MRL3701
Assignment 1
Semester 1
2026
, MRL3701 - Insolvency Law
Assessment 1 - Semester 1, 2026
Department of Mercantile Law
(a) Voidable Preference: Concept and Requirements
A voidable preference, regulated by section 29 of the Insolvency Act 24 of 1936, 1 occurs
when an insolvent debtor makes a disposition that has the effect of preferring one creditor
above another.2 The policy behind this provision is to prevent a debtor on the brink of
insolvency from selectively paying certain creditors while leaving others unpaid, thereby
disturbing the equitable distribution of assets among all creditors. The preference is
"voidable" because a statutory defence is available to the beneficiary of the disposition.
For the trustee to successfully apply to court to set aside a voidable preference, the following
requirements must be proved:
- The insolvent made a disposition of his or her property.
- The disposition was made not more than six months before the sequestration of the
estate.
- The disposition had the effect of preferring one of the insolvent's creditors above
another.
- Immediately after the disposition, the liabilities of the insolvent exceeded the value of
his or her assets.
The test applied is objective, what matters is whether the disposition had the effect of
preferring one creditor, not whether the debtor intended that outcome. 3 The beneficiary may
nonetheless raise the statutory defence that the disposition was made in the ordinary course of
business and was not intended to prefer the creditor concerned. 4
(b) Undue Preference: Meaning and Elements
1
Insolvency Act 24 of 1936 (hereafter "the Act").
2
Section 29(1) of the Act.
3
Section 2 of the Act defines "disposition" as "any transfer or abandonment of rights to property and includes a
sale, lease, mortgage, pledge, delivery, payment, release, compromise, donation or any contract therefor".
4
Hendriks NO v Swanepoel 1962 (4) SA 338 (A); Van Zyl & others NNO v Turner 1993 (4) SA 705 (C). The
test is objective: was the disposition one that would normally be entered into between solvent business persons?
Assignment 1
Semester 1
2026
, MRL3701 - Insolvency Law
Assessment 1 - Semester 1, 2026
Department of Mercantile Law
(a) Voidable Preference: Concept and Requirements
A voidable preference, regulated by section 29 of the Insolvency Act 24 of 1936, 1 occurs
when an insolvent debtor makes a disposition that has the effect of preferring one creditor
above another.2 The policy behind this provision is to prevent a debtor on the brink of
insolvency from selectively paying certain creditors while leaving others unpaid, thereby
disturbing the equitable distribution of assets among all creditors. The preference is
"voidable" because a statutory defence is available to the beneficiary of the disposition.
For the trustee to successfully apply to court to set aside a voidable preference, the following
requirements must be proved:
- The insolvent made a disposition of his or her property.
- The disposition was made not more than six months before the sequestration of the
estate.
- The disposition had the effect of preferring one of the insolvent's creditors above
another.
- Immediately after the disposition, the liabilities of the insolvent exceeded the value of
his or her assets.
The test applied is objective, what matters is whether the disposition had the effect of
preferring one creditor, not whether the debtor intended that outcome. 3 The beneficiary may
nonetheless raise the statutory defence that the disposition was made in the ordinary course of
business and was not intended to prefer the creditor concerned. 4
(b) Undue Preference: Meaning and Elements
1
Insolvency Act 24 of 1936 (hereafter "the Act").
2
Section 29(1) of the Act.
3
Section 2 of the Act defines "disposition" as "any transfer or abandonment of rights to property and includes a
sale, lease, mortgage, pledge, delivery, payment, release, compromise, donation or any contract therefor".
4
Hendriks NO v Swanepoel 1962 (4) SA 338 (A); Van Zyl & others NNO v Turner 1993 (4) SA 705 (C). The
test is objective: was the disposition one that would normally be entered into between solvent business persons?
