Life policy proceeds due to insolvent must be paid to their trustees

Patrick Bracher, Norton Rose Fulbright

Where an unrehabilitated insolvent was the beneficiary of the proceeds of a life policy taken out on the life of his wife, and the couple’s joint estate had been sequestrated, it was held that the proceeds of the policy were payable to the trustees of the insolvent estate and not to the insolvent surviving husband.

The estates of the couple were unrehabilitated when the wife died as a result of which the life policy proceeds of R5 240 345 were payable. The surviving insolvent husband claimed the proceeds personally.

Despite some imaginative but insupportable arguments made on his behalf, the court held that the proceeds had to be paid to the trustees of his insolvent estate.

Section 20(2) of the Insolvency Act 1936 provides that ‘all property which the insolvent may acquire or which may accrue to them during the sequestration vests in the trustee of the insolvent estate except as otherwise provided for in section 23’. The list of exceptions in section 23 does not include reference to the proceeds of a life policy. The list includes pension for services rendered, compensation for defamation or personal injury, and remuneration for work done or professional services rendered save to the extent needed for support of the insolvent and dependants.

The policy benefits were paid to the trustee for the benefit of creditors.

The case is Malcolm Wentzel v Discovery Life Limited and others.

FIrst published by: Financial Institutions Legal Snapshot