IN THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
REPORTABLE
Case no:   522/2003
In the matter between
P FOURIE N.O.
1ST APPELLANT
J H J VAN RENSBURG N.O.
2ND APPELLANT
J L LUBISI N.O.
3RD APPELLANT
L M M TEFFO N.O.
4TH APPELLANT
and
C S EDELING N.O.
1ST RESPONDENT
D ABEY
2ND RESPONDENT
J A A DA COSTA
3RD RESPONDENT
H CRONJE
4TH RESPONDENT
J A LANDSBERG
5TH RESPONDENT
Coram:
HARMS, ZULMAN, CONRADIE, HEHER JJA and VAN
HEERDEN AJA
Date of hearing: 23 MARCH 2004
Date of delivery: 1 APRIL 2004
Summary: Liquidation of unlawful pyramid scheme – whether repayment by
scheme of participants’ contributions was undue preference – whether payment
by scheme of gains to participants was a disposition without value
JUDGMENT
__________________________________________________________________

_
CONRADIE JA:
[1] The audacity of its perpetrators and the credulity of its participants combined
to produce a gargantuan fraud notoriously known as the Krion Pyramid Investment
Scheme. It was operated from the beginning of 1998 and, as all these schemes do,
collapsed when the inflow of funds could no longer sustain the outflow of extravagant
returns to participants. Each participant on average ‘invested’ in the scheme three
times. Its turnover was some R1.5 billion. In order to throw regulatory authorities off
the trail it was at one time or another conducted by entities called M P Finance
Consultants CC, Madicor Twintig (Pty) Ltd, Martburt Financial Services Ltd, M &
B Kooperasie Beperk and Krion Financial Services Ltd. The way in which the scheme
was conducted made it attractive for investors to invest for periods as short as three
months. When the loan capital with ‘interest’ was repaid at the end of the agreed
investment period, the investor would more often than not reinvest the capital and
interest. The advantage for the investor of doing business in this way was of course
that his already enormous interest was compounded. Typically an investor would
invest an amount in the scheme having been promised a return of 10% per month,
capital and profit repayable within three months. Until the collapse of the scheme,
investors received repayment of their capital and their profit when due. Sometimes an
investor would leave the capital and/or the profit in the scheme and this would then
have been reflected by means of a book entry as a payment and a new investment.

Other investors would take their capital and profit on the due date, some of whom
returned after a while to reinvest a similar amount.
[2] The appellants are the joint provisional liquidators of the companies and the
joint liquidators of the close corporation. The first respondent is someone called the
‘investor representative’. I shall say more about him shortly. The other respondents
are from the ranks of the investors. Only the third, fourth and fifth respondents are
parties to the appeal. It is anomalous to speak of investors in a scheme that was illegal
from beginning to end but everyone else has done so and I shall do so too.
[3] In an attempt to simplify the administration of the various insolvent estates the
liquidators proposed a scheme of arrangement in terms of s 311 of the Companies Act
61 of 1973 between those of the entities that are companies and their creditors. The
scheme, sanctioned on 22 November 2002, purported to ratify and confirm the
consolidation of the assets and liabilities of the companies in the MP Finance Group.
In fact, an order for such consolidation was only granted on 4 February 2003. Nothing
turns on this small irregularity. MP Finance Group is cited in the papers as a close
corporation but in fact is not a legal persona. It is no more than the name under which
the liquidators are winding up the affairs of the Krion scheme. What became of the
assets and liabilities of MP Finance Consultants CC, a close corporation at one time
used in the Krion scheme, is not clear. Being a close corporation, it could not have
been a party to the scheme of arrangement. However, the uncertainty does not matter
because it probably had no assets at the time of its liquidation and the entitlement of

its creditors to lodge claims against MP Finance Group is not in dispute.
[4] The appeal arises from an order made by Hartzenberg J on 28 February 2003 confirming
in part a rule nisi issued pursuant to an application launched by the appellants for orders
under ss 26 and 30 of the Insolvency Act 24 of 1936.  He declared inter alia that the
investment scheme was at all material times (from and after 1 March 1999) insolvent in that
its liabilities exceeded its assets and that contracts concluded between the investment scheme
and investors in the scheme were illegal and null and void. The order was in these terms:
‘1.
It is declared that the investment scheme [concluded] by Marietjie Prinsloo (formerly Pelser)
during the period 1998 to June 2002 under various names including M P Finance Consultants CC,
Madikor Twintig (Pty) Ltd, Martburt Financial Services Limited, M & B Ko-operasie Beperk en
Krion Financial Services Limited (“the investment scheme”) was at all material times from and after
1 March 1999, insolvent in that its liabilities exceeded its assets.
2.
All contracts concluded between the investment scheme and investors in the scheme were
illegal and null and void.
3.
All actual payments from and after March 1999 by the aforesaid investment scheme to
investors, including the Second and further respondents are set aside as dispositions by the scheme
to investors at times when its liabilities exceeded its assets with the intention of preferring the
particular investor above other investors in terms of section 30 of the Insolvency Act, provided that
a reinvestment is not to be regarded as a payment and that the right of investors to rely on the
provisions of section 33 of the Insolvency Act is in no way affected by this order.
4.
An inquiry is ordered into the details of the amounts of the aforesaid payments and the
examination and investigation provisions of paragraph 38 of the scheme of arrangement, sanctioned

on 22 November 2002 under case number 27035/2002, shall apply mutatis mutandis for the
purposes of this inquiry.
5.
The applicants may set the matter down for judgment against any investor, at any time, on
the same papers, duly supplemented by evidence, as to the quantum of the claim.
6.
The costs of all parties who appeared in the matter, and of the amicus curiae, are
payable as costs of the administration and liquidation of the investment scheme. Where
applicable such costs are to include the costs of two counsel.’
[5] The part of the order in para 3 setting aside ‘all actual payments’  read with the
reasons given by  Hartzenberg J shortly after the granting of the order soon gave rise
to an interpretational difficulty. It was not clear whether the order meant that all
payments to investors, including  capital repayments, were set aside or whether it
meant that only the gain of each investor was set aside.
[6] The appellants and the first respondent interpreted the order in the first sense
while the third to fifth respondents thought it meant that they needed to repay only
their ‘profit’. Everyone was agreed, though, that  book-entry type reinvestments, that
is to say, investments that were not paid out before being reinvested but were simply
‘rolled over’ in the scheme’s books did not qualify as ‘dispositions’ and  were
therefore untouched by the order. That explains the use of the term ‘all actual
payments’ at the outset of para 3.
[7] This difference of opinion on the meaning of the order persuaded the appellants
to ask the court for its clarification. This application resulted in an amended order
being granted by Hartzenberg J on 10 November 2003, an order which made it clear

that only that amount which exceeded the investment of each investor, in other words,
the gain made by each investor, was set aside in terms of s 30(1) of the Insolvency Act
and recorded that the question whether a reinvestment qualified as a new investment
was to be determined according to the facts of each case. The amended para 3 then
read (with the changes italicized):
‘3. All actual payments from and after March 1999 by the aforesaid investment scheme to investors
including the Second and further respondents in so far as they exceed the investment of each
particular investor are set aside as dispositions by the scheme to investors at times when its liabilities
exceeded its assets with the intention of preferring the particular investor above other investors in
terms of section 30 of the Insolvency Act, provided that a reinvestment is not to be regarded as a
payment and that the right of investors to rely on the provisions of section 33 of the Insolvency Act
is in no way affected by this order; what is to be regarded as a re-investment is to be determined
objectively in each case.’
[8] It is unnecessary to decide whether, in interpreting the first order, Hartzenberg
J was empowered to amend it by way of the second order to make it conform to what
he had intended to say in the earlier order. He then and there granted leave to the
appellants and to the first respondent (who had purported on behalf of investors to
agree to the first order) to appeal to this Court against the second order. The other
respondents received leave to cross-appeal against para 3 of the first order in case it
should be found that it ought not to have been amended. The practical effect of this is
that the first order is open for reconsideration.
[9] Section 30(1) of the Insolvency Act deals with undue preferences:

‘(1)  If a debtor made a disposition of his property at a time when his liabilities exceeded his assets,
with the intention of preferring one of his creditors above another, and his estate is thereafter
sequestrated, the court may set aside the disposition.’
A colourless disposition, one not made with the required intent, is not caught by the
provisions of s 30(1). In attempting to discharge the onus of proving that Ms Marietjie
Prinsloo as the directing mind of the scheme had the intention to prefer one creditor
above another, the appellants relied upon the content of a report from the first
respondent to the Master. I demonstrate its fatuousness by quoting the relevant
paragraph in the founding affidavit in full:
‘On the question of intention to prefer, as required in section 30 of the Insolvency Act, I [the
deponent is the first applicant] respectfully refer to the content of the first respondent’s report to the
Master, specifically paragraphs 112 to 115 thereof which read as follows:
“112
I am prima facie of the view that it will be the duty of the liquidators to apply for the
setting aside of many transactions in terms of sections 26 and 30 of the Insolvency Act or under the
Actio Pauliana (common law setting aside for fraud).
It is probable that:
113.1 The scheme business (regardless of which entity was being used at any
particular time) was insolvent at all material times and that the liabilities
substantially exceeded the assets;
113.2   Almost all the payments, whether to agents or investors and whether for
interest, dividends or redemption of capital, were made under insolvent
circumstances;
113.3 Those in control knew, at all material times, that:

113.3.1
The liabilities of the business exceeded the assets;
113.3.2
The scheme was fraudulent and that there was no underlying genuine profit
producing business activity;
113.3.3
Every payment would have the effect of preferring the payee, and prejudicing
unpaid creditors (as a class regardless of the identity of the members of that class at
any given time);
113.4 Such knowledge is, in my view, sufficient to establish an intention to prefer.
The payment under insolvent circumstances objectively establishes the preference
which is the natural consequence of making the payment.
113.5 Knowledge of the fact of insolvency, coupled with the doctrine that one is
presumed to intend the natural consequences of one’s actions, suffice to prove the
requisite intention to prefer.
114 Furthermore, since the scheme was illegal and there were no valid underlying causae for the
payments in question, it would follow that the payments were ‘without value’ as contemplated
in section 26.
115 For these reasons it will appear that the liquidators have good prospects of success in
claiming back moneys received by investors and gang members.”
[10]  The only other material on this topic in the papers is an answering affidavit from
the investor representative, the very person whose views as to the probable solvency
of the scheme and the knowledge of those in control of the scheme of this state of
affairs are relied on in para [9]. Although meant to bolster the appellants’ case, it adds
nothing to it, being merely the investor representative’s summary of certain evidence
given at an enquiry in the insolvent estate of Prinsloo as well as some other odds and

ends that are of no use in the determination of any of the issues.
[11] The nature of the evidence presented in the founding affidavit and the affidavit
of the first respondent leaves one with no doubt that it was hoped that agreement
between the appellants and the first respondent on all the essential issues would carry
the day. Relying on authority supposedly given to him by a large number of investors
to consent to the terms of the first order, the first respondent agreed that all
dispositions by the scheme to creditors after March 1999 ought to be set aside. There
are many reasons why he was not competent to have represented the investors or made
such an admission on behalf of investors. They were debated before us in argument.
He relied first on an appointment or authorization by the Master to the liquidators to
appoint him to represent investors. Neither the Insolvency Act nor the Companies Act
confers any such power on a Master. The first respondent’s other ground is that he was
appointed by the court in terms of the scheme of arrangement. Apart from the fact that
the court did not have the power to appoint him, the worrying feature of the
appointment (and that by the liquidators supposedly authorized by the Master) is that
someone who had been struck from the roll of advocates was appointed in a fiduciary
position. (The grounds for his striking off have been reported: Society of Advocates of
South Africa (Witwatersrand Local Division) v Edeling 1998 (2) SA 852 (W) at 898H-
899F.) Whether due disclosure of these facts had been made we do not know. Leaving
aside that fact and the grave doubt whether the mandate given to the first respondent
by investors was broad enough to permit him to make admissions on behalf of those

whose agent he professed to be, the most fundamental objection to the first
respondent’s representation of a large body of scheme investors is that in discharging
what was after all a fiduciary duty he was faced with a major conflict of interest
between those investors who had lost money in the liquidation of the scheme and
therefore were creditors of the scheme and those who were not. There were investors
who were not scheme creditors at the date of its liquidation (those who had put money
into the scheme, taken their gains and wisely not re-invested) who could not have been
parties to an arrangement under section 311 of the Companies Act. On behalf of them
he could have had no authority to act. Even among the scheme’s creditors there were
divergent interests. The interests of a multiple investor would be quite distinct from
those of a once only investor. The difficulty around the first respondent’s conflict of
interests did not pass unnoticed. The court a quo sought to address it by appointing an
amicus curiae. The latter made submissions to the court a quo and presented helpful
argument to this Court; but his appointment could not overcome the fundamental flaw
that the first respondent was not empowered to make the admissions that he purported
to make. Finally the first respondent is not in the position of a curator ad litem who
could litigate on behalf of someone else.
[12] When the hope that consensus between the appellants and the first respondent
might carry the day was dashed by the third respondent’s answering affidavit, the first
respondent, taking up the cudgels on behalf of the liquidators, delivered another
affidavit, annexing to it extracts from the evidence of Prinsloo and others at an enquiry

held in terms of s 152(2) of the Insolvency Act. It could not aid the appellants in
establishing a cause of action based on s 30(1) of the Insolvency Act which they were
obliged to include in their founding papers; that defect alone was fatal to the success
of the application. Apart from that, it was not satisfactorily explained how the
annexing of extracts from the evidence could, at any rate in the absence of any reliance
on s 3 of the Law of  Evidence Amendment Act 45 of 1988, possibly have made them
admissible as testimony.
[13] It is best therefore to do as the court a quo appears to have done and ignore any
factual material that is not common cause between the appellants and their supporter
the first respondent on the one hand and the remaining respondents on the other. The
only material of this kind which is of any use is the admitted fact that the scheme’s
liabilities exceeded its assets on and after 1 March 1999. On the probabilities it is
correct. All loans made to the scheme were – in the light of at least the provisions of
s 11 of the Banks Act 94 of 1990 and a prohibition under the Consumer Affairs
(Unfair Business Practices) Act 71 of 1988 – illegal and therefore void; this
proposition of law is uncontested. The scheme never had the least entitlement to retain
investors’ money until the date which had supposedly been agreed as the due date for
repayment.  The perpetrators of the scheme knew the investments to be illegal. There
is, on the other hand, no evidence that any of the investors knew their investments to
be tainted, nothing from which to infer that any of them acted ex turpi causa. That
being so, no question arises of relaxing the in pari delicto potior est defendentis rule

and the ratio in Visser en ‘n ander v Rousseau en andere NNO 1990 (1) SA 139 (A)
is not applicable to the facts of this case. Upon receipt of a payment the scheme was
liable promptly to repay it to the investor who had a claim for it under the condictio
ob iniustam causam. Instead, it used the money to pay the claims of other investors
who had invested earlier. That was the whole idea of the scheme. The interest realized
by the micro-lending business carried on by the scheme as a cover for its illegal
activities came to a mere R1,76 m. The profit before tax was a paltry R4 530,77. The
returns to investors on the other hand totalled some R30m. There was no income from
which to pay this. Not only was the capital of later investors being unlawfully retained,
but it was being used to pay others their capital and extravagant returns while their
only chance of recovery was that yet other investors might be found whose money
could in turn be used to pay them. The nature of the scheme dictated its insolvency.
It had no assets of any importance and huge liabilities, all of which were due and
payable and very few of which could be met except by incurring further liabilities; so
later investors were clearly prejudiced. But the effect of the transactions does not by
itself demonstrate any undue preference. The issue is whether earlier investors were
deliberately unduly preferred, not whether they were prejudiced.
[14] In the incestuous eagerness of the appellants and the first respondent to augment
the scheme estate the many judicial dicta that a trustee or liquidator cannot show an
intention to prefer simply by proving insolvency and then relying on an inference that
the insolvent debtor must have intended the natural consequences of an act of disposal

were forgotten or perhaps ignored.
[15] It is established law that in considering whether an intention to prefer has been
shown, all the relevant facts must be considered. One such relevant (and important)
fact is whether the insolvent at the time of the disposition contemplated insolvency
(Pretorius NO  v Stock Owners’ Co-Operative Co Ltd 1959 (4) SA  462 (A) at 472E–
G);  proof of such a contemplation (of which there was none) would have brought the
appellants some distance but possibly not far enough since the inference to be drawn
from a contemplation of sequestration is not necessarily that the insolvent’s
subjective ‘dominant, operative or effectual intention’ in making the disposition (see
Cooper and Another NNO v Merchant Trade Finance Ltd 2000 (3) SA 1009 (SCA)
at 1026G) was the intention to prefer. The intention to prefer is nothing but a resolve
‘to disturb what would be the proper distribution of assets’ in insolvency. (Pretorius
NO at 476D–F, a passage cited with approval in Gert de Jager Bpk v Jones NO en
McHardie NO 1964 (3) SA 325 (A) at 331E–F.) From the scanty material in the
founding affidavit, shored up by the probabilities, it seems that Prinsloo knew that
continuing to make dispositions to creditors was the only way to give credibility to the
scheme and so keep it afloat and that this was her dominant intention. She envisaged
not the liquidation but the continuation of her fraudulent business. Depending on how
convincingly she did this, and Marietjie Prinsloo was a gifted swindler, liquidation
might be some way off. She also made attempts to recapitalize the scheme by
converting loan into equity capital and issuing share certificates to investors. This

exploit, as deceitful as the rest of her business dealings, nevertheless demonstrates
that she did not consider her enterprise lost.
[16] The order of the court a quo set aside the gains of each investor under section
30(1) of the Insolvency Act. All parties are agreed that the gains were illegal and that
investors may not retain them.  Making the order under s 30(1) was, however, an
error. There was no evidence that the gains were paid over with the intention to prefer
one creditor above another any more than that the investments were repaid with that
intention.
[17] An order could have been made under s 26 of the Act, the first subsection of
which reads:
’26 (1) Every disposition of property not made for value may be set aside by the court if such
disposition was made by an insolvent –
(a) more than two years before the sequestration of his estate, and it is proved that immediately
after the disposition was made, the liabilities of the insolvent exceeded his assets;
(b) within two years of the sequestration of his estate, and the person claiming or benefited by
the disposition is unable to prove that immediately after the disposition was made, the assets
of the insolvent exceeded his liabilities:’
The proviso that follows the subsection does not concern us.
[18] A disposition, it has been decided on more than one occasion, is not made for
value if the payment is illegal. Estate Jager v Whittaker and Another 1944 AD 246
dealt with the payment of usurious interest. ‘No obligation of any sort,’ said
Watermeyer CJ at 251-52, ‘to pay a higher rate of interest than that permitted by the

Act can arise from a promise to pay a higher rate, and it therefore follows that such
a promise is a mere nullity, and any payment of such a higher rate in pursuance of
such promise is in effect a donation, or disposition not made for value, and is
consequently liable to be set aside under sec. 26 of the Insolvency Act.’ In Rousseau
en Andere v Malan en ‘n Ander 1989 (2) SA 451 (C) at 459I-J this dictum was applied
to illegal commission payments from a scheme found to have been a lottery. In Visser
en ‘n ander v Rousseau en andere NNO 1990 (1) SA 139 (A) where the operators of
a pyramid scheme paid participants for a useless product such payments were (at
154I–156F) found to be dispositions without value.
[19] The promise to reward investors with the returns paid by the scheme was a
‘mere nullity’ and any payment of a profit or interest would have been a disposition
not made for value. Although the application was, inter alia, premised on a contention
which was suggested by the first respondent to the liquidators that book-entry
repayments by the scheme were dispositions, they, during argument before
Hartzenberg J, prior to the granting of the first order, decided not to persist in this
contention. They did not in this court depart from that attitude. If a ‘repayment’ of
capital retained in the scheme by way of a book entry re-investment does not qualify
as a disposition, then the ‘payment’ of gains retained in the scheme is not a disposition
either. Where gains on retained gains were made (in the manner that compound
interest might be earned by capitalising it) only the actual payment of the accumulated
gains would be a disposition without value. The question that arose in the court a quo

in relation to a disposition of capital under s 30(1) of the Insolvency Act regarding
the circumstances under which the repayment of a re-investment could be
characterized as a disposition does not arise in the case of the payment of a gain. It is
accordingly not necessary to issue any order in that regard. All the parties before the
court accepted that the repayment of an investor’s capital was not a disposition
without value: the investor’s condictio prevented it from taking on that character:
where a disposition was made it was made in discharge of an obligation to return the
illegal payment.
[20] An investor who was the recipient of a disposition defeasible as one without value
and who parted with property or security held by him, or lost a right against another
as consideration for a disposition of this kind need not restore anything received under
the disposition if he acted in good faith unless the liquidators indemnify him for
parting with such property or security or for losing such right (s 33 of the Insolvency
Act). The court a quo, ex abundanti cautela it seems to me, preserved this right in its
order. The appellants have not suggested that this ought not to have been done.
[21] The order granted by the court below purported to bind all investors, or at least
all those whose names appeared as respondents on a list appended to the notice of
motion, on the footing that a rule nisi was issued and published according to directions
from the court calling upon those respondents who wished to do so to object to
confirmation of the rule on the return day. Normally, citing multiple parties and
serving an application by publication in the manner adopted here might have sufficed.

In the present case, however, service fell gravely short of what would have been
required to ensure that the investors receive a fair trial. The publication as ordered by
the court described the role and set out the recommendations of the first respondent
who was held out to be the ‘investors’ representative’. There is in this scenario a great
danger that investors might have considered their interests to be adequately
represented by a court-appointed guardian and for that reason might have neglected
to take steps to put their views before the court or even to obtain legal advice. The sad
truth of the matter is that those investors who were informed of the application were
probably at the same time discouraged from defending the proceedings. The third,
fourth and fifth respondents do not fall into this category. They defended the
proceedings; they did not suffer from any misunderstanding that their interests would
be protected by the first respondent; there is no reason why they should not be bound
by a declaration of this court that places no reliance on any contribution to the
proceedings made by the first respondent.
[22] Section 32(3) of the Insolvency Act is in these terms-
‘When the court sets aside any disposition of property under any of the said sections, [which include
s 26], it shall declare the trustee entitled to recover any property alienated under the said disposition
or in default of such property the value thereof at the date of the disposition or at the date on which
the disposition is set aside, whichever is the higher’.
Para 5 of the order confirming the rule envisages recovery proceedings. Any investor
against whom such recovery proceedings are brought would be free to maintain that

he or she is, for lack of notification or by reason of having been misled by the terms
of the publication, not bound by the order of Hartzenberg J. It may be that fresh
setting aside proceedings against such an investor would then have to be combined
with the recovery proceedings. It seems unlikely that it will come to this since an
investor would have to deny that the gains paid out by the scheme were dispositions
without value, a proposition that has not been challenged by any of the parties and one
that I consider to be correct.
[23] The contention that Hartzenberg J had no power to amend para 3 of the first
order granted by him was not pressed before us. If it had been and had succeeded it
would have made no difference to the result or to the costs orders.
[24] The following order issues:
A.
The appellants’ and the first respondent’s appeals are dismissed with costs that
include the costs of two counsel.
B.
The cross-appeals of the third, fourth and fifth respondents succeed with costs
that include the costs of two counsel.  Paragraph 3 of the order is set aside and
replaced by the following paragraph:
‘3.
All actual payments, whether as profit or interest, from and after 1 March 1999 by the
aforesaid investment scheme to the second, third, fourth , fifth and further respondents, in so far as
they exceed the investment of each particular investor are set aside, under s 26 of the Insolvency Act
as dispositions without value by the scheme to investors at times when its liabilities exceeded its
assets, provided that the right of investors to rely on the provisions of s 33 of the Insolvency Act is

in no way affected by this order.’
C.
The costs of the amicus curiae are to be costs in the liquidation.
__________________
J H CONRADIE
JUDGE OF APPEAL

HARMS JA
)Concur
ZULMAN JA
)
HEHER JA
)
VAN HEERDEN AJA )