The Supreme Court of Appeal ("SCA") recently handed down judgment in Prinsloo v Majiedt N.O. and Another, addressing the protection of benefits of long-term life insurance policies under section 63 of the Long-term Insurance Act, 1998 ("LTIA"). The case specifically considered these protections in the context of marriage in community of property and the subsequent sequestration of the joint estate.
Section 63 of the LTIA provides that, subject to certain exceptions, policy benefits payable under a long-term policy are protected from attachment or execution for the debts of the policyholder or, upon their death, for the debts of their estate, provided the benefits devolve upon a spouse, child, stepchild, or parent. The protection is subject to a five-year period and does not apply if the policy was taken out with the intention to defraud creditors.
In this matter, the late Louis Prinsloo ("Louis") and his wife, Nelly Prinsloo ("Nelly"), were married in community of property. In 2011, Louis took out a life insurance policy with Old Mutual, nominating Nelly as the beneficiary of the death benefits. Upon his death in 2018, Old Mutual paid R10 million to Nelly, who immediately transferred the funds to Iceburg Trading 713 CC, a close corporation of which their son, Eugene Prinsloo ("Eugene"), is the sole member. Eugene thereafter transferred the funds to his personal account. Following Louis' death in 2020, Louis and Nelly's joint estate was finally sequestrated. The trustees of their insolvent estate instituted legal proceedings against Eugene, for the recovery of the ZAR10 million, the basis being that the transfer of funds constituted a disposition, alternatively, an impeachable transaction, both under the Insolvency Act, 1936 ("Insolvency Act") or, further alternatively, the transfer of funds was subject to recovery on grounds of enrichment under the common law or was part of a loan.
The High Court was tasked with determining whether the benefits received by Nelly as the nominated beneficiary of the policy were protected under section 63 of the LTIA, thereby shielding the proceeds from claims of creditors of the insolvent estate. The High Court determined that such protection did not apply because section 63 of the LTIA only protects the policyholder and not a third-party beneficiary such as a spouse.
On appeal, the SCA found that Nelly ought to have been joined to the proceedings before the High Court as a party with a direct and substantial interest in the case. The reasoning for this was that Nelly would be entitled to, in terms of section 63 of the LTIA, maintain that the proceeds were protected, hence the proceeds may not be attachable by the trustees of their insolvent estate, subject to the appropriate proof. The case was remitted back to the High Court for Nelly's joinder and further consideration.
The SCA's judgment highlights the complexities surrounding the protection of life insurance benefits in the context of insolvency, especially where the beneficiary is a spouse of an insolvent estate. The interplay between the Insolvency Act and the LTIA remains to be finally determined by the High Court in due course.
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