Setting aside transactions from pyramid schemes as impeachable dispositions under South African insolvency legislation
South African courts have experienced a rise in the number of cases involving schemes that promise a return on investment with interest rates which are considerably above the maximum amount allowed by law, or schemes which promise compensation from the active recruitment of participants. These schemes, which are often referred to as pyramid or Ponzi schemes, are unsustainable operations and give rise to problems in the law of insolvency. Investors in these schemes are often left empty-handed upon the scheme’s eventual collapse and insolvency. Investors who received pay-outs from the scheme find themselves in the defence against the trustee’s claims for the return of the pay-outs to the insolvent estate. As the schemes are illegal and the pay-outs are often in terms of void agreements, the question arises whether they can be returned to the insolvent estate. A similar situation arose in Griffiths v Janse van Rensburg 2015 ZASCA 158 (26 October 2015). The point of contention in this case was whether the illegality of the business of the scheme was a relevant consideration in determining whether the pay-outs were made in the ordinary course of business of the scheme. This paper discusses pyramid schemes in the context of impeachable dispositions in terms of the Insolvency Act 24 of 1936.
- PER: 2016 Volume 19