The claimant’s claim was based on an allegation that a company unable to pay its debts with its liabilities exceeding its assets had sold 21 million shares at 27c per share and 7 300 000 million shares at 48c per share when the reasonable market value was allegedly 67c per share. The court refused to set aside the sale under section 26(1)(a) of the Insolvency Act of 1936 on the basis that the section can only be invoked where assets are disposed of for no value at all.
The court pointed out the different sections of the Insolvency Act provide different protection for creditors, as remedies available to a trustee or liquidator. Besides section 26, there are other remedies in section 29 (voidable preferences), section 30 (undue preference to creditors) and section 31 (collusive dealings before sequestration). These provisions constitute a comprehensive set of remedies to reverse objectionable transactions that occurred prior to sequestration or winding-up. The more objectionable the transaction the more extensive the remedy afforded. There is nothing inherently, commercially or morally objectionable to a sale at a discounted price. The same cannot be said of a factually insolvent person squandering or giving away assets for no return. The object of section 26 is not to prevent a person in insolvent circumstances from engaging in the ordinary transactions of life, but to prevent a person impoverishing their estate by giving their assets away without receiving any present or contingent advantage or return. Section 26 was intended to apply only to gratuitous dispositions. Any other interpretation would mean that, should a purchase with no knowledge or the seller’s financial situation in the ordinary course of business purchase property at a discounted price from a person that is sequestrated years later, the purchaser would have to return the property without the right to reclaim the purchase price. This is one of many absurd results that wold follow from the interpretation that the court refused to accept. The phrase ‘not made for value’ in section 26(1) means for no value at all.