Section 25 of the Insolvency Act 24 of 1936 relates to the rights of a property that is acquired by a rehabilitated insolvent before or during his or her insolvency. The Act states that the trustee retains the rights to the property, despite the insolvent’s rehabilitation.
Section 20 of the Insolvency Act provides that the insolvent is stripped of the estate as soon as the estate is sequestrated. The property is then vested in the Master who appoints a trustee. Once appointed, the trustee takes on the rights to the property.
In terms of section 21 of the Insolvency Act, if the insolvent has a spouse whose estate has not been sequestrated, then the spouse’s property is treated as if it is part of the insolvent’s estate. The rights to the spouse’s property vest in the Master and in the trustee. The trustee must release the property before the spouse can pursue any dealings with the property.
Under section 127A, the estate is automatically rehabilitated if the insolvent is not rehabilitated by the court within ten years from the date of sequestration. However, the insolvent estate remains vested in the trustee until the insolvent is re-invested with the estate. This can only happen after an offer of composition is presented, as section 119 provides.
Where this relates to immovable property the registrar of deeds must endorse the title deed of any immovable property before the insolvent can deal with the property in question.
It is important to note that, under the National Credit Act 34 of 2005 (NCA), creditors may impose insolvency proceedings and thereby circumvent debt enforcement remedies provided for in the NCA. This was confirmed in the case of Naidoo v Absa Bank Ltd 2010 4 SA 567 SCA and thereafter in another judgement First Rand Bank Ltd v Evans 2011 4 SA 597 KZD. This means that a creditor may still institute insolvency proceedings against a debtor even if the debtor is under debt counselling or review.
If an insolvency application is brought, it is therefore important for both the debtor and their spouse to consider the effects of insolvency, and to consider better ways to manage their indebtedness before it gets to that point.
