QUESTION 2 (25 Marks )

Question

Judas owned the following valuable assets before his eventual sequestration: (i) a Picasso painting to the value of R21 million, (ii) a Rolex watch valued at R300 000.00, (iii) a vase from the Ming Dynasty valued at R1 Million and (iv) a graded Pokemon card valued at R50 000.
Judas, from the beginning of 2022, suspected his creditors were planning to apply for the sequestration of his estate. He was finally sequestered through a lengthy opposed application on 15 June 2024. During your investigation, you noted the following transactions in the estate:
Transaction 1
On 10 October 2023, Judas sold the Picasso to a family member, Pablo. Judas owed Pablo an amount of R16 Million, as the painting was worth R21 Million. The painting offset the R16 million and Pablo then paid the balance, being R5 million, to Judas. Judas was well aware that his liabilities exceeded his assets on the day the sales transaction took place.
On 15 October 2023, Judas paid R4 million of the R5 million into the trust account of his attorney, Mr Law. Later, Judas instructed Mr Law to make a payment of the R4 million to Judas’s uncle, Uncle Bob, to settle Uncle Bob’s debt, which Uncle Bob owed to the casino.
Transaction 2
Judas,in a moment of extreme charity, donated the Pokemon card to an orphanage on 1 June 2022. When this donation was made, Judas knew that his liabilities exceeded his assets.
Transaction 3
On 14 June 2024, Judas, after a lengthy discussion with a friend, Apollo, gave possession of the Rolex watch to Apollo with the instruction to sell the watch for an amount of R200 000.00. After that, Apollo had to pay the R200 000 to BigBucks, a close friend of Judas and the creditor to whom Judas owed an amount of R200 000.00.
Transaction 4
Judas, a dealer in fine pottery, trading as a sole proprietor, sold the vase for its real value of R1 million to a collector on 15 February 2024. The transaction was recorded in Judas’s accounting records. Judas knew that his liabilities exceeded his assets when the transaction was concluded. Judas immediately paid the R1 million to a creditor, Mr Mokoena. Judas initially borrowed R1 million from Mr Moekoena to acquire the vase.
As a co-trustee of the estate of Judas, you should analyse and evaluate the above transactions. You are to discuss each transaction above as to what actions, if any, you as co-trustee can or would take. Also, refer to relevant sections in legislation and case law to motivate your answers.

Answer 1

As a co-trustee of Judas's estate, it is my responsibility to analyze the transactions that occurred prior to the sequestration of Judas's estate to determine their validity and to ensure that creditors’ rights are protected in accordance with relevant South African laws. Below is an evaluation of each transaction, including the actions that can be taken:

Transaction 1: Sale of Picasso Painting

Transaction Overview:
On October 10, 2023, Judas sold the Picasso painting, valued at R21 million, to his family member Pablo for an effective total of R21 million, where R16 million offset a debt to Pablo and R5 million was received in cash.

Legal Implications:

• Section 29 of the Insolvency Act 24 of 1936: This section allows for the setting aside of transactions done with the intent to prefer one creditor over others or conducted when the seller knew they were insolvent. Here, Judas was aware of his insolvency at the time of the transaction.
• Transactions that Deprive Creditors: As the transaction favored Pablo (who is also a creditor) and was made while Judas was already insolvent, there is grounds to set aside the transaction.

Actions as Co-Trustee:

• Pursue the setting aside of the sale transaction to reinstate the asset back into the estate, or at least recover the proceeds (R5 million) since this was a transaction aimed at defeating creditors.

Transaction 2: Donation of the Pokémon Card

Transaction Overview:
On June 1, 2022, Judas donated a Pokémon card valued at R50,000 to an orphanage while knowing that he was insolvent.

Legal Implications:

• Section 29(2)(b) of the Insolvency Act: Similar to the previous transaction, donations made while insolvent can be set aside. This is deemed a disposition without receiving value in return and can be reversed within two years after sequestration.
• This gift was made with full knowledge of his insolvency and thus represents a preference to the donee without consideration.

Actions as Co-Trustee:

• Attempt to reclaim the Pokémon card or its value from the orphanage, arguing that the donation was voidable under the Insolvency Act.

Transaction 3: Transfer of Rolex Watch

Transaction Overview:
On June 14, 2024, Judas gave the Rolex watch to Apollo to sell for R200,000, intended to pay a debt owed to BigBucks.

Legal Implications:

• Section 29(1) of the Insolvency Act: This section again allows challenging transfers made with the intention of preferring one creditor over another, particularly while insolvent.
• By transferring the watch with an intent to pay a specific debt, Judas effectively preferred BigBucks over other creditors.

Actions as Co-Trustee:

• Seek to recover the Rolex or its value from Apollo for the estate, as it represents property that should be distributed per the sequestration process.

Transaction 4: Sale of the Ming Vase

Transaction Overview:
On February 15, 2024, Judas sold the vase to a collector for its true value of R1 million while knowing his liabilities exceeded his assets. He paid this amount immediately to Mr. Mokoena, a creditor.

Legal Implications:

• Section 29(1) of the Insolvency Act: Similar to previous transactions, the timing of the sale and the knowledge of insolvency are critical here.
• Even though the transaction was recorded, because it was done with full knowledge of insolvency and required immediate payment to settle debts, it may still be subjected to scrutiny.

Actions as Co-Trustee:

• While the sale itself may be legitimate, the concern lies in the immediate payment to a specific creditor while others remained unpaid. Depending on the circumstances, this payment might be challenged under the Insolvency Act for being a potentially preferential transaction.

Conclusion

In summary, the potential actions to take as co-trustee in each transaction involve setting aside transactions that disadvantage creditors, reclaiming assets, or funds where applicable, and ensuring compliance with the Insolvency Act provisions. The key focus should remain on promoting equitable distribution of the estate’s assets to settle creditors fairly, while paying close attention to the relevant legislative provisions and judicial precedents. Each transaction, based on its circumstances, presents grounds for further legal action to uphold the integrity of the insolvency process.