?
– Remember we talked about the international trend to move away from insolvency
laws being creditor friendly to it becoming more consumer friendly.
The South African Law commission actually recommended that s21 must be
abolished in 1996.(See Roestoff 2020 THRHR)
However, in 2000, clause 22A was suggested to be broader, not only referring to
the spouse, but on an ‘associate’ (see Roestoff 2020 THRHR).
See the opinion that s21 is clearly against the scope of consumer insolvency laws.
 Additional reading
Joubert "Artikel 21 van die Insolvensiewet: Tyd vir n nuwe benadering?" 1992 TSAR
699;
Evans "A critical analysis of section 21 of the Insolvency Act 24 of 1936" 1996
THRHR 613 (part 1), 1997 THRHR 71 (part 2);
Stander "Artikel 21 van die Insolvensiewet - reg of weg?" 2005 TSAR 316
 Roestoff “EFFECT OF SEQUESTRATION ON THIE PROPERTY OF TIIE SOLVENT SPOUSE:
SECTION 21 OF THIE INSOLVENCY ACT_Davies r Van Den Heever NO (16865/2017) [2019]
ZAG PJII( 59 (1 March 2019)” 2020 THRHR 430. Copy sent to you.
Thank You.

Questions?