Cat Quip CC was indebted to Merchant Trade Finance Limited (the Respondent), which held a notarial general covering bond over Cat Quip's movable assets registered on 4 April 1990. Cat Quip defaulted on bills of exchange on 18 November 1992. The sole member, Mr Weichelt, died on 20 November 1992, and his widow Mrs Weichelt took over management. On 26 January 1993, Mrs Weichelt handed over the keys to Cat Quip's premises to Mr Rivkind (the Respondent's representative), giving the Respondent possession of all movable assets. On 27 January 1993, an application for Cat Quip's provisional liquidation was filed and granted on 2 February 1993. The liquidators (Appellants) challenged this disposition as a voidable preference under section 29(1) of the Insolvency Act.
The appeal was dismissed with costs. The condonation for late filing of the appellants' power of attorney was granted, subject to the appellants paying the respondent's costs occasioned by the condonation application. The court a quo's finding that the Respondent was a secured creditor was upheld.
Where a debtor makes a disposition within six months of liquidation that has the effect of preferring one creditor, the creditor must prove on a balance of probabilities that the debtor did not intend to prefer that creditor above others. The test for intention to prefer is subjective and requires examination of all relevant circumstances to determine the debtor's dominant, operative or effectual intention. Where the debtor's dominant motive in making a disposition was to comply with clear pre-existing contractual obligations (such as a notarial bond) under circumstances where the debtor had no defence to the creditor's entitlement, and where the debtor was under legal pressure to perform, this negates an inference of intention to prefer. A disposition made in compliance with a genuine contractual obligation where the creditor is entitled to demand performance and the debtor has no basis to refuse is in the ordinary course of business. The mere fact that a debtor knows of impending liquidation does not automatically establish intention to prefer if other compelling reasons for the disposition exist.
Zulman JA made several important general observations about the law of voidable preferences: (1) The definition of 'disposition' in section 2 of the Insolvency Act is 'inept in the extreme' and creates 'obscurity and confused thinking' - the SA Law Commission should consider amending it. (2) Mere proof that liabilities exceeded assets at the time of disposition does not raise a presumption of intention to prefer. (3) A debtor's statement that they were 'hoping to tide over difficulties' is routinely made in preference cases and carries little weight. (4) Preference predicates an act of free will - there is no room for treating culpable or reckless disregard of consequences as intention to prefer. (5) An actual intention is required, not simply that the debtor ought to have realized a preference would occur. (6) In drawing inferences in civil cases, the court acts on a preponderance of probability, not the criminal standard of excluding all reasonable inferences. (7) The failure of a debtor to testify is not necessarily fatal to rebutting intention to prefer - such testimony would often be mere ipse dixit. Olivier JA (in dissent) noted that the basic principle from R v Ismail 1920 AD 316 is that once a person contemplates sequestration, their duty is to preserve assets for equal distribution, not to pay selected creditors. He observed that compliance with a contractual obligation does not justify escaping section 29(1), as this would render the provision a dead letter.
This case is significant in South African insolvency law for clarifying the test for intention to prefer under section 29(1) of the Insolvency Act. It demonstrates that even where a disposition occurs on the eve of liquidation and the debtor knows of impending insolvency, compliance with pre-existing contractual obligations (such as a notarial bond) may negate an inference of intention to prefer. The case illustrates the subjective nature of the intention inquiry and the importance of examining all circumstances, including the presence of legal pressure or obligation. It distinguishes R v Ismail 1920 AD 316 on its facts and clarifies that spontaneous, voluntary payments differ from dispositions made under contractual or legal compulsion. The judgment also addresses the burden of proof, confirming that once the trustee/liquidator proves the basic requirements of section 29(1), the creditor must prove both that the disposition was in the ordinary course of business AND that there was no intention to prefer. The case provides important guidance on when perfecting security under a notarial bond will not constitute a voidable preference.