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Godknows Hofisi

Introduction

Under insolvency practice it is common to find a company under either corporate rescue proceedings or in liquidation, in terms of the Insolvency Act (Chapter 6:07) or “the Act”).

Corporate rescue proceedings versus liquidation

In the case of corporate rescue proceedings the insolvency practitioner, better known as corporate rescue practitioner or previously as judicial manager, is working on reviving the company if there are prospects of turning the company around from its insolvency situation. 

In the case of liquidation the company is being wound up or broken up with assets being sold and proceeds therefrom being used to pay creditors and liquidation expenses. The company goes under. It no longer exists.

Application by creditor for liquidation

This is done in terms of section 6 of the Act. According to section 6(1) a creditor who has a liquidated claim of a certain amount, minimum of which is prescribed from time to time, against a debtor who is unable to pay his or her debts contemplated in section 3, or two or more creditors who in the aggregate have liquidated claims against such a debtor may apply to the Court for the liquidation of the debtor’s estate.

In the case of a company or private business corporation (PBC):

Corporate rescue proceedings have ended in the manner contemplated in Part XXIII of the Act and it appears to the Court that it is just and equitable in the circumstances for the company or PBC to be liquidated.

It is otherwise just and equitable for the company or PBC to be liquidated.

According to section 3 of the Act a debtor is unable to pay debts in the following circumstances:

 If unable to pay his or her debts upon proof that the debtor is generally unable to pay debts which are due and payable or proof that the debtor’s liabilities exceed the value of the debtor’s assets.

The debtor has, in relation to a statutory demand made by a creditor, neglected to pay the sum or secure or compound for it to the reasonable satisfaction of the creditor.

It appears from the return of the officer charged with the execution of a judgment of a Court against the debtor that the judgment has not been satisfied after a valid execution thereof.

In determining whether a debtor is unable to pay his or her debts, the Courts must also take into account the contingent and prospective liabilities of the debtor.

Provisional liquidation order

This is issued in terms of section 14 of the Act. The Court may grant a provisional order for liquidation if it is satisfied that requirements of section 6 have been complied with and, in the case of a company, the Court is satisfied that any of the following, where applicable, is not more appropriate than liquidation:

Corporate rescue proceedings, or

A compromise in terms of section 148, or

A pre- or post- liquidation composition in terms of section 119 or 120.

A Court granting a provisional order may simultaneously grant a rule nisi calling upon all interested parties and the respondent company to appear in Court on a date mentioned in the rule and to show cause why liquidation should not be final.

Final liquidation order

According to section 15 of the Act this order may be issued in terms of section 6 or pursuant to a rule nisi contemplated in section 14(2), and in the case of a company if any of the following, where applicable, is not more appropriate than issuing a liquidation order:

 Corporate rescue proceedings, or

 A compromise in terms of section, or

A pre- or post- liquidation composition.

Conclusion

Liquidation can be voluntary or involuntary. In the case of involuntary liquidation it can be at the instance of or application by a creditor against a debtor company that is unable to pay its debts.

Disclaimer

This simplified article is for general information purposes only and does not constitute the writer’s professional advice.

Godknows (GK) Hofisi, LLB(UNISA), B.Acc(UZ), CA(Z), MBA(EBS,UK) is a legal practitioner / conveyancer, chartered accountant, corporate rescue practitioner, registered tax accountant, consultant in deal structuring and business valuer. He is also a director with Investacare International (Private) Limited. He writes in his personal capacity. He can be contacted on +263 772 246 900 or [email protected]