Strydom N.O. and Another v Snowball Wealth (Pty) Ltd and Others

The appellants were joint liquidators of DexGroup (Pty) Ltd (in liquidation). Prior to its liquidation on 26 October 2016, DexGroup had been unable to pay its debts since at least 2007 and its liabilities exceeded its assets. Between September 2010 and November 2010, DexGroup sold shares in Trustco Group Holdings Limited to the respondents. The first respondent, Snowball Wealth (Pty) Ltd, purchased 21 million shares at 27 cents per share and 6 million shares at 48 cents per share. The other respondents purchased shares at 48 cents per share. The liquidators alleged that the reasonable market value of the shares at the time of each sale was 67 cents per share. They sued the respondents to recover the shares or their value, alleging that the sales were dispositions "not made for value" under section 26(1) of the Insolvency Act 24 of 1936 as read with sections 339 and 340 of the Companies Act 61 of 1973. The respondents excepted to the particulars of claim, arguing that payment of 27 cents (40% of market value) and 48 cents (72% of market value) could not constitute "no value" and therefore section 26(1) did not apply. The Western Cape High Court upheld the exceptions.

• What is the meaning of the phrase 'not made for value' in section 26(1) of the Insolvency Act 24 of 1936?
• Does section 26(1) apply to dispositions made for inadequate or discounted consideration, or only to dispositions made for no value at all?
• Can a sale at an arm's length transaction for a discounted price be set aside under section 26(1)?

The appeal was dismissed with costs, including the costs of two counsel where so employed. The High Court's order upholding the exceptions was confirmed.

The phrase "not made for value" in section 26(1) of the Insolvency Act 24 of 1936 means "for no value at all". It does not encompass dispositions made for inadequate, insufficient or discounted value. Section 26(1) applies only to gratuitous dispositions where the insolvent receives no benefit or advantage whatsoever in return for the disposition of property. The provision is intended to prevent factually insolvent persons from impoverishing their estates by giving assets away without receiving any present or contingent advantage in return, not to interfere with ordinary commercial transactions conducted at arm's length, even if at discounted prices. This interpretation is supported by: (1) the ordinary meaning of "value"; (2) the context of section 26 within the comprehensive framework of insolvency remedies in sections 26, 29, 30 and 31 of the Insolvency Act; (3) the purpose of protecting creditors without unduly interfering with commercial transactions; and (4) the legislative use of different terminology ("sufficient value") in section 25(4)(c) when intending to address inadequate consideration.

The Court made several important observations: (1) The importation of the expressions "illusory value" and "nominal value" from Terblanche NO v Baxtrans CC 1998 (3) SA 912 (C) may conduce to confusion, though the Court did not need to resolve this issue given its conclusion. (2) The Court noted that "value" under section 26(1) is not confined to monetary or tangible material consideration and includes benefits that do not have a reasonable market value and in respect of which a fair return or equivalent could not be evaluated or expressed in monetary terms. (3) The Court observed that the insolvency remedies do not evince an intention to advance the interests of creditors above all other interests, as illustrated by the defences and time limitations in section 29. (4) The Court provided examples of the absurd results that would follow from the appellants' interpretation, including that a bona fide purchaser who bought property at a discount could be required to return it without recovering the purchase price, and if the property had been alienated or consumed, would be liable for the higher of its value at the time of sale or setting aside. (5) The Court emphasized that the legislature is presumed to be acquainted with existing law and that deliberate changes in statutory language indicate changes in legislative intention.

This judgment definitively settled a longstanding question about the scope of section 26(1) of the Insolvency Act. It clarifies that the provision applies only to gratuitous dispositions (those for no value at all) and not to commercial transactions at discounted or inadequate prices. The judgment is significant because it: (1) Provides certainty for commercial transactions, protecting bona fide purchasers who acquire property at a discount in arm's length transactions; (2) Establishes the proper interpretation methodology by examining the text, context and purpose of section 26(1) within the broader framework of insolvency remedies; (3) Distinguishes between different types of voidable transactions under the Insolvency Act and their respective requirements and consequences; (4) Prevents potential abuse of section 26(1) to set aside ordinary commercial transactions years after they occurred; (5) Confirms that the word "value" in section 26(1) is not limited to monetary consideration and includes any benefit or advantage received. The decision also noted that the case of De Jongh Ontwikkelings (Pty) Ltd v Kilotech Investments (Pty) Ltd 2021 (4) SA 492 (GP) should not be followed insofar as it conflicts with this interpretation.