An impeachable transaction in liquidation is when the directors of a company alienated (sold/gave away/disposed of (disposition)) assets or monies that should rather have been left to the liquidator to deal with so that the monies could rather be paid to the creditors. Impeachable transactions can also apply in the case of the sequestration of individuals.
The six-month rule regarding impeachable transactions in liquidation
Impeachable transactions would usually occur six months before the liquidation, although the liquidator or curator is entitled to go back to transactions that occurred two years before liquidation/sequestration. (Companies are liquidated when insolvent and a liquidator is appointed to wind up the insolvent estate. Individuals are sequestrated and a curator is appointed to wind up the insolvent estate).
An impeachable transaction literally means if you sell something for less than what it is really worth. For example, if there is a car that is fully paid that is worth R100 000, but the car is sold 2 months before insolvency for R40 000, then that is an impeachable transaction.
This means that the liquidator or the curator will have the right to cancel the agreement and collect the vehicle back from the person who bought it and then sells the vehicle on an insolvency auction. Or the liquidator can ask the director to pay in the difference of R60 000.
A transaction is impeachable because it means that there is a disposition without value. This means that the real value of the vehicle was not applied to the benefit of the company or the creditors of the individual that is sequestrated. It also means that the transaction is a disposition without value if it is proved that the liabilities of the insolvent at any time after making of the disposition exceeded his/her assets by less than the value of the property disposed of. In other words, you deprived your creditors of the benefit by making your estate poorer if you sell an asset for less than its real value. Makes sense doesn’t it?
Transactions with value
You may sell assets at value, provided that the proceeds are left for the liquidator/curator to deal with or if the monies are applied to the benefit of the company’s creditors.
For example, if a car that is fully paid is worth R100 000 and you sell it for R100 000, pay the monies into the company bank account, and use the money to pay all of the companies’ creditors each some money, then that is not an impeachable transaction or a disposition without value.
These types of contracts must rather be handled by a professional such as an attorney (for example Nanika Prinsloo, the writer of this article) as there are strict rules that apply to make these types of transactions not impeachable. So yes, it is possible to sell assets before liquidation or sequestration but it must be done right.
Assets can also be purchased back from the liquidator/curator after insolvency.