What amounts to “dispositions without value” in the context of section 26 of the Insolvency Act 24 of 1936?

Abstract

Section 26 of the Insolvency Act 24 of 1936 aims to prevent natural and juristic persons from giving away their assets without receiving any value in return, in circumstances where immediately after releasing such assets they become insolvent. This paper demonstrates that it has not been easy for courts to adequately determine how value should be established for this provision not to apply. Several tests that have been established by courts are discussed with a view to demonstrate the difficulty faced by trustees and liquidators when seeking to set aside transactions in which they believe insolvent persons did not derive value. It will also be shown that the Supreme Court of Appeal crafted a new test that is way too simplistic, which may lead to prejudicial transactions that should otherwise be subjected to judicial scrutiny in terms of section 26(1) of the Insolvency Act being protected from the reach of this provision. This paper argues that there is an urgent need for legislative guidelines on what constitutes value in relation to the pre-liquidation/sequestration transactions to prevent the application of section 26(1) of the Insolvency Act.