Impeachable dispositions

Own correspondent

To ‘impeach’ a transaction means to call into question its validity. The Insolvency Act [Chapter 6:07] has a number of sections designed to safeguard the interests of the creditors and some of the sections are intended to protect the creditors where the insolvent has entered into transactions prior to insolvency, and which have the effect (upon insolvency, sequestration and corporate rescue) of being detrimental to the general body of creditors.

Such transactions are called ‘dispositions’ because it involves a disposing of an estate asset (including money). Our Insolvency Act defines a disposition as ‘any transfer or abandonment of a right to property and includes a sale, mortgage, pledge, delivery, payment, release, compromise, donation, suretyship, security interest under the Movable Property) Securities Interest Act [Chapter 14:35] or any contract therefor’ and this does not include a disposition in compliance with a High Court order.

An insolvency practitioner, trustee or a creditor may impeach a disposition (i.e. bring its validity into question) by making an application to the High Court of Zimbabwe to have it set aside. If the High Court is of the opinion that the disposition should be set aside, the disposition is therefore retrospectively invalid and the asset (or its value) is retrieved (from the party to whom the insolvent disposed the asset to) and it is available to be distributed amongst the creditors of the insolvent. The following are the major sections on impeachable dispositions:

Disposition without value

Dispositions without value include those dispositions which the insolvent made before the liquidation, sequestration, or corporate rescue proceedings; but for which the insolvent did not receive any value in return. According to Zimbabwean insolvency laws, if an insolvent company makes a disposition of any of its properties without value, then such a disposition may be set aside by the High Court. For the High Court to rule as such, the disposition would have happened within two years before the presentation of the:

 application for liquidation to the Registrar of Companies, or

 resolution commencing corporate rescue proceedings to the Registrar of Companies.

The period above is three years if the disposition was made in favour of an associate of the insolvent company.

‘Value’ in this context has its ordinary meaning, that is any kind of reciprocal benefit/consideration and not merely monetary/tangible one. Whether or not value has been received for a disposition must be determined by taking all the circumstances under which the transaction was made into account. Value must not be speculative and must be value to the insolvent company.

If anyone opposing the impeachment can prove that at any time after making the disposition, the liabilities of the insolvent company exceeded its assets by less than the value of the property disposed of, then the disposition may be set aside only to the extent of such excess value.

A disposition of property not made for value, which would have been set aside or which was not completed by the insolvent company, does not give rise to any claim in competition with the creditors of the insolvent company unless the disposition was made by way of suretyship, guarantee or indemnity; and unless the disposition has not been set aside by the High Court.

The beneficiary in question may compete with the creditors of the debtor's estate for an amount not exceeding the amount by which the value of the debtor's assets exceeded his or her liabilities immediately before the making of that disposition.

Voidable preferences

A voidable preference occurs when there is a transfer of assets to a creditor shortly before a debtor files for insolvency. The recipient of these assets must return them to the insolvent company.

Every disposition of property made by an insolvent company, which has the effect of enabling one of the creditors to receive a benefit that they would not have been entitled to had the insolvent company been under liquidation/corporate rescue at the time of making the disposition, may be set aside by the High Court if:

 the insolvent company's liabilities exceeded the value of its assets immediately after concluding the disposition; and

 the disposition was made within six (6) months before the presentation of an application for liquidation/resolution commencing corporate rescue proceedings of the insolvent company to the Registrar, or within twelve (12)

months before the said presentation in the case where the disposition was made to an associate of the debtor;

The disposition may not be set aside if the beneficiary from the disposition proves that it was made in the ordinary course of the insolvent company’s business and that it was not intended to confer preference to one creditor above the others. If the beneficiary is an associate of the distressed company, they will have to also prove that they were not aware and had no reason to suspect that the insolvent company's liabilities would exceed the value of its assets immediately after concluding the disposition.

A disposition is not made in the ordinary course of business if:

 it was made by way of payment of a debt that was not due and payable or not legally enforceable;

 it embodied payment in an unusual form or a form other than that originally agreed upon.

Any disposition of property by an insolvent company at a time when its liabilities exceed its assets, made with the intention of preferring some creditors above others, may be set aside by the court if the application for the liquidation of the estate of the debtor is presented to the registrar within three years after the making of the disposition.

For the purposes of this section a surety of a debtor, or a person by law in a position analogous to that of a surety, isdeemed to be a creditor of the debtor.

Every disposition of property made under a power of attorney, whether revocable or irrevocable is, for the purposes of this section, deemed to have been made at the time at which the transfer or delivery or mortgage of such property took place.

Collusive dealings for prejudicial dispositions of property

Any transaction entered into by an insolvent company before or after its liquidation/rescue, in collusion with another party for the disposal of a property belonging to the insolvent company in a manner that prejudices its creditors orprefers one creditor above the others, may after the liquidation/rescue of insolvent company be set aside by the HighCourt.

Any party to such collusion is liable for any loss incurred by the insolvent company and must pay a penalty for the benefit of the creditors and the penalty is determined by the High Court. This amount is not more than the value benefited by the party if the disposition had not been set aside; and, if the party is a creditor, it will also forfeit its claim against the insolvent company. The compensation and penalty may be recovered in any proceedings for the setting aside of the transaction in question.

Rights not affected by improper disposition

The impeachable dispositions discussed above do not affect the rights of any person who would have acquired a property in good faith and for value from any company other than a company that is subsequently liquidated/placed under corporate rescue framework. The setting aside of a disposition made by a debtor in terms of section 24, 26 or 27 shall not discharge a surety for the debtor.


Where the insolvent company was involved in set-off transactions with another party, the liquidator/corporate rescue practitioner of the insolvent company may abide by the set off. He/she may also, if the set off was not effected in the ordinary course of business, disregard it and call upon the party to pay to the insolvent company for the set off. The party is obliged to pay that debt and may prove a claim against the insolvent company as if no set-off had initially taken place.

It is therefore critical for anyone entering into any transaction with a party that could be liquidated/placed into corporate rescue framework as a result of insolvency to assess whether that transaction falls into one of these impeachable categories. Although in principle, an agreement could constitute an impeachable disposition, there is no simple answer to the question in a particular case and each case must be dealt with on its own facts and circumstances.

GT – Navigating complexities

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