MRL3701 - STUDY UNIT 15 - Voidable and Undue Preference, Collusive Dealings and the Actio Pauliana Exam Questions with Correct Answers

DISPOSITION WHICH PREFERS ONE CREDITOR ABOVE ANOTHER :VOIDAABLE PREFERENCE Correct Answer 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 concerned - it must merely have had the effect of preferring him. TEST WHETHER A CREDITOR HAS BEEN PREFERRED Correct Answer 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 insolvent'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. EXCEPT TO S29 - DISPOSITION IN THE COURSE OF BUSINESS AND NOT INTENDED TO PREFER Correct Answer 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 disposition 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 above another.