The extraordinary in the ordinary: the devil is in the (sometimes unexpected) details of section 34 of the Insolvency Act 24 of 1936 and the actio Pauliana

Abstract

A recent case offers an opportunity to consider two types of impeachable dispositions in insolvency law. One is the transfer of a trader’s business under section 34(1) of the Insolvency Act, and the other is the common-law actio Pauliana from which the entire law of impeachable dispositions derives. In the first place, the nature of the application is characterised as an attempt to reverse the transfer of the business and assets. A common feature of section 34(1) and the actio Pauliana is spotted: they straddle sequestration or winding-up. Compliance with sections 34(1) and (2) of the Insolvency Act is discussed, and the trader’s celebration of doing so is then ruined by the pervasive menace of the actio Pauliana, the defence of necessity supplying a sword to cut the Gordian knot. The central insight of the judgment about section 34(1) - the relative meaning of the word “void” - is shown to be well-articulated by a widely followed juristic insight into administrative validity. Some of the finer details of the ambit of the word “void” are then teased out. The uneasy relationship between section 34(1) and sections 26, 29, 30, and 31 of the Insolvency Act and the actio Pauliana is explored, and an answer to a dilemma over the application of section 34(1) ventured. As for applying the requirements of the actio Pauliana to the facts, a comprehensive, nuanced approach considering both the two relevant possibilities is proposed, rather than the single choice plumped for in the judgment apparently because it is the more usual one. The closing remarks underline the wisdom of thoroughly planning, discussing, and creating a Plan B for the client in the pleadings and executing the procedural requirements and administration.