5._Solvent_Spouse - 1 5 THE EFFECT OF SEQUESRATION ON THE SOLVENT SPOUSE 5.1 General Principles Often an unscrupulous(dishonest fraudulent insolvent

5._Solvent_Spouse - 1 5 THE EFFECT OF SEQUESRATION ON THE...

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5. THE EFFECT OF SEQUESRATION ON THE SOLVENT SPOUSE 5.1 General Principles Often an unscrupulous (dishonest / fraudulent) insolvent transfers their property to their wife / husband in the hope of evading the claims of their creditors and at the same time benefiting themselves (by having a secret stash of assets left over after sequestration). At common law, the onus in the case of suspected fraud, was on the trustee to prove that the transaction in question was a simulated (fake) one. This was a difficult task because proprietary rights as between spouses are usually matters within their own peculiar knowledge. (See Maudsley’s Trustees v Maudsley .) In order to put a stop to such practices, section 21 was inserted into the Insolvency Act. This section effected an important change in the common law by vesting in the trustee of an insolvent’s estate all the property of the solvent spouse and placing on her the onus of showing that the property claimed by her is, in fact, her separate property. So instead of the trustee having to prove that the transaction between the spouses were collusive, the solvent spouse’s property now vests in the trustee (just as the in solvent spouse’s property) and it is up to the solvent spouse to prove that the property is hers. Once she can prove entitlement to the property, the trustee will release it. The section raises the question of constitutionality – that is – whether s21 is constitutional considering s9 of the constitution which guarantees the right to equality and not to be discriminated against on the basis of marital status. The Constitutional Court has upheld s21 (see Harksen v Lane ), pointing out that the essential purpose of s21 is not to deprive the solvent spouse of his/ her property, but to ensure that the insolvent estate is not deprived of property to which it is entitled. NOTE: s21 applies only to spouses married out of community of property. Remember, if the spouses are married in community of property then they have one estate – a ‘joint estate’ and both of them are thus sequestrated, so s21 would have no effect in any case. Section 21: Effect of sequestration on property of spouse of insolvent - In terms of s21(1) all property of the solvent spouse will vest with the master initially and when a trustee is appointed, will vest in the trustee of in solvent spouse. Once this vesting occurs, the solvent spouse is completing divested of dominium (ownership) of the property and cannot alienate (sell) or encumber 1
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(eg pass a mortgage bond over) the assets. (See De Villiers v Delta Cables ) . One also needs to consider the meaning of the word ‘spouse’. Who is included under the word ‘spouse’? The Act defines spouse rather widely. In terms of s21(13) ‘spouse’ can mean (a) a husband or wife by virtue of a legal marriage [ie de jure husband and wife]; (b) a husband or wife by virtue of a marriage according to any law or custom; (c) men and women living together as husband and wife although not married [ie de facto husband and wife].
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  • Summer '17
  • FUDDY
  • solvent spouse

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