Cooper and Another v Merchant Trade Finance Ltd (474/97) [1999] ZASCA 97 (1 December 1999)

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[1999] ZASCA 97
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Cooper and Another v Merchant Trade Finance Ltd (474/97) [1999] ZASCA 97; 2000 (3) SA 1009 (SCA) (1 December 1999)

THE
SUPREME COURT OF APPEAL
OF
SOUTH AFRICA
CASE
NUMBER 474/97
In
the matter between:
COOPER,
BRIAN ST CLAIR First
Appellant
JANSE
VAN RENSBURG, JACOBUS HENDRIKUS Second Appellant
and
MERCHANT
TRADE FINANCE LIMITED Respondent
CORAM:
OLIVIER,
ZULMAN JJA; FARLAM, MADLANGA and MPATI AJJA
DATE OF HEARING:
16
SEPTEMBER 1999
DATE OF JUDGMENT: 1 DECEMBER 1999
Liquidation
of close corporation - handing over of movables by a debtor to a
creditor one day before the filing of an application
to liquidate a
close corporation in fulfilment of an obligation in terms of a
notarial general mortgage bond - intention to prefer
one creditor
above others and ordinary course of business.
JUDGMENT
ZULMAN
JA
:
[1]
I
have had the advantage of reading the judgment of my brother
Olivier JA. I am regrettably unable to agree with his conclusion

that this appeal should be upheld.
[2]
In my view the respondent has discharged the onus of proof
resting upon it of showing that Cat Quip CC (Cat Quip) did not

intend to prefer the respondent above its other creditors. The
following are my reasons for this view:-
[3]
At the outset it may be convenient to set out the following,
mostly well-known general principles, applicable to the concept
of
“an intention to prefer” in section 29(1) of the
Insolvency Act, 24 of 1936 (“the
Insolvency Act&rdquo
;).
1
[4]
It
is essential and indeed fundamental to any decision as to whether
there has been an intention to prefer to examine and weigh
up all
of the relevant facts which prevailed at the time that the
disposition was made in order to determine what, on a balance
of
probabilities, was the “dominant, operative or effectual
intention in substance and in truth”
2
of the debtor for making the disposition.
[5]
In
seeking to establish whether the requisite intention was present in
the debtor’s mind at the time of making the disposition
the
test is a subjective one. The court is required to determine a
question of fact. As Lord Greene, M. R., echoing the well-known

language of Bowen LJ in an earlier case, asserted:-
“
A state of mind is as much a
fact as a state of digestion, and the method of ascertaining it is
by evidence and inference ......”
3
[6]
The
mere fact that the
effect
of the transaction is to prefer one creditor above another does not
necessarily mean that there has been a voidable preference.

Obviously in every case where one creditor is paid and others are
not there is a preference in favour of the creditor who has
been
paid. Something additional is required to impeach the transaction.
That additional requirement is an intention to prefer
on the part of
the debtor. The position is different in Australia where, for
example, in terms of the relevant legislation the
courts of that
country are only concerned with the effect of the transaction and
not the motive of the debtor.
4
Similarly the American Bankruptcy Code of 1978 requires no proof of
intention but embraces an objective theory of preferences.
5
On the other hand the now repealed Section 44 of the
English
Bankruptcy Act
of
1914 as also Section 239 of the current
English
Insolvency Act
of
1986 require a subjective intention to be established, albeit that
it is the trustee or liquidator seeking to set aside a
preference,
who bears the onus of proof of showing an intention to prefer on the
part of the debtor.
6
[7]
It is not incumbent upon the party who bears the onus of proving an
absence of an intention to prefer to eliminate by evidence
all
possible reasons for the making of the disposition other than an
intention to prefer. This is so because the court, in drawing

inferences from the proved facts, acts on a preponderance of
probability
7
.
The inference of an intention to prefer is one which is, on a
balance of probabilities, the most probable, although not

necessarily the only inference to be drawn. In a criminal case, one
of the “two cardinal rules of logic” referred
to by
Watermeyer JA in
R
v Blom
8
is that the
proved facts should be such that they exclude every reasonable
inference from them save the one to be drawn. If
they do not
exclude other reasonable inferences then there must be a doubt
whether the inference sought to be drawn is correct.
This rule is
not applicable in a civil case. If the facts permit of more than
one inference, the court must select the most
“plausible”
or probable inference. If this favours the litigant on whom the
onus rests he is entitled to judgment.
If on the other hand an
inference in favour of both parties is equally possible, the
litigant will have not discharged the
onus of proof. Viljoen JA put
the matter as follows in
AA
Onderlinge Assuransie-Assosiasie Beperk v De Beer
9
:-
“
Dit is, na my oordeel, nie nodig dat ‘n
eiser wat hom op omstandigheidsgetuienis in ‘n siviele saak
beroep, moet bewys
dat die afleiding wat hy die Hof vra om te maak
die enigste redelike afleiding moet wees nie. Hy sal die bewyslas
wat op hom
rus kwyt indien hy die Hof kan oortuig dat die afleiding
wat hy voorstaan die mees voor-die-hand liggende en aanvaarbare
afleiding
is van ‘n aantal moontlike afleidings.”
Selke J expressed the matter in
Govan v Skidmore
10
thus:-
“
...... in finding facts or
making inferences in a civil case, it seems to me that one may, as
Wigmore conveys in his work on Evidence,
(3
rd
ed. para 32), by balancing probabilities select a conclusion which
seems to be the more natural, or plausible, conclusion from
amongst
several conceivable ones, even though that conclusion be not the
only reasonable one.”
Holmes JA in
Ocean
Accident and Guarantee Corporation Limited v Koch
11
explained that he understood “plausible”, in the context
of the remarks of Selke J, to mean “acceptable, credible,

suitable”.
[8]
The mere fact that the person who made the disposition does not give
evidence does not
ipso
facto
mean that
one must infer that there was an intention to prefer. So for
example in
Gert de
Jager (Edms) Bpk v Jones, N.O. en McHardy, N.O.
12
the debtor did not give evidence. This notwithstanding, Rumpff, JA
nevertheless, after remarking that it was the debtor who
knew best
as to what his intention was in regard to the disposition, still
examined the probabilities in order to determine whether
the
inference of an intention to prefer was justified in the particular
circumstances of the case. Indeed as Catherine Smith
points out
13
a debtor who has made a disposition to a creditor with the intention
of preferring him above his other creditors is hardly likely
to
testify that he had that intention. In this regard the following
observation of De Villiers JP, made as long ago as 1923,
in
Swanepoel v
National Bank of South Africa
14
is particularly
apposite, even today:-
“
Then,
again, it is true that the insolvent in his evidence repeated the
formula that when he passed the bond he was still ‘hoping
to
tide over his difficulties’. Well, if I may be permitted to
mention a matter of personal experience, during the last
20 years I
have not known of a single undue preference case in which the
insolvent, on being called as a witness, has failed
to repeat that
formula or its equivalent in Afrikaans.”
[9]
Preference
predicates an act of free will. As observed by Pennycuick J in
In
re F.L.E. Holdings Ltd
.
15
:-
“
It
does not follow because there is no pressure or consideration, that
the dominant intention is to prefer the other party. Pressure
and
consideration may be conclusive that there is not a dominant
intention, but the converse is not so.
One has to take all the
circumstances into account, and consider what is the correct
inference to draw.”
16
[10]
In
order to determine whether the debtor had the requisite intention
it is necessary to enquire whether the debtor actually applied
his
mind to the matter. If there was no application of mind by the
debtor to the question of whether in fact he was conferring
a
preference, it can hardly be said that he had an intention to do so.
There is no room for treating as an intention to prefer
“a
culpable or reckless disregard of the possibility that the
disposition might have the effect of preferring one creditor
above
another.”
17
An actual intention is required - not simply the fact that
objectively viewed the debtor ought to have realised that a
preference
would occur if the disposition is made. Due regard
being had to he party who bears the onus in English law, the matter
is well
put by Tomlin LJ in
Peat
v Gresham Trust Limited
18
in these words:-
“
It
is contended on the appellant’s behalf that once given the
withdrawal and the consequences of the withdrawal, then in
the
absence of any other explanation the intent to prefer must be
inferred, because a man is presumed to intend the natural
consequences of his act. My Lords, I do not accept this
contention. In my opinion in these cases the onus is on those who
claim to avoid the transaction to establish what the debtor really
intended, and that the real intention was to prefer. The onus
is
only discharged when the court upon a review of all the
circumstances is satisfied that the dominant intent to prefer was

present. That may be a matter of direct evidence or of inference,
but where there is not direct evidence and there is room for
more
than one explanation it is not enough to say there being no direct
evidence the intent to prefer must be inferred.”
The position might well be otherwise
in a criminal case involving, for example, a contravention of
section 135(1) of the Insolvency
Act relating to a debtor knowingly
giving an undue preference shortly before the rehabilitation of his
estate.
19
[11]
Mere proof that the insolvent’s liabilities exceeded his
assets at the time the disposition was made does not raise a
presumption of an intention that the debtor’s dominant motive
in making the disposition was to prefer. Whilst contemplation
of
insolvency or inevitable insolvency is generally speaking necessary
before an intention to prefer can be inferred it by no
means follows
axiomatically that the presence of such a state of mind, in itself,
proves such an intention since other factors
may nevertheless negate
such an inference.
20
Even if it can be said that sequestration was substantially
inevitable, evidence of a more probable inference to the contrary

that shows for example that the debtor’s dominant intention in
making the disposition was not to prefer the creditor in
question
but to achieve some other purpose would not entitle the court to
draw the inference of an intention to prefer. As Pitman
AJP pointed
out in
Giddys’
case
21
:-
“
The
intention to prefer must reside in the mind of the debtor, and its
presence here is ordinarily to be inferred from his conduct.
If,
when he is contemplating sequestration, he selects for payment out
of a number of creditors one, who has no right to such
selection,
the inference from his conduct seems a fair one, that he intended to
prefer such creditor above the rest, to disturb
in his favour the
proper distribution of his assets in insolvency. Such is the only
apparent explanation of his action. Where,
however, behind the
selection and payment there appears to be some other compelling
intention, the intention to prefer is not
necessarily to be regarded
as the dominant intention. The former intention indeed may so
powerfully animate the debtor, that
the intention to prefer may be
said to have been wholly inactive.”
[12]
In accordance with general principles if an inference of an innocent
motive as opposed to an improper one can be drawn this should
be
done.
22
[13]
The
question which the court has to decide is not whether the debtor
should have known that the effect of the disposition made
would have
been to disturb the proper distribution of his assets but rather as
a fact that he intended it to have that effect.
As previously
stated if the debtor never applied his mind to the matter it again
can hardly be said that he had the requisite
intention.
[14 ]
Any relationship between the insolvent and the creditor in addition
to that of debtor and creditor, for example where the creditor
is a
close family member or relative, is relevant to the existence or
non-existence of an intention to prefer.
23
[15]
An intention to prefer involves the requirement that the debtor
must, at the time of the disposition, have been in a position
to
exercise a free choice. It accordingly follows that where the
insolvent’s primary or dominant motive was for example,
to
shield himself from a criminal prosecution or to cover up a
mis-appropriation of assets then it cannot be said that the
disposition was made with the intention to prefer the recipient.
24
In
Sharp
(Official Receiver) v Jackson and Others
25
Lord Macnaghten described the position of the person there making
the disposition as “being under an overwhelming sense
of
imminent peril”.
[16]
A useful summary of most of the above matters, even although the
question of intention in section 30(1) where the onus of proof
is
upon the trustee, and not section 29(1) of the Insolvency Act was
being considered, is contained in the following remarks
of Boshoff
J in
Venter v
Volkskas Ltd
26
:-
“
Whether a disposition was
made with the intention of preferring one creditor above another
within the meaning of sec 30(1), is
in each case a question of fact
which can be established either with direct evidence or by inference
from the circumstances in
which the disposition was made. Being a
question of intention, it involves a subjective assessment of the
debtor’s action
in having made the disposition. In the
absence of direct evidence of an intention to prefer one creditor
above another, it must
generally speaking be proved that the debtor
contemplated sequestration before an inference can be drawn that he
made the disposition
with the intention to prefer the creditor, to
whom the disposition was made, above another; see
Pretorius,
NO v Stock Owners’ Co-operative Co. Ltd,. supra
at pp 471 to 472 and 476;
Gert
de Jager (Edms) Bpk v Jones, NO, en McHardy, NO
,
1964(3) SA 325 (A.D.) at p 331. It is not sufficient that the
circumstances show that the debtor should have realised that
the
effect of the disposition would be to disturb the proper
distribution of his assets in the event of the sequestration of
his
estate. They must show that he as a fact intended it to have that
effect. This is so because the onus is on the person
who claims to
avoid the disposition to establish what the debtor really intended
(what the object in his mind was) and that his
real intention (or
real object in his mind) was to prefer the creditor to whom the
disposition was made above the other creditors.
It is conceivable
that a debtor may also have had other objects in mind when he made
the disposition but in that event it is
incumbent upon the person
upon whom the onus lies to establish that to prefer the creditor in
question was the paramount, dominant
or substantial object. A
preference involves a free selection. Where therefore a debtor pays
a creditor ‘out of his turn’
under great pressure or to
avoid a prosecution or for some other reason that negatives the
inference that the main object was
to prefer the creditor, intention
to prefer will not be proved.”
[17]
I turn now to consider the relevant facts in this case with
reference to the principles which I have set out above. The
facts
appear clearly from the comprehensive judgment of my brother
Olivier JA. In summary they are as follows:-
(1) On 4 April 1990 Cat Quip caused a notarial general
mortgage bond (“the bond”) to be registered over all its
movable
property in favour of the respondent.
(2) On 18 November 1992 Cat Quip defaulted in meeting
certain bills of exchange which it had drawn in favour of the
respondent.
(3) On 20 November 1992 Mr Weichelt, Cat Quip’s
sole member died.
(4) On 26 January 1993, Mr Rivkind, who was employed by
the respondent and who dealt with Cat Quip’s account, obtained
possession
of all Cat Quip’s movable assets from Mrs Weichelt
(Mr Weichelt’s widow) who then managed Cat Quip’s
affairs
and handed him two sets of keys to Cat Quip’s
premises.
(5) On 27 January 1993 the respondent obtained an order
of court purporting to authorise it to perfect its security by
taking
possession of all of Cat Quip’s movable property.
(6) Also on 27 January 1993 Mr Tom Weichelt (Mrs
Weichelt’s brother-in-law) filed an urgent application in the
same court
for the provisional liquidation of Cat Quip. The
application did not proceed on that day.
(It is not possible to establish from the papers nor
was this Court informed whether the order which the respondent
obtained
on 27 January 1993 to perfect its security was made before
or after the filing of Mr Tom Weichelt’s
application.)
(7) On 2 February 1993 Cat Quip was placed under
provisional liquidation at the instance of Mr Tom Weichelt.
[18]
In my opinion if one examines and weighs up the totality of
circumstances which gave rise to the disposition, the proper
inference
to be drawn is that the respondent established, on a
balance of probabilities, that Mrs Weichelt’s “dominant
or
operative or effective intention in substance and in truth”
when she handed over the keys to Mr Rivkind, was not to prefer
the
respondent, within the meaning of that phrase in Section 29(1) of
the Insolvency Act, but rather to comply with the clear
obligations
imposed upon Cat Quip in terms of Clause 7.1.2. of the bond. (The
bond, it will be recalled, was executed some
three years previously
on 4 April 1990.) To my mind the following are the essential facts
which render this the most “plausible”
inference:-
[19]
It was Mrs Weichelt who first raised the question of the existence
of the bond in the discussion which she had with Mr Rivkind

immediately prior to her handing over the keys. This fact indicates
that the existence of the bond was uppermost in her mind.
To
paraphrase Pitman AJP’s phrase in
Giddys’
case, this shows that the existence of the obligation under the
bond so powerfully “animated” Mrs Weichelt as to
render
any intention to prefer “wholly inactive”.
27
It is fair to infer from the aforegoing that the more “plausible
or acceptable or credible or suitable reason”
for her handing
over the keys was, I repeat, her intention to comply, on behalf of
Cat Quip, with Cat Quip’s clear obligations.
It was not to
seek to prefer the respondent, although the latter was the effect of
the disposition.
[20]
The fact that neither Mr Rivkind nor Mrs Weichelt ever discussed or
even raised what the effect of handing over the keys would
be upon
Cat Quip’s other creditors indicates to me that Mrs Weichelt,
as a matter of probability, was not concerned with
conferring any
preference on the respondent as her dominant motive in making the
disposition.
[21]
There is no suggestion whatever that the bond registered almost
three years previously was not a genuine or open transaction.
Nor
is there any suggestion that at the time the bond was registered and
the disposition contained therein made that liquidation
of Cat Quip
was pending or even contemplated.
[22]
The parties represented by Mr Rivkind and Mrs Weichelt conducted
themselves at arms length. There was no relationship between
them
other than of debtor and creditor.
[23]
In the particular circumstances of this case the pressure which was
present to Mrs Weichelt’s mind was that Cat Quip had
no
defence to the right which the respondent was seeking to exercise to
take possession of Cat Quip’s movable assets.
It would not
have been competent in law, for Mrs Weichelt to have told Mr
Rivkind, even if she had applied her mind to the
matter, that she
was not prepared to hand over the keys, because based upon a debt
which she in any event considered was not
owing to her late
husband’s brother, a liquidation, was in the offing. The
respondent would have been perfectly entitled,
had she refused to
hand over the keys, to immediately approach a court and seek an
appropriate order. Cat Quip’s liability
was undisputed in
that it had not honoured bills which it had given to the respondent
for moneys advanced to it by the respondent.
The respondent
accordingly had every right to act in terms of the bond.
28
[24]
The following exchange between Counsel for the appellants and Mr
Rivkind sheds some limited light upon what might well have
been Mrs
Weichelt’s true intention when she handed over the keys:-
“
Isn’t
it a case sir that you never took possession at all, that Mrs
Weichelt’s motive in giving you the key had nothing
to do with
perfecting a pledge, it was simply a case of her employees over the
last weekend had been pinching some stock, she
was a widow she could
not control it and she asked you please won’t you on her
behalf just take control of it until the
liquidation order to
preserve everything until the liquidation comes through? —
That was not the case.”
Presumably
Counsel put the question upon the basis of information that the
appellants as the liquidators of Cat Quip obtained
from Mrs
Weichelt.
[25]
Whilst it may be true that in all probability Mrs Weichelt must
have considered that the liquidation of Cat Quip was inevitable,
I
believe that a proper evaluation of the totality of circumstances
relating to the matter negates an intention on her part to
prefer
the respondent. Amongst the most important of these circumstances
are those that I have enumerated in paragraphs 19 to
24 above.
[26]
The mere fact that Mrs Weichelt did not give evidence and state
that she had no intention to prefer the respondent above other

creditors is not of itself sufficient reason to reject what is, as
I have stated above, the most plausible and acceptable reason
for
the disposition. This reason emerges from the uncontradicted and
credible evidence of Mr Rivkind and the factors to which
I have
drawn attention. I do not believe that anything of consequence
would have been added to the matter had Mrs Weichelt
stated in so
many words that by making the disposition she did not intend to
prefer the respondent. Such a statement would
have amounted merely
to an
ipse dixit
.
To paraphrase the words of Rumpff JA in
Gert
de Jager Edms Bpk v Jones NO
en
McHardy NO
29
an inference that only she could have stated what her true intention
was loses its force if one has proper regard to Mr Rivkind’s

evidence and to the circumstances prevailing at the time. To
repeat, the more “natural, or plausible”, explanation

for the disposition, to use the words of Selke J in
Govan
v Skidmore
,
30
was to comply with the obligations of Cat Quip of which Mrs
Weichelt was fully aware at the time and not simply to prefer the

respondent above other creditors.
[27]
Applying the test laid down by Ramsbottom JA in
Pretorius
NO v Stock Owners Co-Operative Company Limited,
31
even if one ignores what I have stated in paragraph 24 above, the
correct inference to be drawn from the undisputed evidence
of Mr
Rivkind is that there was indeed another compelling reason for
making the disposition other than an intention on the part
of
Mrs Weichelt to prefer the respondent. That reason, to repeat
yet again what I have previously stated, was to comply
with Cat
Quip’s obligations in terms of the bond which it had executed
some years previously.
[28]
My brother Olivier JA was only prepared to assume, without
deciding the matter, that the respondent had discharged the onus
of
showing that the disposition was made in “the ordinary course
of business” within the meaning of Section 29 (1)
of the
Insolvency Act. He no doubt made this assumption because of his
view that the respondent had not discharged the onus
resting upon it
of showing that there was no intention to prefer. In my view the
undisputed facts reveal that the respondent
also discharged the onus
resting upon it of showing that the disposition was made in the
ordinary course of business.
[29]
The phrase “ordinary course of business” although
not defined in the Insolvency Act has been interpreted on a
number
of occasions by our courts
32
The test, in contra distinction to the test as to whether an
intention to prefer exists, is an objective and not subjective one.

The matter needs to be determined with reference to all the relevant
circumstances in each particular case. The best formulation
of the
test, in my view, is that of De Villiers JP in
Malherbe’s
case
33
where the learned judge put the matter succintly as follows:-
“
......
whether the disposition is in accordance with ordinary business
methods and principles obtaining amongst solvent men of
business;
that is to say a disposition, in order to be in the ordinary course
of business, must be one which would not to the
ordinary man of
business appear anomalous or un-businesslike or surprising.”
[30]
If one considers all the relevant facts of this matter in the
light of this test there was nothing “anomalous or
un-businesslike or surprising” when Mrs Weichelt handed over
the keys of the business of Cat Quip to Mr Rivkind on 26 January

1993. The contention of the appellant to the effect that a solvent
businessman would not, in the ordinary course of business,
hand over
to a creditor the keys of his business premises giving control of
his stock in trade, overlooks the particular circumstances
which
prevailed at the time that the keys were handed over. Mrs
Weichelt had no choice in the matter. Cat Quip was legally
obliged
in terms of clause 7.1.2 of the bond to comply with Mr Rivkind’s
request. The position is well illustrated in
the following remarks
of De Villiers AJA in
Jacobson
and Co. Trustees, v Jacobson and Co.
34
“
Now
before a court would be entitled to say that the disposition was in
the ordinary course of business it would have to be satisfied
that
it is in possession of all the facts, for only then would it be in a
position to decide whether the contracts themselves,
which form the
basis of the transaction are genuine; since a delivery that rests
on a contract which itself is open to question
cannot be said to be
a delivery in the ordinary course of business.”
In the instant case the contract in
question was before the court and as already pointed out there is no
suggestion that the contract
was not a genuine one not entitling the
respondent to act as it did.
35
[31]
In
my view the entire matter is correctly summarised in the following
passage in the concluding portion of the judgment of the
court
a
quo
:-
“
This
was not a disposition by Cat Quip with the intention of preferring
plaintiff above other creditors. Ms Weichelt, on behalf
of Cat
Quip, merely acquiesced to plaintiff exercising rights which she
admitted. Nor does Section 29 find application. There
was no
motive to give the plaintiff undue preference, although this has, on
the facts, resulted. Perfecting a pledge in this
manner has in the
past been recognised by our courts even in circumstances such as the
present. It must therefore be regarded
as a transaction which was
done in the ordinary course of business. To hold otherwise would
practically wipe this legal notion
from our law. Were a creditor in
plaintiff’s position obliged to perfect his pledge when the
debtor is still solvent,
it would have the effect of putting the
debtor out of business and inevitably result in his insolvency. The
general notarial
bond over moveable assets was devised to avoid
exactly that.”
[32]
In the result I make the following order:-
(1) The appellants’ late filing of their power
of attorney is condoned subject to the appellants’ paying the
respondent’s
costs occasioned by the application for
condonation.
(2) The appeal is dismissed with costs.
___________________
R
H ZULMAN JA
MADLANGA AJA )
MPATI AJA )
CONCUR
OLIVIER
JA
OLIVIER
JA
[1]
The
Appellants are the joint liquidators of Cat Quip CC (in
liquidation)
which was provisionally wound up on 2 February 1993. The
application for the liquidation of Cat Quip CC was presented
to the
then Supreme Court of South Africa (Transvaal Provincial Division)
on 27 January 1993. In terms of section 348 of the
Companies Act
the winding up is deemed to have commenced on the latter date.
[2]
The
Respondent is a finance company. At the date of its liquidation
Cat
Quip
was indebted to the Respondent in the sum of R453 648,07.
[3]
It
is common cause that the Second and Final Liquidation and
Distribution
Account of Cat Quip, prepared by the Appellants, reflects total
liabilities of R2,4 million, owed to 24 concurrent,
preferent and
secured creditors.
[4]
The
crux of the dispute between the Appellants and the Respondent
involves
the question whether the Respondent is merely a
preferent
creditor
of Cat Quip in liquidation (as alleged by the Appellants) or whether
it is a
secured
creditor
(as alleged by the Respondent).
[5]
In
the court
a quo
Spoelstra J held that the Respondent is a
secured
creditor. The Appellants successfully applied to the learned judge
for leave to appeal to this Court.
[6]
It
is common cause that on 4 April 1990 Cat Quip CC (“Cat Quip”)
caused
a notarial general covering bond to be registered over all its
movable assets in favour of the Respondent as security for
moneys
lent and advanced. By virtue of the law as it then stood the
Respondent became a preferent, and not a secured, creditor.
[7]
The
bond provides that it would be executable against the said movables
if
Cat Quip breached any of its terms or committed an act of
insolvency. In such an event, the bond provides
inter
alia
:
7.1 If this bond becomes executable
under clause 9, the CREDITOR shall be entitled (but not obliged),
without notice to the MORTGAGOR
and without first obtaining any
order or judgment -
7.1.1 to claim and recover from the
MORTGAGOR forthwith all and any sums for the time being secured by
this bond, whether then
due for payment or not; and/or
7.1.2 for the purpose of perfecting
its security hereunder to enter upon the premises of the MORTGAGOR
or any other place where
any of its assets are situated, and to take
possession of its assets; and/or
7.2 The CREDITOR
is hereby empowered irrevocably and
in
rem suam
,
with power of substitution and delegation to exercise all or any of
its rights, authorities and powers in terms of this bond,
and the
bond for this purpose shall be deemed to be an irrevocable power of
attorney by the MORTGAGOR in favour of the CREDITOR.
[8]
It
is also common cause that by November 1992 Cat Quip was
experiencing
cash flow problems. In fact, on 18 November 1992 it defaulted in
meeting bills of exchange drawn in favour of the
Respondent in the
amount of R121 430,38.
[9]
At
that stage Cat Quip was managed by Mr Weichelt, its sole member,
and
assisted by his wife, Mrs Sandra Weichelt, who was employed at the
business as its bookkeeper/accountant. Mr Rivkind was
the account
executive employed by the Respondent who dealt with Cat Quip’s
account.
[10]
Mr
Weichelt died on 20 November 1992. It is common cause that
Mrs
Weichelt took over the administration and control of Cat Quip.
[11]
The
bank account of Cat Quip was frozen. The Respondent’s bills
were
returned
unpaid. The full amount owing to it became due and payable, and
the bond became executable. The Respondent became
entitled, in
terms of clause 7.1.2 of the bond, to take possession of all Cat
Quip’s movable assets for the purpose of
perfecting its
security. Nevertheless, the Respondent did not avail itself of
these rights as it was entitled to do from 18
November 1992 to 26
January 1993 - a factor to which I will refer again. Nor did Mr or
Mrs Weichelt, between 18 November 1992
and 26 January 1993 approach
the Respondent to offer or request it to exercise its rights in
terms of paragraph 7 of the bond-
a significant fact, as I will show
shortly.
[12]
Rivkind
obtained possession of all Cat Quip’s movable assets on 26
January
1993 when Mrs Weichelt handed him the two sets of keys of the
premises. He physically locked up and, together with Mrs
Weichelt,
left the premises.
[13]
The Respondent’s case is that, in taking possession of Cat
Quip’s
movables
on 26 January 1993, as it was entitled to do, it became a lawful
pledgee and, therefore, a secured creditor. The Appellants,
on the
other hand, averring that a disposition of its assets by Cat Quip
took place on 26 January 1993, aver that such disposition
amounts to
a voidable preference in terms of section 29 of the Insolvency Act.
[14]
Section
29 (1) of the Insolvency Act provides :
“
Voidable
preferences
- (1) Every disposition of his property made by a debtor not more
than six months before the sequestration of his estate, or,
if he is
deceased and his estate is insolvent before his death,
which
has had the effect of preferring one of his creditors above another,
may be set aside by the Court if immediately after
the making of
such disposition the liabilities of the debtor exceeded the value of
his assets, unless the person in whose favour
the disposition was
made proves that the disposition was in the ordinary course of
business and that it was not intended thereby
to prefer one creditor
above another
.”
(My underlining)
[15]
In
order to have a disposition set aside the Appellants must prove five
requirements
being :
15.1 a
disposition as defined in section in section 2 of the Act of its
property by Cat Quip;
15.2 within
six months of the liquidation of Cat Quip;
15.3 to
the Respondent;
15
4 which has had the effect of preferring one of Cat Quip’s
creditors above another; and
15.5 that
immediately after the making of the disposition Cat Quip’s
liabilities exceeded the value of its assets.
Once
the Appellants have established these requirements the Court may
set aside the disposition unless the Respondent proves
that :
(a) the
disposition was made in the ordinary course of business; and
(b) it
was not intended thereby to prefer one creditor above another.
If
the Respondent should fail to prove either of these two requirements
it must fail.
[16]
A
dispute arose between counsel for the respective parties at the
hearing
of
this appeal in respect of the disposition requirement. Appellants’
counsel argued that the physical delivery of the
business and all
the movable assets by Mrs Weichelt to Rivkind on 26 January 1993 was
the relevant disposition under attack.
Respondent’s counsel
submitted that the relevant disposition took place when the material
bond was registered on 4 April
1990. If the Appellants are right,
the disposition [on 26 January 1993] falls within the six months’
period of section
29 (1); if not, the disposition falls outside that
period and cannot be set aside.
[17]
Section
2 of the Insolvency Act has this to say of “disposition”
:
“‘
Disposition
’
means any transfer or abandonment of rights to property and includes
a sale, lease, mortgage, pledge, delivery, payment,
release,
compromise, donation or any other contract therefor, but does not
include a disposition in compliance with an order
of the court, and
‘dispose’ has a corresponding meaning.”
[18]
The
statutory definition of ‘disposition’, is inept in the
extreme.
‘
Disposition’
is a core concept in our law of insolvency, and one would have
expected clarity and certainty in this respect.
What we find,
however, is obscurity and confused thinking. The definition lumps
together a range of dissimilar juristic facts.
Even more, it
allows duplication and overlapping of concepts. Take the case of
sale. Ordinarily, if one speaks of a sale,
it means the contract
of sale, creating personal rights to claim performance. But the
section also includes ‘any other
contract therefor’.
What can this mean in the context of sale? Does it include an
option? A right of first refusal?
Even more, ‘delivery’
is put on the same footing as ‘sale’. Does this mean
that the entering into
a contract of sale is a disposition, and also
the later delivery of the thing sold? And how does one reconcile a
‘sale’,
creating mere personal rights with the idea,
informing the whole definition, of “any transfer ...of rights
to property”?
After all, in our law a mere contract of sale
does not transfer rights to property - the key requirement is and
remains delivery.
[19]
The
definition of “disposition” in the Insolvency Act has,
not surprisingly,
troubled
the courts before (see
Estate
Jager v Whittaker and Another
1944
AD 246
at 250;
Barclays
National Bank Ltd v Umbogintwini Land and Investment Co (Pty) Ltd
(in liquidation) and Another
1985
(4) SA 401
(D &
C);
Klerck
NO v Kaye
1989
(3) SA 656
(C)
at
674 C - J).
[20]
In
the present case the position is that the relevant disposition took
place
on
26 January 1993, when Cat Quip delivered its assets to the
Respondent in order to perfect its security. It is clear that

before that date there had not been “any transfer or
abandonment of rights to property” (see the dominant part of

section 2 of the Insolvency Act) and that such transfer or
abandonment took place on 26 January 1993 - well within the
statutory
six months’ time limit.
[21]
In
passing, I would recommend the SA Law Commission to consider
amending
section 2 of the Insolvency Act in the course of the Commission’s
present review of the Insolvency Act in the light
of the problems
alluded to above.
[22]
In
connection with the requirement of “disposition” in the
present matter,
a
further issue must be addressed. It is this : Both parties are
agreed that possession of the movable assets of Cat Quip was
given
to the Respondent on 26 January 1993 when the keys of the business
were handed over by Mrs Weichelt to Mr Rivkind. However,
on 20
January 1993, at a meeting of the Board of Directors of the
Respondent, a resolution was passed to approach the Supreme
Court on
an urgent basis for an order authorising the Respondent (through the
Sheriff or his deputy) to perfect its security
in terms of the
notarial bond, by taking and then retaining possession by way of
pledge all the movable assets of Cat Quip.
The necessary papers
were prepared and the application was enrolled for hearing on 26
January 1993. Prior to the hearing of
the matter, Mrs Weichelt
requested a postponement in order to endeavour to raise money. The
Respondent agreed to the postponement,
but on 26 January it took
possession of the assets as mentioned above because it then became
clear that a liquidation application
was being prepared.
Nevertheless, the Respondent considered that it was prudent to
obtain the order of court sought in the
aforesaid application and,
without disclosing the fact that it had already obtained possession
of the assets and thereby having
perfected its security, the matter
was enrolled for hearing on 27 January 1993. The order was granted
on that day. It is
relevant to note that notice of the application
was not given to any other creditor of Cat Quip. On the same day,
27 January
1993, a provisional liquidation order was granted by the
Supreme Court.
[23]
The
issue that arises relates to the effect of the order of court dated
27
January
1993 allowing the Respondent to perfect its security by taking
possession of the movables of Cat Quip. This question
becomes
relevant, because section 2 of the Insolvency Act excludes from the
definition of “disposition”, “
... a disposition
in compliance with an order of the court.” On behalf of the
Respondent it was argued that the disposition
now under discussion
does not fall to be set aside because it was a disposition in
compliance with an order of the court.
[24]
The
Respondent’s argument on this point cannot be upheld. The
possession
was not obtained in compliance with an order of court. It was
correctly stated by Flemming J in
SAPDC
(Trading) Ltd v Immelman
1989 (3)
SA
506
(W) at 509 G - H that delivery which precedes the Court order
cannot be a disposition “in compliance with an order of the

Court”.
[25]
All
the other requirements in respect of which the Appellants bear the
onus
of proof, have been fulfilled :
25.1 the
liquidation application was presented on 27 January 1993,
i.e.
one day after the disposition and the disposition was thus within 6
months of the liquidation of Cat Quip;
25.2 the
disposition was to the Respondent;
25.3 the
disposition had the effect of preferring one of Cat Quip’s
creditors (the Respondent) above another;
25.4 immediately
after the making of the disposition Cat Quip’s liabilities
exceeded the value of its assets.
The
Appellants have accordingly satisfied the aforesaid five
requirements set out above and what remains are the two issues,

defined above, which the Respondent is required to prove on a
balance of probabilities.
[26]
For
the purpose of this judgment I will assume in favour of the
Respondent,
without deciding, that the disposition in question was made in the
ordinary course of business. The vital question
is whether the
Respondent has proved on a balance of probabilities that when the
disposition - the handing over of the assets
of Cat Quip on 26
January 1993 - was made, it was not intended by Cat Quip to prefer
one creditor above another.
[27]
The
question whether Cat Quip, in making the disposition now under
discussion,
intended to prefer the Respondent above other creditors, is a
factual one. But that question must be approached
against an
existing cultural and legal background. Only because there seems
to be a difference between the approach of the
majority judgment in
this case and my own, I summarise my view of the law as follows:
[28]
Section
29 (1) of the Insolvency Act reflects a particular economic
and
legal morality, which may well differ from that of other countries,
and which was expressed in unmistakable terms in
R v Ismail
1920
AD 316.
That case dealt with an appeal against a conviction of a
contravention of the provisions of section 139 (3) of the Insolvency

Act of 1916, which provided that every person shall be guilty of an
offence “who knowingly gives an undue preference.”

Section 28 defined an “undue preference” as being “any
disposition of his property made by an insolvent at
a time when his
liabilities exceeded his assets with the intention of preferring one
creditor above another.” It can
be seen that these
principles of have been retained in the present Insolvency Act.
[29]
In
R
v Ismail
,
supra,
the
basic principle was laid down that once a person has made up his
mind to surrender his estate (or if at the time he contemplated
the
sequestration of his estate) “ ... his duty was not to make
any payments to one or more of his creditors, but to preserve
his
assets for the purpose of their being equally distributed amongst
all his creditors.” (per Solomon JA at 319, 323).
It was
also laid down that a creditor with a bill in his favour is in no
better position on the eve of insolvency than any
other creditor
(see Solomon JA at 324). Finally it was stated that in the absence
of an explanation proving that such a payment
was in the ordinary
course of business and with no intention to prefer, “ ... the
natural inference to draw from such a
payment is that it was made
with intent to prefer.” (see Solomon JA at 324).
[30]
In
giving effect to the decision of this Court in
R
v Ismail
,
supra,
there
has developed a clearly defined point of departure in cases such as
the present one: When once it is proved that the debtor
made a
payment to one creditor at a time when he knew that sequestration
was substantially inevitable, there arises a presumption,

rebuttable by proof on a balance of probabilities, that the debtor
did
intend to prefer that creditor above another or all the others.
(See section 29 (1) of the Insolvency Act;
Gert
de Jager Edms) Bpk v Jones NO and McHardy NO
1964
(3) SA 325
(A) at 331 C;
Pretorius
NO v Stock Owners’ Co-operative Co Ltd
1959
(4) SA 462
(A)
per
Ramsbottom JA at 476 F - G;
Pretorius’s Trustee v Van Blommenstein
1949
(1) SA 267
(0)
at
278;
Eliasov
v Arenel (Pvt) Ltd
1979
(3) SA 415
(R)
at
418). In the light of these cases our law and insolvency practice
have developed a clear and consistent approach : unless
duress or
other extraordinary factors compelled the debtor to pay one creditor
in preference to others within six months of liquidation
or
sequestration and at a time the debtor is aware of impending and
unavoidable insolvency proceedings, a disposition made in
these
circumstances is liable to be set aside in terms of section 29 (1)
of the Insolvency Act. There simply is no authority
for the
proposition, which seems to me irreconcilable with section 29 (1) of
the Act, that the mere obligation to pay a creditor,
is a
justification for escaping the sanction of section 29 (1). Any
endeavour to distinguish
R
v Ismail
,
supra
,
or to argue that the decision in that case is not applicable to the
present appeal is, in my view, doomed to failure.
Ismail
lays down a basic approach to all instances where the question of
intention to prefer became relevant. And
Ismail
does not stand alone. Its approach and principle are embodied in
sec 29 (1) of the Insolvency Act and the decisions referred
to
above,
inter
alia
the decision of this Court in
Pretorius
NO v Stock Owner’s Co-operative Co Ltd
,
supra
.
When I refer to
R
v Ismail
I incorporate by reference the time-honoured approach to the matter
of intention to prefer. What the Respondent has to convince
us of
in the present case is either that that approach is wrong or should
not be followed in the present case. The Respondent
has manifestly
not succeeded in doing so.
[31]
It
is trite law that when considering whether a disposition was made
with
or
without the intention to prefer, the state of mind of the debtor,
i.e.
Cat Quip represented by Mrs Weichelt in this case, is relevant and
not the intention of the creditor, the Respondent in this
case.
Furthermore, the test is a subjective one. In this respect - as
in all other cases where intention is the subject
of enquiry -
inferences, deduction and commonsense play a decisive role alongside
credibility. In the end, the
onus
of
proof may be decisive. At the trial of the present action, the
Respondent did not call Mrs Weichelt (now Mrs Fourie) as witness.

It is common cause that she was available to testify and did testify
at the commission of enquiry held in respect of the affairs
of Cat
Quip on 27 September 1994. In the absence of the direct evidence
of Mrs Weichelt, the Respondent, who bears the relevant
onus
,
is faced with a formidable task. There was no agreement between
the parties that the evidence led at the commission was admissible.

Consequently it cannot be taken into consideration.
[32]
At
the trial, Respondent only presented the evidence of the aforesaid
Rivkind.
His evidence amounts to the following :
32.1 During
middle January 1993 he had a conversation with attorney Wustrow, an
executor in the estate of the late Mr Weichelt.
Wustrow said that
Mr Weichelt’s estate was insolvent, that Mrs Weichelt was
running the business but was incapable of
doing so, that “...
he believed that Cat Quip may be insolvent ... “, that he had
recently become aware of the Respondent’s
involvement in Cat
Quip by way of a notarial bond and that the Respondent should
protect themselves.
32.2 Mr
Rivkind was, however, not alarmed but Mr Wustrow telephoned him a
few hours later to say that certain
“
... HP
creditors
... “
had
moved onto the premises and had begun to remove equipment. At that
stage Rivkind became alarmed.
32.3 It
was then decided that the Respondent would perfect its security by
way of a court order and attorneys were instructed.
On 21 January
1993 Rivkind deposed to an affidavit in support of an application in
the Supreme Court, Witwatersrand Local Division,
set down for
hearing on 26 January 1993.
32.4 The
application was not heard on 26 January 1993 because
Mrs
Weichelt had contacted the Respondent’s attorneys to say that
“Timquin” Properties (a separate company over
which the
Respondent held security) was being sold, the sale should be
finalised
“
...
within a day or two ... “ and that the Respondent would be
settled out of the proceeds of the sale.
32.5 Whilst
the matter was standing down for a day or two Rivkind received a
telephone call from an attorney Van Rensburg on 26
January 1993
intimating that there was going to be an application for the
liquidation of Cat Quip. Van Rensburg was
“
... looking for a requisition from us so he could be appointed as
liquidator in the matter if Cat Quip went into liquidation
”.
Van Rensburg said that he believed an urgent application would be
launched the following morning on 27 January 1993 and that
it would
be brought by Mr Tom Weichelt, the brother of the deceased.
32.6 Rivkind
then realised that the matter was becoming urgent and that the
Respondent needed to take care of its security. He
telephoned Mrs
Weichelt and told her that he was coming out to Cat Quip’s
premises immediately and that the purpose of
going there was to take
possession of the assets for the purposes of perfecting Respondent’s
security.
32.7 At
the premises he discussed the proposed liquidation with Mrs
Weichelt. She was aware of it. She was also aware that
the
application was being brought by the deceased’s brother and
that he claimed to be owed R11 000.
32.8 Mrs
Weichelt :
“
... actually disputed that
the amount was owed [to the deceased’s brother] and [said]
that he in fact owed Cat Quip money
and she did not believe it was a
legitimate application.”
32.9 A
discussion then took place and :
“
... she went on to say that
we hold a notarial bond, in terms of the notarial bond the stock is
ours and she was handing over
the keys for us to take control, to
take possession to perfect our security. After that I emphasised
to her that it was actually
a term of the bond that we were entitled
to take possession, physical possession by taking the keys and being
in control of the
premises.”
32.10 Rivkind
was given two sets of keys by Mrs Weichelt. He physically locked up
and he, together with Mrs Weichelt and others,
left the premises.
32.11 Mrs
Weichelt was the first to say (in their discussion on 26 January
1993) that the Respondent had a notarial bond,
that
the stock was the Respondent’s and then she
“
... virtually spontaneously ... “ and without any pressure at
all handed over the keys to Rivkind
.
(My
emphasis)
32.12 The
intention with regard to taking possession was to put the Respondent
in a better position than they would have been
if they had no pledge
and it followed that other creditors would be worse off, although no
thought was given by the Respondent
as to how other creditors would
be affected. This was Rivkind’s uncontroverted evidence.
32.13 He
did not discuss the assets and liabilities of Cat Quip with Mrs
Weichelt, but both knew that there was a liquidation
application
coming.
32.14 Neither
he nor Mrs Weichelt suggested that the liquidation be opposed, that
Cat Quip was not insolvent, nor that there was
thus no need to
liquidate Cat Quip.
32.15 Rivkind’s
evidence was that he did not suggest that the liquidation be
opposed. The following exchange then took
place between Mr Rivkind
and Counsel for the Appellants :
“
Nor did she. I put it to
you, whether it was said in so many words or not, that it was clear
in the context of what had happened
and what you were discussing
with this woman Mrs Weichelt, that both of you realised that Cat
QuipCC is about to be liquidated
as being unable to pay its debt,
correct? ...... Yes.”
(It
may be interposed that the liquidation application was presented the
next day and a winding-up order was subsequently granted.)
[33]
Even
if no weight is given to what Mrs Weichelt allegedly told Mr
Rivkind,
it
is clear that she knew very well that Cat Quip was insolvent, that a
liquidation application was imminent, that hire-purchase
creditors
had begun to remove their equipment and that the game was up.
[34]
The
only witness called by the Respondent, Mr Rivkind, made the
important
concession that both he and Mrs Weichelt realised that Cat Quip was
insolvent because it was unable to pay its debt.
The Respondent
did not call Mrs Weichelt to rebut what its only witness had said.
Having regard to the parlous state of Cat
Quip’s affairs it
was, in my view, correctly submitted that what Rivkind testified in
this regard is clearly, on the probabilities,
the correct position
and Mrs Weichelt could hardly have said otherwise.
[35]
That
Mrs Weichelt must have appreciated the extent of Cat Quip’s
financial
predicament is demonstrated by her conduct regarding the liquidation
application. When the Respondent launched its
application to
perfect its security, to be heard on 26 January 1993, Mrs Weichelt
responded by trying to settle the Respondent’s
claim by the
sale of other assets. Very shortly thereafter it became known,
obviously to her too, that a liquidation application
was to be
brought. Although she is said to have held the view that the claim
was invalid and disputed, she did not resist the
liquidation
application but her attitude towards the Respondent changed
dramatically - instead of offering to pay their claim
with
proceeds from other assets, she now voluntarily offered possession
of the stock. As between her and the Respondent, however,
nothing
had changed legally. All that had happened, apparently, was the
knowledge of the pending liquidation. This demonstrates
that
although she may have said that her brother-in-law’s claim is
disputed, the truth of the matter is that she knew that
Cat Quip was
insolvent. Her intention in offering the key is presumed to be due
to an intention to prefer, and, in the absence
of her being called
by the Respondent, and testifying convincingly to the contrary, that
presumption must be accepted as the
truth.
[36]
Thus
if all the evidence introduced by Rivkind on behalf of the
Respondent
and reflected above, is given credence, it does not avail
Respondent. On the contrary, it confirms the assumption
that Mrs
Weichelt, on behalf of Cat Quip, intended to prefer the Respondent
before the other creditors. It was she who drew
Rivkind’s
attention to the notarial bond and that it gave the Respondent the
right to take possession of the movable assets.
She handed Rivkind
the keys voluntarily. In the absence of any other evidence, the
conclusion that she, on behalf of Cat
Quip, intended to prefer the
Respondent above other creditors seems the only natural and probable
one.
[37]
On
the evidence Mrs Weichelt, raised the matter of Respondent’s
rights
under
the notarial bond (one day before the Respondent was put into
provisional liquidation)
without
any pressure from Rivkind
and freely and from her own initiative handed the keys of the
business to Rivkind, may well be the final nail in the Respondent’s

coffin. It was never explained why she
on
that day just before the provisional liquidation
(at least two month’s after Cat Quip had defaulted in which
time nothing had been done) suddenly decided to hand over

possession to the bondholder. She well knew, as appears from the
evidence of Rivkind, that the effect of this handover would
be that
the Respondent would become a secured creditor and thus be preferred
above other concurrent creditors. In the absence
of evidence
offering any other explanation or inference, it must follow that Mrs
Weichelt had the intention to prefer the Respondent
above other
creditors.
[38]
Even
if it can be said that the existence of the bond was uppermost in
her mind, (which was never proved and is the very fact
in
contention) it does not follow that it rendered an intention to
prefer “wholly inactive”. On the contrary,
the said
knowledge coupled with the proved realization of the consequences of
her act, prove the very opposite, as will appear
from the principles
discussed in the cases previously mentioned and the natural and
plausible inference from her knowledge and
her decision to proceed
with the disposition.
[39]
The
fact that Mrs Weichelt and Rivkind never discussed what the effect
of
handing
over the keys would be upon the other creditors of Cat Quip is not a
factor in favour of the Respondent. On the contrary,
it appears
from the evidence that such a discussion was unnecessary, because
both knew full well what the consequences would
be. Why else, at
this late stage, the handing over of the keys? I have quoted
Rivkind’s evidence
verbatim
in paragraph 32.9 above, and have also referred in paragraph 32.1
above to what the attorney Wustrow said to Rivkind. The intention

to prefer the Respondent above other creditors is manifest.
[40]
It
is a fundamental mistake in approach to suggest that the intention
on the part of Mrs Weichelt to comply with a contractual
obligation,
assists the Respondent to any extent. The prohibition of section
29 (1) of the Insolvency Act is aimed precisely
at a debtor who, on
the eve of sequestration or liquidation, pays its lawful debt to one
creditor. The debtor cannot do that,
as appears from the judgment
in
R
v Ismail
,
discussed above. In fact, if compliance by the Respondent of its
obligations under the bond was a good excuse, so would be
all
payments of debts on the eve of liquidation and sequestration, and
section 29 (1) of the Insolvency Act would become a dead
letter.
To say that such a debtor does not have an intention to prefer
because he or she was obliged to pay the debt is an
obvious
petitio
principii
(see
R
v Ismail
,
supra
).
[41]
Nobody
has ever argued that the bond was not a genuine one or that
liquidation of Cat Quip was pending or even contemplated when
it was
registered in 1990. What is relevant is the intention of the
debtor, as represented by Mrs Weichelt, on the moment of
the
relevant disposition which occurred on the eve of the liquidation.
Nor was it ever disputed that Mrs Weichelt and Rivkind
conducted
themselves at arms’ length. But this factor also does not
avail the Respondent. Even in an arm’s length
transaction, a
disposition can still be accompanied by an intention to prefer the
debtor. The test is not one of presence or
absence of friendship,
but of an intention to prefer.
[42]
Then
it was argued that the “pressure which was present to Mrs
Weichelt’s mind” was that Cat Quip had no defence
to the
Respondent’s claims under the bond, and that it would not have
been competent in law for Mrs Weichelt to have told
Rivkind that she
was not prepared to hand over the keys.
As
indicated earlier, this approach is fundamentally flawed and is
irreconcilable with the judgments on this point since
R
v Ismail
.
In the latter case it was expressly stated that it does not avail
a debtor, in the face of an attack under section 29 (1),
to say that
it was obliged to honour its obligations under a bill of exchange.
There is no difference between that case and
the present one as far
as the legal principle to be applied is concerned.
[43]
Then
there is the submission that the Respondent would have been
entitled, had Mrs Weichelt refused to hand over the keys, to

approach a court and seek an appropriate order. It is not
self-evident, however, that such an application would or could have

been successful. Had Cat Quip relied on its duty to all creditors,
as stated in
R
v Ismail
,
supra,
I
cannot envisage any court coming to the assistance of the
Respondent. One of the cases cited in this regard -
Pietersburg
Cold Storage Ltd v Cacaburas
1925
TPD 295
- does not deal with the situation where such an order is
sought on the eve of liquidation, and does not advance the
Respondent’s
case at all. The other case cited in support of
the Respondent’s case is
International
Shipping Co (Pty) Ltd v Affinity (pty) Ltd and Another
1983
(1) SA 79
(C). In that case there was a notarial bond in favour of
International Shipping Ltd granted by Affinity Ltd over all its
movables,
with a clause in similar terms to clause 7 of the bond now
under discussion. When Affinity Ltd ran into financial
difficulties,
International Shipping claimed to take possession of
all the movable assets of Affinity in terms of the bond.
Affinity
refused to give such possession.
Thereafter International Shipping applied to the Cape Supreme
Court for an order authorising it to take possession of the said

movables and to exercise its rights in terms of the notarial bond.
Anglo African Factors (Pty) Ltd (“Factors”),
another
creditor of Affinity, intervened in and opposed this application, at
the same time making an application for the winding-up
of Affinity.
On the return day, the court (per Grosskopf J) dismissed
International Shipping’s application, because the
handing over
of the assets would come after the making of a final winding-up
order. The judge held as follows:
“
On the papers before me the
applicant’s conduct prior to the commencement of Affinity’s
winding-up does not give it
any equitable claim to be placed in a
better position than other creditors, such as for instance
Affinity’s employees.
The applicant took a business risk
which failed and, like other creditors, must now be satisfied with
its share of Affinity’s
assets as determined by law. And, as
is also laid down by law, the provisional liquidators should in my
view be enabled to administer
Affinity’s estate. No sound
reason has, in my view, been shown to allow the applicant in effect
to take it over.”
This
decision which is in line with
R
v Ismail
,
supra
,
is clearly correct and puts paid to the Respondent’s case.
If, in the present case, Mrs Weichelt did what she should
have done
in terms of
R
v Ismail
,
the disposition could only have been effected after the winding-up
order. It stands to reason that the Respondent cannot be
in any
better position if the disposition was effected one day before the
commencement of the winding-up.
[44]
Reference
was also made to a passage in the cross-examination of Rivkind in
which it was suggested that there was no final handing
over of
possession, but only a temporary one, pending the liquidation in
order to preserve the liquidation. Rivkind denied
that that was
the case. No inference can be drawn from the question - it may
well have been a well-thought out piece
of
cross-examination. What is important is Rivkind’s denial.
What remains then, as the only feasible explanation for
the handing
over of the keys, is an intention of Mrs Weichelt to give possession
of the movables to the Respondent on a permanent
basis. What other
intention could there then have been but to prefer the Respondent
above other creditors? And what evidence
is there of any other
intention?
[45]
The
most plausible and acceptable reason for the disposition was
therefore the intention to protect and safeguard the Respondent,

before other creditors could remove the movables or bring an
application for winding-up, from which moment Cat Quip could no

longer protect the Respondent against the other creditors due to the
resultant
concursus
creditorum
.
[46]
I
fail to find in the evidence any other “compelling reason”
for the disposition, other than the alleged wish of
Mrs Weichelt to
comply with the obligations of Cat Quip. As stated before, and in
the light of
R
v Ismail
and the insolvency cases thereafter, the intention to comply with a
valid obligation does not negate an intention to prefer if
the
disposition occurs on the eve of a liquidation and when the debtor
knows that it is insolvent.
[47]
Further,
one can with justification ask the question why, if Cat Quip (or Mrs
Weichelt) considered as “compelling”
the giving of
possession of the movables in order to comply with the obligations
of Cat Quip towards the Respondent, was it not
given in the two
months preceding 26 January 1993? By the end of November 1992 Cat
Quip had defaulted in the payment of the
bills in favour of the
Respondent; its financial position was then in a parlous state; it
knew of the bond and its provisions.
Why suddenly, when she became
aware of the pending liquidation application, did Mrs Weichelt take
the initiative to hand over
the assets to the Respondent? The only
plausible explanation is that she had the intention to protect the
Respondent against
other creditors.
[48]
There
is also the matter of Mrs Weichelt not testifying. She was
avilable
as
a witness. The
onus
rested on Cat Quip, as represented by her. She could have told the
court with what intention she gave possession of the assets
to the
Respondent. This she did not do. In these circumstances it is
proper to draw the inference that the Respondent, who
would have
relied on her evidence, feared that her evidence will expose facts
unfavourable to him, especially under cross-examination
(see
Elgin
Fireclays Limited v Webb
,
1947
(4) SA 744
(A)
at
749
in fine
).
[49]
It
was further submitted that Mrs Weichelt had at first asked the
Respondent not to proceed with its envisaged application to
court
for an order to be allowed to take possession of the movables, and
promised to settle the Respondent’s claim from
the proceeds of
the sale of Timquin Properties, another company over which the
Respondent held security. This sale never materialised.
After
that, Mrs Weichelt gave the possession of the Cat Quip movables to
the Respondent. It was said that this proves that
Mrs Weichelt
merely had the “innocent” intention of complying with
Cat Quip’s obligations to the Respondent.
But the correct
inference from these facts is exactly the opposite : when Mrs
Weichelt realised that she could not pay the
Respondent what was
owing to it, and well-knowing that Cat Quip was insolvent (this
appears clearly from the accounts filed and
Mrs Weichelt was, after
all, the bookkeeper and manager of Cat Quip) she handed over the
assets of Cat Quip to the Respondent.
She must have realised that
she was preferring the Respondent above other creditors. The facts
do not point to an “innocent”
explanation, but to the
opposite. In any event, there was as far as the said intention is
concerned, no
onus
on the Appellants. No other intention was proved on behalf of the
Respondent except the so-called compelling reason to pay
its debt to
the Respondent - a reason which, as I have pointed out, is no
justification under the circumstances.
[50]
And,
finally, to say that Mrs Weichelt knew that she had no basis for
denying
Rivkind what he was there for,
i.e.
to
take possession of Cat Quip’s stock by virtue of the bond, is,
as indicated above, no excuse, in the light of
R
v Ismail
,
cum suis
.
She knew very well that in giving possession to the Respondent,
she was preferring the latter above other creditors and,

well-knowing of the impending application for liquidation, proceeded
with the disposition. What other intention, but to prefer
the
Respondent above others, can be inferred?
In
my view, the appeal must succeed with costs.
PJJ
OLIVIER JA
CONCURRING
FARLAM
AJA
MPATI AJA
[1] I have had the advantage of reading the judgments
of my brothers Olivier and Zulman JJA. I concur in the judgment of
Zulman
JA. I merely wish to mention, however, certain facts which
weighed with me and perhaps not with him.
[2] Mr Rivkind’s undisputed evidence is that when
he discovered, through one Van Rensburg on 26 January 1993, that an
application
for the liquidation of Cat Quip was imminent, he
telephoned Mrs Weichelt and informed her that he was going to Cat
Quip’s
premises “immediately and the purpose of going
there was to take possession of the assets”, i.e. “to
perfect
our security”. Thus, even though, as Zulman JA points
out, Mrs Weichelt was the first to raise the question of the
existence
of the bond during the discussions which she had with Mr
Rivkind immediately prior to handing over the keys, she knew that
the
purpose of his visit was to take possession of Cat Quip’s
movable assets as he was entitled to do in terms of the bond.
[3] Coupled with this is the fact that a few days
earlier Mrs Weichelt had persuaded the respondent, through its
attorney, not
to proceed with its application for a court order,
which was to be sought on 26 January 1993, authorising respondent to
perfect
its security. She had undertaken to the respondent’s
attorney that the respondent’s claim would be settled out of

the proceeds of the sale of Timquin Properties, another company over
which the respondent held security. Whether the sale of
Timquin
Properties took place or not is not clear from the record. The
point is, however, Mrs Weichelt did not oppose the respondent’s

application for a court order to perfect its security as there
existed no grounds on which she could do so. Similarly, she could

not have had legitimate grounds to object to the taking of
possession of Cat Quip’s movable assets by Mr Rivkind on 26

January 1993.
[4] That Mrs Weichelt was the first to mention the
existence of the notarial bond during the discussion with Mr Rivkind
and that
the stock was the respondent’s is true, but she was
not doing so in ignorance of the reason for his visit. She knew he
was there to perfect the respondent’s pledge by taking
possession of Cat Quip’s movable assets.
[5] To my mind, the most plausible
inference to be drawn from these facts is that Mrs Weichelt knew
that she had no basis for
denying Mr Rivkind what he was there for,
i.e. to take possession of Cat Quip’s stock. She knew that
Cat Quip had not
met its obligations towards the respondent and that
for that reason the respondent was entitled to perfect its security.
(As
to the respondent’s entitlement to perfect its security,
cf
International
Shipping Co (Pty) Ltd v Affinity (Pty) Ltd and Another
1983
(1) SA 79
(C), especially at 85 F-H.) At best for the appellants
Mrs Weichelt acquiesced in the taking, by Mr Rivkind, of Cat Quip’s

movable assets, but did so because there was no ground for
objection. The bond made provision for such taking.
[6] I agree, therefore, with Zulman JA that in the
particular circumstances of this case the pressure which was present
to Mrs
Weichelt’s mind was that Cat Quip had no defence to the
right which the respondent was seeking to exercise to take
possession
of Cat Quip’s movable assets.
L MPATI AJA
CONCUR:
MADLANGA AJA
MADLANGA
AJA
:
[1]
I
am in full agreement with Zulman JA and Mpati AJA’s judgments.
I have seen it fit to deal with some of the issues raised
by
Olivier JA’s judgment.
[2]
In his judgment Olivier JA strongly relies on
R
v Ismail
1920 AD
316.
In
Ismail’s
case the transactions sought to be impugned involved Ismail (the
debtor) and two other persons. One of them (a juristic person)
had
been a supplier of goods to Ismail’s business which had since
been taken over by his brother. The evidence revealed
that Ismail
was eager that the
supplier should continue supporting his brother.
From this the court concluded that it might very well be that
Ismail thought that the supplier “would be more willing
to do
so if he placed it under an obligation to himself” (at 321).
The second person involved in Ismail’s transactions
was a
certain Abdullah Adam,
his
friend
(at 322,
324) from whom he had purchased goods for £190. He had given
him a bill for that amount.
Without
any demand
by
these two persons Ismail effected payment to both of them. In
testimony Abdullah stated that “he had not pressed [Ismail]

for payment” (at 322).
[3]
In my view the above brief statement of the facts of the
Ismail
case amply demonstrates that the instant case is distinguishable
from
Ismail.
Ismail, without any prompting or demand and with absolutely no
pressure of whatever nature, voluntarily paid the supplier, partly

made good the bill and, for the balance on it, handed over some
goods to Abdullah Adam. In the instant case an application to

perfect the security in terms of the notarial general mortgage bond
(“the bond”) was pending against Cat Quip. It
had been
before court only the day before the disposition was made but was
not proceeded with at Mrs Weichelt’s instance
- she was hoping
to find a way to settle the respondent’s debt. On the date of
the disposition Mr Rivkind telephoned Mrs
Weichelt and, in so many
words, told her that he was on his way to Cat Quip’s business
premises to take possession of its
movable goods so as to perfect
the respondent’s security in terms of the bond (for more
detail, see Mpati AJA’s judgment).
The statement of law by
Solomon JA on which Olivier JA strongly relies should be viewed in
the context of the facts of the
Ismail
case. Because of
the manifest differences in the facts
Ismail’s
case is of no assistance. That statement of the law is to the
following effect (at 324):
“
A
creditor with a bill in his favour is in no better position on the
eve of insolvency than any other creditor. There may no
doubt be
circumstances which might satisfy a Court that a payment made to
such a creditor was one in the ordinary course of business,
and with
no intention to prefer; but in the absence of explanation the
natural inference to draw from such a payment is that
it was made
with intent to prefer. In the present case we find that without any
pressure from Abdullah his debt was discharged
in full by part
payment of £45, by return of the goods which he had bought in
July to the value of £129, and by delivery
of further goods to
the value of £20.”
The
legal proposition by Solomon JA plainly states that, depending on
the circumstances, a disposition, on the eve of insolvency,
made by
a debtor who is aware of the looming insolvency may still be found
by the court not to have been made with an intention
to prefer one
creditor above another. On the facts of the instant case as set out
by Zulman JA and Mpati AJA the circumstances
are such as to satisfy
the court that Cat Quip (through Mrs Weichelt) did not intend to
prefer the respondent above other creditors.
[4]
A thread that runs through Olivier JA’s judgment is that, at
a time when she was aware of Cat Quip’s parlous financial

position, Mrs Weichelt “virtually spontaneously and without
any pressure at all” gave up control and possession of
the
goods secured by the bond (paragraph 32.11 of his judgment: also see
paragraphs [35], [36], [37] and [47] of his judgment).
Olivier JA
relies heavily on these factors. I do not agree with his
interpretation of the facts. Earlier in his judgment
Olivier JA
himself accepts that Mr Rivkind “telephoned Mrs Weichelt and
told her that he was coming out to Cat Quip’s
premises
immediately and that the purpose of going there was to take
possession of the assets for purposes of perfecting respondent’s

security” (paragraph 32.6). That being the case, Mrs
Weichelt’s subsequent conduct can hardly be described as

“spontaneous”. That she was responding to something
initiated by Mr Rivkind is sufficiently demonstrated by Mpati
AJA in
his judgment. Further, in the face of the pending application for
the perfection of the security which had been postponed
or stood
down only for a few days and Mr Rivkind’s avowed intention to
personally take possession of the goods it is difficult
to
understand how it can be said that the disposition was made when
there was no “pressure at all”. The
ratio
decidendi
in
Ismail’s
case is,
inter
alia
, based on the
fact that no pressure whatsoever had been brought to bear on the
debtor - he had acted “spontaneously”.
In
casu
there was
pressure and Mrs Weichelt did not act spontaneously. These two
factors (which are heavily relied upon by Olivier JA)
must thus be
disregarded. Once that is done, Olivier JA’s approach, in my
respectful view, cannot stand.
[5]
Another case strongly relied upon by Olivier JA is
International
Shipping Co. (Pty) Ltd v Affinity (Pty) Ltd and Another
1983 (1) SA 79
(C). He relies on this case to counter Zulman JA’s
view that Cat Quip had no defence to the respondent’s
insistence
on perfecting the security in terms of the bond. All of
this is in the context of the pressure that was brought to bear on
Cat
Quip. In this regard Olivier JA specifically relies on a
passage appearing at 87 C-D of the report. In my view this
passage
does not support my colleague. There Grosskopf J was
concerned with the question whether, once an application for the
winding-up
of a company has been presented, a creditor who is a
mortgagee in terms of a notarial general covering bond would be
entitled
as of right to perfect its security in terms of the bond
and thus become a secured creditor. The passage relied on by
Olivier
JA is preceded by passages that plainly demonstrate that the
situation dealt with by Grosskopf J is completely different from the

present one (at 84
in
fine et seq.
) At
85 F-G Grosskopf J has the following to say:
“
The effect of the filing of
the application for liquidation was therefore to change the nature
and purpose of the order of Court
which the applicant sought (and
still seeks). Prior to the filing, the applicant was
prima facie
entitled to insist that Affinity should perform its obligations
under the bond. After the filing, Affinity was
prima facie
unable
validly to perform its obligations if the application was pursued to
finality. In the former event, a Court order would
merely have
enforced existing rights. In the latter event, a Court order would
have created rights and obligations - it would
have rendered valid
what would or might otherwise have become void. Obviously the
approach of the Court in granting or refusing
an order would differ
completely in the two different sets of circumstances.”
In the
International
Shipping
case the
winding-up application was presented before the application for the
perfection of security was heard. In the passage
relied upon by
Olivier JA Grosskopf J is not addressing the question of the
existence of a defence to the application to perfect
the security.
He is addressing the question of the Court’s exercise of a
discretion whether or not to come to the rescue
of a mortgagee under
a notarial general covering bond where an application for the
liquidation of the debtor company has already
been presented.
In
casu
the
disposition took place before the application for Cat Quip’s
liquidation was presented. The Court’s approach
differs
completely in these two sets of circumstances (Grosskopf J at 85 G).
By way of conclusion on this point I would say
that there is no
basis for suggesting that Mrs Weichelt had a defence to the intended
perfection of the security in terms of
the bond.
[6]
In my view even assuming that Cat Quip did have a defence, its
compliance with the terms of the bond under the prevailing
circumstances would not of necessity translate to an intention to
prefer one creditor above another. Despite the existence of
such a
defence the subjective intention of the debtor may be other than to
prefer one creditor. I am in full agreement with
Zulman JA that on
the facts the plausible inference is that the intention was not to
prefer one creditor above another. I thus
disagree with the
suggestion made by Olivier JA in paragraph [49]
(in
fine).
[7]
I agree that the appeal must be dismissed with costs.
___________________
MADLANGA
AJA
MPATI AJA )CONCUR
1
See
for example, E.M. de la Rey,
Mars/The
Law of Insolvency
8
th
ed (1988) para 12.20 pp 221-227; Catherine Smith
The
Law of Insolvency
3
rd
ed (1988) pp 132-136; Meskin
Insolvency
Law
(para 5.31.6.4
pp 5-109 to 5-112); and
The
Law of South Africa
(First
Reissue) (Vol 11) para 186 pp 174-177)
2
Pretorius
’
Trustee v Van Blommenstein
,
1949(1) SA 267 (O) at 279. See also
Swanepoel,
N.O. v National Bank of South Africa
1923 OPD 35
at 39;
Pretorius
N.O. v Stock Owners Co-Operative Co. Ltd
1959(4)
SA 462 (A) at 476 -
477;
Giddy
,
Giddy
& White’s Estate v Du Plessis
1938 EDL 73
at 79 - 80;
Eliasov N.O. v Arenel (Pvt) Ltd
1979(3) SA 415 (R) at 418 G-H;
Venter
v Volkskas Ltd
1973(3) SA 175(T) and
Van
Zyl & Others N.N.O. v Turner & Another NNO
1998(2) SA 236 (C) at 244 para 30
3
In
re
M.
Kushler, Limited.
[1943] Ch. 248
at 252 and
Edgington
v Fitzmaurice
(1885) 29 Ch. 459
at 483, per Bowen, L.J (not an insolvency case).
See also Ian F. Fletcher
The
Law of Insolvency
(Second ed) (1996) 227-229
4
See
for example
Ferrier
v Civil Aviation Authority
[1994] FCA 1571
;
(1995) 127 ALR 472
(The Full Court of the Federal Court) at 485-487.
See also A Boraine & A Keay
- Challenging Pre-bankruptcy Dispositions.
An Australian -
South African Comparison
(1998) SA Merc LJ 267 at 280 - 285.
5
See
Section 547 of the Bankruptcy Code of 1978 (USA)
6
As
to Section 44 of the 1914 Act see for example
Peat
v Gresham Trust Ltd
[1934]
AC 252.
As to Section 239 of the 1986 Act see Re
M
Bacon Ltd
[1990]
BLCL324
7
cf
Elgin Fireclays Limited v Webb
1947(4) SA 744(A) at 750
8
1939
AD 188
at 202
9
1982(2)
SA 603 (A) at 614 E-H
10
1952(1)
SA 732(N) at 734 C-E. Approved of, for example, in
South
British Insurance Company Limited v Unicorn Shipping Blinds (Pty)
Limited
1976(1) SA
708 (A) at 713 E-G and
Smit
v Arthur
1976(3)
SA (A) 378 at 386 B-D
11
1963(4)
SA 147 (A) at 159 C-D
12
1964(3)
SA 325(A) at 331 H
13
The
Law of Insolvency
(supra note 1) p 134
14
supra
note 2 at 37
15
[1967]
1 W.L. R 1409 at 1420
16
See
also
Farrar,
“The Bankruptcy of the Law of Fraudulent Preference”
The Journal of Business Law
(1983) pp 398-399 and
Pretorius’
Trustee v Van Blommenstein (supra
note 2 at 279)
17
See
Michalow, N.O. v
Premier Milling Company Ltd
1960(2) SA 59 (W) at 65 C-D;
Michau’s
Trustees v De Wet
1909
EDC 44
;
Slater’s
Trustee v J O Smith and Co
(1885) 5 EDC 9
at 21
18
Supra
note 6 at 262
19
cf.
R v Ismail
1920 AD 316
referred to by Horwitz J in
Pretorius’
Trustee v Van Blommenstein (supra
note 2 at 279) which was concerned principally with the equivalent
section in the 1916 Insolvency Act (section 139(3)) not Section
27
of that Act, which is equivalent to section 29(1) of the 1936
Insolvency Act)
20
Pretorius
N.O. v Stock Owners Co-operative Co. Ltd ( supra
note
2) at 477 A;
Du
Plooy’s Trustee v Plewman
7 SC 332
and
Giddy
,
Giddy and White’s Estate v du Plessis (supra
note 2);
S v
Ostilly & Others
(1)
1977 (4) SA 699
(D CLD) 699 at 731 G-H;
Gert
de Jager (Edms) Bpk v Jones N.O. en McHardy N.O. (supra
note 12 at 332) A B
21
Supra
note 2 at 79
22
cf.
Trustees of Payn’s
Insolvent Estate v Bank of Africa Limited
(1885) NLR 231
at 234;
Trustee Insolvent Estate H.A.P. Lyle v Musson, Denby and Greene
25
NLR 315
;
R v
Sircoulomb
1954(4)
SA 237 (SWA) at 240 G
23
Pretorius’
Trustee v Van Blommenstein
(
supra
note 2 at 279 - 280) and
Eliasov’s
case
(
supra
note 2 at 418-419)
24
Van
Zyl’s case (supra
note
2
)
para 30
25
1899
AC 419
at 427
26
(
Supra
note 2 at 180 E to 181 B)
27
See
para 3.8 and notes 2 and 21 above
28
See
for example
Pietersburg
Cold Storage, Ltd v Cacaburas
1925 TPD 295
and
International
Shipping Co (Pty) Ltd v Affinity (Pty) Ltd and Another
1983(1) SA 79(C) at 84 C-H
29
Supra
note 12 at 331 C (“So ‘n afleiding [voorkeur aan een
skuldeiser bo ‘n ander] verloor sy krag indien daar getuienis

is dat ‘n vervreemding, gedoen in die omstandighede hierbo
genoem, inderdaad nie gepaard gegaan het met die oogmerk om
die
skuldeiser voorkeur te verleen, nie”)
30
Supra
note
10
at 734 C-D
31
Supra
note 2 at 476 F-G
32
See
for example
Malherbe’s
Trustee v Dinner and Others
1922 OPD 18
at 22,
Hendricks
N.O. v Swanepoel v Swanepoel
1962(4) SA 338 (A) at 345 B-E and
Van
Zyl & Others N.N.O. v Turner & Another N.N.O. supra
note 2 at 245 paras 33-39
33
Supra
note 32 at 22
34
1920
AD 75
at 79
35
See
for example
Pietersburg
Cold Storage Limited (Supra
note 31
)