Challenging pre-bankruptcy dispositions: An Australian-South African comparison

• Jurisdiction: South Africa
• Citation: (1998) 10 SA Merc LJ 267
• Pages: 267-292
• Date: 25 May 2019
• Published date: 25 May 2019

Challenging Pre-bankruptcy Dispositions:

An Australian—South African Comparison

ANDRE BORAINE *

University of Pretoria

ANDREW KEAY**

University of Wolverhampton

1 Introduction

A trustee in bankruptcy will, when administering a bankrupt estate,

examine any transactions in which the bankrupt was involved before the

onset of bankruptcy to ascertain whether any of the bankrupt's property,

which should be available for distribution amongst all the creditors, was

disposed of improperly. In this article we intend to provide an analytical

comparison of the law that regulates transactions entered into prior to

bankruptcy in Australia and South Africa. This is an appropriate study

for two reasons. First, the issue of the avoidance of pre-bankruptcy

transactions is often at the centre of problems involving cross-border

issues (for example, a bankrupt disposed of property in countries other

than the one in which he or she became a bankrupt). So considering how

two different countries deal with the matter of pre-bankruptcy

transactions can be helpful. Secondly, the legal systems of the two

countries are not identical and it is instructive to see the way in which

each has handled the present issue and to compare two countries, one

with a traditional common-law system (Australia) and another (South

Africa) whose legal system is rooted in Roman-Dutch law (the civil law)

with marked influence of English law in particular fields, especially

insolvency law. Such an exercise can show up the shortcomings in each

country's laws.

We emphasize that this article focuses on the bankruptcy of

individuals. Like England, and unlike the United States of America,

both countries use the term 'bankruptcy' only in relation to individuals.

(Where the bankruptcy of corporations is considered, the terms

'liquidation' or 'winding up' are used. In South Africa, the rules

concerning which transactions are impeachable apply not only to bank-

ruptcy but also mutatis mutandis to a company which is unable to pay its

debts.' Section 340(2) of the Companies Act defines the event which is

deemed to correspond with the sequestration order in the case of an

individual. The same approach applied in Australia until 1993, when

* Bluris LLB (Pret) LLM (Wits) LLD (Pret). Professor of Mercantile Law, University of

Pretoria.

** LLB MDiv LLM PhD. Professor of Law, University of Wolverhampton, England.

Section 340(1) of the Companies Act 61 of 1973.

267

(1998) 10 SA Merc LJ 267

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268



(1998) 10 SA Merc LJ

the Corporate Law Reform Act 1992 came into operation. This statute

introduced a separate regime for the avoidance of pre-liquidation

transactions.

2

Now the provisions applying to bankruptcy and liquida-

tion are quite different.

3

)

Primarily, the Bankruptcy Act 1966 (Cth) (the 'BA% in the case of

Australia, and the Insolvency Act 24 of 1936 (the 'IA% in the case of South

Africa, determine what pre-bankruptcy transactions can be challenged.

The remedies of the South African common law are also relevant. While

the various property statutes enacted in the Australian states

4

theoretically have some bearing as to what transactions can be set

aside, they are rarely invoked in practice.

This article looks at various transactions entered into by debtors who

later become bankrupts and which can be challenged by the laws in the

respective jurisdictions. With most kinds of transaction there are

analogous provisions in each jurisdiction which enable the transactions

to be set aside.

2 Fraudulent Conveyances

Fraudulent conveyance law is aimed at striking down actions designed

to hinder, delay, or defraud creditors, or dispositions made for less than,

or without, fair consideration.

5

This action prejudices all the creditors of

an insolvent in that it diminishes the assets available for payment.

6

The

classic instance of a fraudulent conveyance is the transfer of property or

money by a debtor to an associate or relative, thereby placing it out of the

reach of creditors.

7

In common-law systems the law against fraudulent conveyances can be

traced back to the Statute of Elizabeth of 1570. This important statute

formed the backbone of fraudulent conveyance law in all common-law

jurisdictions. Now, in Australia, provisions avoiding fraudulent con-

veyances are to be found in bankruptcy

8

and non-bankruptcy legislation.

9

2

Division 2 of Part 5.7B of the Corporations Law 1989. For a discussion of the regime, see

Andrew R Keay

Avoidance Provisions in Insolvency Law

(1997) ch 5; Andrew Keay 'The

Avoidance of Antecedent Transactions in Corporate Liquidations: The Australian Regime' (1995)

4

International Insolvency Review

139.

3

As one would expect with avoidance provisions, there are some similarities, particularly in

relation to preference avoidance.

See s 37A of the Conveyancing Act 1919 (NSW); s 228 of the Property Law Act 1974 (Qld);

s 172 of the Law of Property Law Act 1958 (Vic); and s 89 of the Property Law Act 1969 (WA).

Douglas G Baird

The Elements of Bankruptcy

(1992) 134; Douglas G Baird & Thomas H

Jackson 'Fraudulent Conveyance Law and its Proper Domain' (1985) 38

Vanderbilt LR

829;

Thomas H Jackson

The Logic and Limits of Bankruptcy Law

(1986) 69. Sees 6 of the Statute of

Elizabeth (UK).

6

See Brian FJ Langstaff 'The Cheat's Charter' (1975) 91

LQR

86 at 87.

7

John Stephan Cullina 'Recharacterizing Insider Preferences as Fraudulent Conveyances: A

Different View of

Levitt v Ingersoll Rand'

(1991) 77

Virginia LR

149 at 159.

8 Section 121 of the Bankruptcy Act 1966 (Cth).

9

See s 37A of the Conveyancing Act 1919 (NSW); s 228 of the Property Law Act 1974 (Qld);

s 86 of the Law of Property Act 1936 (SA); s 40 of the Conveyancing and Law of Property Act

1884 (Tas); s 172 of the Property Law Act 1958 (Vic); and s 89 of the Property Law Act 1969

(WA).

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