MRL3701 - STUDY UNIT 15 - VOIDABLE AND UNDUE PREFERENCE, CO
LUSIVE DEALINGS AND THE ACTIO PAULIANA
1. What must be proved:
I.t.o. Se 29(1) court may set aside a disposition made by the insolvent not more
than 6 months before the sequestration of his estate or his death (where he is
deceased and estate in insolvent) if disposition had the effect of preferring
one of the insolvent's creditors above another and immediately after the
disposition was made, the liabilities of the insolvent exceeded the value of
his assets.
Policy behind s29 is evidently that a person on the brink of insolvency should
not be permitted to select one or a few of his creditors for full payment and
disregard the rest.
Disposition does not have to have been made directly to the creditor con-
cerned - it must merely have had the effect of preferring him.: DISPOSITION
WHICH PREFERS ONE CREDITOR ABOVE ANOTHER :VOIDAABLE PREFER-
ENCE
2. is whether the proper distribution of the assets as envisaged b the Act has
been defeated or, in other words, whether the creditor has benefited more or
been paid earlier than would have been the case if he had been paid a dividend
in accordance with the Act.
claims proved against estate are accepted as prima facie proof of the in-
solvent's liabilities as at the date of sequestration and, accordingly, may be
relevant for establishing the extent of the insolvent's liabilities immediately
after the disposition.
The value of the assets to be assessed is the market value.
This has been describe as the full and fair price which the assets would be
likely to realize if sold voluntarily under the usual terms and conditions and
the price which a willing seller might reasonably expect to obtain for the assets
from a willing buyer.: TEST WHETHER A CREDITOR HAS BEEN PREFERRED
3. Section 29 enables trustee to set aside transactions made and assets
alienated by the insolvent while close to insolvency.
Legislature has included a proviso in s29 that court cannot set aside a dispo-
sition if the person in whose favour it was made proves that it was made in the
ordinary course of business and that it was not intended to prefer on creditor
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, MRL3701 - STUDY UNIT 15 - VOIDABLE AND UNDUE PREFERENCE, CO
LUSIVE DEALINGS AND THE ACTIO PAULIANA
above another.
Beneficiary must prove both elements if the trustee's claim is to be defeated.-
: EXCEPT TO S29 - DISPOSITION IN THE COURSE OF BUSINESS AND NOT
INTENDED TO PREFER
4. OBJECTIVE TEST IS APPLIED
- whether the disposition was one which would normally be entered into
between solvent business persons or;
- whether the disposition is in conformity with ordinary business methods
adopted by solvent persons of business;
- or whether it would be anomalous, unbusinesslike or surprising to the
ordinary person of business.
Court must have regard to the term of the disposition and the circumstances
in which it was made, but leave out of consideration the fact that the party
making the disposition was insolvent at the time.
Disposition may be made in the ordinary course of business if duly made in
terms of a valid contract, even though the insolvent's overall business model
is illegal and the payment is made with stolen money.
To fall within the ordinary course of business both the making and the receiv-
ing of the disposition must be lawful.: ORDINARY COURSE OF BUSINESS
5. Insolvent will not be held to have intended to prefer if it is established that,
when he made the disposition, he did not contemplate or expect sequestra-
tion; or
that his main purpose or dominant motive in making the disposition was
something other than the conferring of an advantage on the creditor con-
cerned, eg, to shield himself from a criminal prosecution or to cover up a
misappropriation of assets and save himself from exposure.; or
to comply with a contractual obligation to give possession of his movable
property to the creditor concerned for the perfecting of the latter's security
under a general notarial covering bond.: NO INTENTION TO PREFER
6. What must be proved
Under s 30 the court may set aside a disposition which the insolvent made
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