WENTZEL v DISCOVERY LIFE LTD AND OTHERS 2019 (6) SA 559 (GP)

SUMMARY

On or about 1 June 2012, Malcom Wentzel (“the Applicant”) took out a life  insurance policy number 5130640002 (“the Policy”) on the life of his wife, with whom he was married to in community of property, with Discovery Life (“the First Respondent”) and appointed himself as a beneficiary of the proceeds of the policy in the event of her death. The Applicant’s wife died on 16 April 2017.

On or about 20 February 2012, the joint estate of the Applicant and his wife was provisionally sequestrated by order of court, and the said order was confirmed on 3 April 2012. Subsequently, on or about 20 September 2012, the second to the fourth respondents were appointed trustees (“Trustees”) of the insolvent estate. A First and Final Liquidation and Distribution Account, dated 24 January 2014, in the joint estate was filed by the Trustees and confirmed by the Master of the High Court (“Fifth Respondent”).

On 9 May 2017, the Applicant claimed and accepted payment of the proceeds of the Policy amounting to R5 240 345.56 (Five Million, Two Hundred and Forty Thousand, Three Hundred and Forty Five Rand and Fifty Six Cents), as nominated beneficiary, but was informed by the First Respondent that proceeds would be paid over to the Trustees. The Trustees contended, by communication to the Applicant and the First Respondent, that such payment be made to the insolvent estate given the status of the Applicant. This is because there was a deficit of R3 480 986.88 (Three Million, Four Hundred and Eighty Thousand, Nine Hundred and Eighty Six Rand and Eighty Eight Cents) after distributing a dividend of the realised assets of their insolvent estate to the creditors, in order of preference.  Accordingly, the insolvent estate vests in the Trustees until the First Applicant is either re-vested therewith pursuant with composition with section 119 of the Insolvency Act 24 of 1936 (“the Act”) or that he is rehabilitated. Although the death of the First Applicant’s wife ex lege dissolved their marriage, this did not change the position of the Trustees as she died insolvent, anyway. Therefore, the proceeds of the Policy should vest in the Trustees for purposes of realisation and distribution to creditors, who had proven claims, which still remain unpaid.

During May 2018, the Applicant launched two applications:

1. the first (and present) application sought to declare the Applicant as owner of the Policy and that the First Responded be ordered to pay the proceeds to him, not the trustees; andthe second application sought rehabilitation (which he withdrew during January 2019).

2. Only the Trustees opposed the first application and issued a counter application in their respective capacities, seeking a declaratory order that they as trustees of the unrehabilitated insolvent estate were entitled to the proceeds payable by the First Respondent. Further, the Trustees raised a point in limine of non-joinder, that the creditors of the insolvent joint estate, who had a direct and substantial interest in the application should have been joined as they stood to be prejudiced in their rights to be paid in the event that the Applicant succeeds.

HELD

The Court held that the joint estate of the parties married in community of property is dissolved by “the death of one or both of the spouses, by divorce, by an order of division, or by the change in their matrimonial property system in terms of section 21 of the Matrimonial Property Act therefore, and that consequently the dominium of each spouse vests in that spouse on dissolution”. The Court agreed with this submission. However, it held that prior to a share in the joint estate being distributed, the estate of the Applicant’s late wife would have to be administered. In which case, the executor would first have to settle the liabilities of the insolvent joint estate where after, the remainder of the assets can then be distributed.

Reference was also made to the case of Moodley N.O v Milne N.O 1965 (1) SA (154) (D)which highlighted section 25 of the Act by stating that the trustee remains vested with estate until re-vested with the insolvent or by his rehabilitation.

Furthermore, to address the point in limine of non-joinder, the Court held that the Applicant’s election to launch two applications did not preclude him from notifying the creditors of the first application. Therefore, the creditors should have been notified of and properly joined in the court proceedings as they have a material interest in the proceedings.

The Applicant who is not incapacitated from contracting by virtue of his insolvent status, by claiming and accepting the Policy benefit is still obliged to have his acquisition of the Policy proceeds administered by the Trustees as an unrehabilitated insolvent and is as far as it pertains to the creditors of his insolvent estate. The Trustees remain answerable to the Master and the creditors until discharged.

Accordingly, the Trustees having filed a first and final liquidation and distribution account, are required to initiate a formal process to notify the Master that a situation has arisen whereby a second liquidation and distribution account might be lodged, after the process has been commenced to engage the creditors.

The main and counter application were therefore both dismissed, in order to enable the Trustees to discharge their duties as the Applicant remained an unrehabilitated insolvent.

VALUE

The proceeds of life insurance acquired by an unrehabilitated insolvent are payable to the appointed trustee(s) as they have not been discharged from their duties as trustees.

Written by Lindokuhle Mashilo and Puseletso Radebe