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

JurisdictionSouth Africa
Citation(1998) 10 SA Merc LJ 267
Date25 May 2019
Published date25 May 2019
Challenging Pre-bankruptcy Dispositions:
An Australian—South African Comparison
University of Pretoria
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
** LLB MDiv LLM PhD. Professor of Law, University of Wolverhampton, England.
Section 340(1) of the Companies Act 61 of 1973.
(1998) 10 SA Merc LJ 267
© Juta and Company (Pty) Ltd
(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
Now the provisions applying to bankruptcy and liquida-
tion are quite different.
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
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.
This action prejudices all the creditors of
an insolvent in that it diminishes the assets available for payment.
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.
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
and non-bankruptcy legislation.
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)
International Insolvency Review
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
Thomas H Jackson
The Logic and Limits of Bankruptcy Law
(1986) 69. Sees 6 of the Statute of
Elizabeth (UK).
See Brian FJ Langstaff 'The Cheat's Charter' (1975) 91
86 at 87.
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).
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
© Juta and Company (Pty) Ltd

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT