Summary MRL3701 ASSIGNMENT 2 FOR SEMESTER 2 OF 2024 I DUE DATE: 20 SEPTEMBER 2024
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Course
INSOLVENCY LAW (MRL3701)
Institution
University Of South Africa (Unisa)
Book
Hockly\'s Insolvency Law
QUESTIONS:
(a) Explain the concept of a voidable preference, and also discuss what a trustee must prove in order to have such a transaction set aside by the court.
(b) Explain the concept of an undue preference, and also discuss what a trustee must prove in order to have such a transaction se...
Simphiwe owes a total of R3 million to various creditors. His creditors include Tebogo to
whom he owes R400 000. He also owes R1.3 million to BFN Bank.
Last year Simphiwe invested in a get-rich-quick scheme and as a result he lost a lot of
money. This left him in a dire financial situation. By 31 October 2023 his liabilities
exceeded his assets by R800 000. Over the past few months Simphiwe has failed to pay
some of his debts. In particular he failed to pay the R400 000 he owes to Tebogo. This debt
was due and payable on 1 February 2024.
Disappointed at not having been paid back the R400 000 owed to her, Tebogo undertook
an investigation into Simphiwe’s financial situation. The investigation turned up
unassailable proof that Simphiwe had owed R100 000 to his father-in-law, and that
Simphiwe repaid R80 000 to his father-in-law on 3 February 2024. Mindful that he was
technically insolvent and that one of his creditors could apply for the sequestration of his
estate at any time, Simphiwe had wanted to ensure that whatever happened, his father-
in-law would at least get something from his estate. Hence, he repaid the loan that he had
obtained from his father-in-law even though the amount was only due and payable on 30
November 2024.
Tebogo has also established that Simphiwe owns a house in Mamelodi valued at R700
000, household furniture valued at R300 000 and a motor vehicle valued at R800 000.
Tebogo applies for the compulsory sequestration of Simphiwe’s estate.
1
, Answer the following questions based on the facts given above:
(a) Explain the concept of a voidable preference, and also discuss what a trustee must
prove in order to have such a transaction set aside by the court.
The Concept of Voidable Preferences:
A voidable preference, as defined in section 29(1) of the Insolvency Act 24 of 1938 (as
amended by section 9 of Act 64 of 1960 and section 6 of Act 99 of 1965), refers to a
disposition of a debtor's property made within six months before sequestration that has the
effect of preferring one creditor over another. Such a disposition can be set aside by the
court if the debtor's liabilities exceeded their assets at the time of the disposition and if the
disposition was not made in the ordinary course of business.
In Hendriks v Swanepoel 1, the court applied the principle of voidable preferences, focusing
on the effect of the transaction rather than the debtor’s intent. The court reiterated that if
the debtor’s liabilities exceed his assets at the time of the disposition, and one creditor is
preferred over others, the disposition may be set aside unless the recipient proves that it
was made in the ordinary course of business and without intention to prefer.
To set aside a voidable preference, the trustee must prove the following elements:
In Simphiwe’s case:
Dispositions to his father-in-law: Simphiwe made a payment of R80 000 to his
father-in-law on 3 February 2024, even though the debt was only due on 30
November 2024. This payment could be regarded as a voidable preference because
Simphiwe was technically insolvent at the time, with liabilities exceeding his assets
by R800 000 as of 31 October 2023.
Timing: The payment was made within six months of the anticipated sequestration
(application for sequestration filed in February 2024).
Insolvency: Simphiwe’s financial position was dire, as he was insolvent by at least
R800 000.
Preference: The payment preferred his father-in-law over other creditors, such as
Tebogo, to whom he owed R400 000.
1
Hendriks v Swanepoel 1962 (4) SA 338 (A).
2
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