Excluding Life and Insurance Benefits from Insolvent Estates: A Comparative Study of South Africa, England and Wales, and the United States of America

Authors

DOI:

https://doi.org/10.17159/1727-3781/2024/v27i0a16330

Keywords:

insolvent estate, benefits, third parties, exclusion, vesting, trustee, insured, life insurence police

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.

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Author Biographies

  • Zingapi Mabe, University of Pretoria

    LLB LLM PhD. Senior Lecturer, Faculty of Law, University of Pretoria (Hatfield Campus), South Africa.

  • Edith Mbiriri, University of South Africa

    LLB, LLM. Lecturer, Faculty of Law, University of South Africa (Pretoria Campus) South Africa

References

Bibliography

Literature

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Case law

South Africa

Ex parte Kroese 2015 1 SA 405 (NWM)

Harksen v Lane 1998 1 SA 300 (CC)

Wentzel v Discovery Life Limited: In Re Botha v Wentzel 2021 6 SA 437 (SCA)

Oshry v Feldman 2010 6 SA 19 (SCA)

Pieterse v Shrosbree, Shrosbree Love 2005 1 SA 309 (SCA)

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South African Restructuring and Insolvency Practitioners Association v Minister of Justice and Constitutional Development 2015 2 SA 430 (WCC)

Warricker v Liberty Life Association of Africa Ltd 2004 3 SA 445 (SE)

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United Kingdom

Tapster v Ward (1909) 101 LT 503

United States of America

Carroll v Logan 735 F 3d 147 (4th Cir 2013)

In Matter of Murdock 547 BR 475 (Bankr SD Ga 2015)

In re Greenberg 271 F 258 (2nd Cir 1921)

In re Lush 544 BR 575 (Bankr ND Miss 2015)

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In re Woodson 839 F 2d 610 (9th Cir 1988)

Wornick v Gaffney 544 F 3d 486 (2nd Cir 2008)

Legislation

South Africa

Financial Services Laws General Amendment Act 45 of 2013

Long Term Insurance Act 52 of 1998

Insolvency Act 24 of 1936

Insurance Act 27 of 1943

Insurance Act 18 of 2017

United Kingdom

Enterprise Act, 2002

Insolvency Act, 1986

Insolvency Act, 2000

Law Reform (Married Women and Tortfeasors) Act, 1935

Married Woman's Property Act, 1882

Statute Law (Repeals) Act, 1969

United States of America

Bankruptcy Code (Bankruptcy Reform Act of 1978)

Mississippi Code of 1972, Annotated

New York Insurance Law (ch 28 of the McKinney's Consolidated Laws of New York, 1984)

Internet sources

Insolvency Service date unknown Guide to Bankruptcy https://bit.ly/3hOBcdG accessed 14 June 2023

Insolvency Service 2014 Technical Manual https://bit.ly/36Y9Co5 accessed 14 June 2023

Published

16-10-2024

Issue

Section

Articles

How to Cite

Mabe, Z., & Mbiriri, E. (2024). Excluding Life and Insurance Benefits from Insolvent Estates: A Comparative Study of South Africa, England and Wales, and the United States of America. Potchefstroom Electronic Law Journal, 27, (Published on 16 October 2024) pp 1-26. https://doi.org/10.17159/1727-3781/2024/v27i0a16330

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