IURI 322 - Law of Insolvency

Study Unit 9 – 12
Revision session
Examinations
Scope
• Study Units 9-12
• You can not leave out any study unit!
• Use the ppt slides and study guide to help you to focus
on the important areas.
Consult exam timetable for date and venue!
(Double check for possible changes)
• Date: 17 October 2024
• Time: 09:00 to 12:00
• Duration: 3:00 hours
• Venue: Check the NWU official exam timetable
• NB! Please check the NWU official exam timetable
again, to ensure nothing has changed.
Format
• 20 Multiple choice questions – 40 Marks
• 60 Marks - Shorter, medium and longer questions
(knowledge and higher order skills/ application)
• 100 marks (Total)
IURI 322 - Law of Insolvency

Study Unit 9
Meeting of creditors

By means of a system of meetings, the

insolvent’s creditors establish their claims,
elect the trustee and give directions to the
trustee on the sequestration of the estate.
 Meetings of creditors
FIRST MEETING SECOND MEETING SPECIAL MEETING – SPECIAL MEETING GENERAL MEETING
PROOF OF CLAIMS INTERROGATION OF THE
INSOLVENT
When Immediately on After first meeting and After second meeting when At any time, provided At any time or when required
receipt of final appointment of the trustee on trustee is called upon by Master gives consent, to do so by Master or
sequestration order a date fixed by Master any interested party trustee may call a meeting creditors representing ¼ of the
tendering payment of and must do so if required value of all claims proved
expenses to be incurred in by a creditor who has
connection with meeting proved a claim against
estate

Convener The Master The Trustee The Trustee The Trustee The Trustee
Notice In Gazette not less In Gazette and 1 or more
than 10 days prior newspapers circulating in the In Gazette In Gazette In Gazette and 1 or more
to meeting district in which the insolvent newspapers circulating in the
resides or has principal place of district in which the insolvent
business. resides or has principal place
of business and must state
matters to be dealt with

Purpose To enable creditors To enable creditors to prove Giving trustee instructions

to prove claims and claims, receive trustee’s report To enable creditors to prove Interrogating the insolvent concerning administration of
elect a trustee on affairs and condition of claims. estate, also for considering an
estate and to give trustee offer of
directions on administration of composition
estate
General provisions
relating to meetings
Date and venue of meetings
• M determines first meeting, trustee the rest. Every meeting must be held at a
place which is accessible to the public, such as the M’s office.
Presiding officer at meetings
• In a district where there is a M’s Office, M (or officer in public service designated
by him) must preside over the meeting. In another district, meeting must be held
in accordance with directions by M, or by the magistrate of the district (or officer
in public service designated by him).
Record of proceedings
• The presiding officer (PO) must keep a record of the proceedings
at every meeting, certify it at conclusion and transmit it to the M.
The minutes constitute prima facie proof.

Statement privileged
• The publication of any statement at a meeting is privileged to
same extent as the publication of a statement made in a court of
law.
Proof of claims
• Creditor (C) cannot share in any distribution
of assets, challenge trustees' actions etc.
UNLESS he has proved his claim against the
estate
• PROOF OF CLAIM = locus standi & prima facie
proof of the existing debt.
• When? In general- any time before final
distribution of estate
• HOWEVER: (s44(1)) if claim is brought 3
months after closure of 2nd meeting
• C must obtain leave from M/ court
• Pay costs arising due to late proof.
• See Cools v The Master & others 1998 p139.
Procedure for proof
of claims
• Documents which must be lodged - affidavit
• Time and place for lodging documents -Affidavit & supporting docs,
delivered to PO not less than 24 hours before the meeting.
• Discretion of PO to accept late documents.
• Examination of claim documents - creditors, trustee & insolvent may all
inspect the claim documents
• CR attendance not necessary but advised
• CR may be subject to interrogation re claim
• PO (provisionally?) accept/reject claims
• T can still examine and dispute claims to M
Voting by creditors
C give direction to the T regarding the administration of the estate
by means of resolutions voted on and passed by them at meetings.
• C who prove claims may vote (in person/agent)
• C may vote on all matters relating to the administration of the
estate , but not on matters relating to distribution of assets
except for limited circumstances (e.g. directing the trustee to
dispute a claim)
• C MAY NOT VOTE: Cession or contesting own claim
• Determination of vote: See slides - S 52 and 54
• Disqualified from voting? T, T’s spouse etc
Resolutions of
creditors
• All resolutions must be recorded in minutes of
meeting s 53
• Resolutions are binding on trustee
• He is not bound by any other direction of C
• Resolutions are also binding on creditors

Setting aside creditors resolutions s 53 (4)

Court can set aside resolution take irregularly/
not bona fide /infringes the rights of a creditor
Interrogation of insolvent and witnesses:

• Who can interrogate? T, PO, Any CR with proved claim, or agents.

• Who may be interrogated? S64(2)PO can summon insolvent/ any other person to appear : On reasonable grounds :
those who have property belonging to the insolvent, debtors; have material information on estate/spouse.
• Where? At any meeting properly convened for an interrogation (Marques & another v De Villers 1990)
• What subjects?
• Matters relating to insolvent/his business affairs/sequestration of the estate/property belonging to the estate
• Business, affairs or property of the solvent spouse (Harksen v Lane 1998: interrogation is permitted. No
constitutional rights were violated)
• What is the procedure? PO - call witness & administer oath, civil court evidence, fair & just, stop abuse
• Privilege? May not refuse to answer because it will incriminate: iow evidence given during interrogation is
admissible in proceedings against the interrogated. Bankers must produce all records drawn by insolvent/spouse
within 1 year of sequestration.
Consequences of refusing to submit
to an interrogation?
• Section 66 (1) - PO may issue a warrant authorizing
police to apprehend him and bring him before the PO.
• UNLESS, they have a reasonable excuse for remaining
absent.
• Section 66 (2) Where person appears but refuses to
produce documents or answer question fully, the PO
may have them detained in prison until they are willing
to “do so” (cooperate)
• Niewhoudt v Faught NO en ander 1987 (p196)
 ADMINISTRATION
OF THE ESTATE:
SECURED,
Study Unit PREFERENT AND
CONCURRENT
CREDITORS
10 REALISATION OF
SECURITIES
Ranking See
pages 220-228
 TYPES OF CREDITORS
CONCURRENT SECURED CREDITORS PREFERENT CREDITORS
CREDITORS

They don’t enjoy any Holds security for their claims in the form Section 2 defines ‘preference’, in relation to any claim against an
advantage over other of a special mortgage, landlord’s hypothec, insolvent estate, means the right to payment of that claim out of the
creditors of the insolvent; pledge or right of retention. assets of the estate in preference to other claims;
Other relevant sections: Section 96 Funeral and death-bed expenses Section
97 Costs of sequestration Section 98 Costs of execution (NB: Section 135
(71/2008): Business rescue practitioners fees & expenses) Section 98A Salaries
or wages of former employees of insolvent Section 99 Certain statutory
obligations Section 101 Income tax Section 102 Claims of holders of general
bonds and certain special bonds

They are paid out of the Entitled to be paid out of proceeds of the Not secured creditors, because their claims are not paid out of the
free residue after any property under security, payment of proceeds of a specific asset
preferent creditors have certain expenses and any secured claim
been paid; which ranks before theirs.

Concurrent creditors all A secured creditor may, when proving their Entitled to payment out of the free residue of the estate, i.e. that
rank equal and, if the free claim, choose to rely exclusively on their portion which is not subject to any security interest, and a
residue is insufficient to security and, in doing so, waives any right predetermined order of preference, as well as maximum amounts, is
meet their claims, each to participate in the free residue, but they laid down by the Act. If a claim exceeds the statutory maximum, the
receives an equal portion of are less likely to be called upon to creditor concerned has a concurrent claim for the balance.
his claim by way of a contribute towards the costs of
dividend. sequestration than one who elects to
preserve their right to share in free residue
 Types of security that give preference
Special mortgage
A mortgage bond hypothecating immovable property

Landlord’s legal hypothec

Landlord has a secured claim in respect of all movable assets owned by the insolvent which are covered by the hypothec,
NB!!! s85(2) - Exclusion or limitation of preference under legal hypothec

Pledge
Delivery of movable property to a creditor on the understanding that it will be retained until the claim is satisfied

Right of retention
A party has a right of retention (or lien) over specific property belonging to another if he has expended labour or incurred
expenses in respect of the property and there are two types: Enrichment lien and Debtor and creditor lien

Installment agreement hypothec

Movable property has been delivered to a debtor under an instalment agreement, the seller acquires, on sequestration, a
hypothec over the property which secures his claim for the balance outstanding under the contract (s 84(1))
RANKING OF CLAIMS - The Act lays down the order

Encumbered assets - are applied to pay the claim secured by that asset
i) Initial costs to which securities are subject (s 89)
ii) Secured claims - Section 95 Application of proceeds of securities
Secured claims rank among themselves in the following order:
• Immovable property
• Enrichment lien;
• Special mortgage bond(s) and contract recorded in terms of the ALA in the order in which they were
registered or recorded;
• Debtor and creditor lien.
• Movable property
• Enrichment lien;
• Pledge;
• Special notarial bonds in the order in which they were registered;
• Debtor and creditor lien;
• Instalment agreement hypothec;
• Landlord’s hypothec.
• Interest due on a claim for a period not exceeding 2 years immediately preceding the date of sequestration is secured
as if it were part of the capital sum. Interest from date of sequestration to date of payment is also secured.
RANKING OF CLAIMS

• Act lays down the order in which claims against insolvent estate must be paid(s 89,
95-104).
• The estate consists of proceeds of both encumbered and unencumbered assets. The
proceeds of each encumbered asset are applied to pay the claim(s) secured by that
asset.
• Any balance remaining after payment of secured creditors is combined with proceeds
of unencumbered assets to pay the remaining creditors.
• The free residue is then used first to satisfy the preferent creditors in full (in their
order of preference) and thereafter to pay the claims of the concurrent creditors.
 i) Funeral expenses
Unencumber ii) Death-bed expenses
ed assets Iii) Costs of sequestration
(free
iv) Special preferences under the Companies Act
residue) 71/2008 when liquidation prior to business rescue (BR)
listed in v) Costs of execution
order of vi) Salary or remuneration of employees
preference vii) Statutory obligations
viii) Income tax
ix) Claim secured by general and special bond over
movable property registered before 7 May 1993
x) Claims of concurrent creditors s 103(1)(a)-
Remember all claims that were not completely paid by
security/preference can fall into a concurrent claim
 The Trustee:
REALISATI • must realise the assets for benefit of the creditors
ON OF • must dispose of estate assets for value
ASSETS • may not realize certain assets: Wearing apparel &
bedding, Household furniture & tools, Essential
OF THE means of subsistence. Insolvent debtor may waive
ESTATE this right. Master may determine that only a
portion may be retained by insolvent for his own
use
• must realise assets in the manner directed by the
creditors. If the creditors have not given directions
by the close of the second meeting, the trustee
must sell the property by public auction or public
tender. Publish an accurate notice in the GG see S
82.
Sale in
contravention of Act
• A sale in contravention of s 82 is nevertheless VALID
if the buyer is in good faith when he enters the
contract.
• HOWEVER, T is liable for twice the amount of any
loss suffered as a result of his wrongful action
S 82(8).
• Good faith here means the buyer must have no
knowledge that the trustee is exceeding his
authority
Purchase of assets by trustee

• T may NOT acquire estate property for himself UNLESS the acquisition is
confirmed by the court.
• The same prohibition applies to an auctioneer employed to sell the property in
question, and to the spouse, partner, employer, or agent of either the trustee
or the auctioneer.
• Estate Jamodien v Registrar of Deeds 1933 CPD 348: in the absence of
confirmation by the court the acquisition CANNOT be confirmed.
Sale of assets before
second meeting

• General rule: T must wait for direction from C

• Exception: If T is satisfied that certain property should be sold before the 2nd meeting
of creditors , he makes a recommendation in writing to M that certain property
should be sold, stating his reasons.
• M may authorize the sale and give direction as to how the property should be sold.
• If the property is subject to a right of preference M cannot authorise the sale without
the consent of the preferred creditor/ the T guarantees person concerned against any
losses suffered due to the sale.
IURI 322 - Law of Insolvency

Study Unit 11
Composition and Rehabilitation

Chapter 18 & 19
There are two forms of compromise:

Common-law compromise:
• Before/After a provisional order of sequestration has been granted, an insolvent may
enter into a written agreement with his creditors and the provisional trustee to pay
certain dividends on the creditors’ claims, on condition that he is released from his
debts and any provisional order of sequestration is discharged.
• Based on a contract and requires approval of all creditors.

Statutory composition:
• After first meeting, insolvent may submit a written offer of composition to trustee
(s119(1))
• When it is sent to creditors, a general meeting to consider the offer must
simultaneously be convened
• A section 119 composition is a statutory mechanism under which the decision of the
majority of the creditors binds the dissenting minority.
Requirements/restrictions imposed
by Act:
• Generally, an offer may contain any terms the insolvent wishes, including
terms to the effect that he should immediately be reinvested with his assets
and that he should be released from further liability in respect of his debts.
• Where an offer of composition provides for the giving of security, the nature
of the security should be specified fully: who, type, extent? (Non-compliance
does not result in void offer)
• An offer of composition may not be accepted if it contains a condition
entitling one creditor to obtain a benefit (against another creditor) that they
would not have ordinarily been entitled to upon the distribution of the
estate
• A condition which makes an offer of composition subject to the
rehabilitation of the insolvent is of no effect. (Separate applications –
rehabilitation at court’s discretion)
Difference between common law
and statutory composition
DIFFERENCE COMMON LAW COMPROMISE STATUTORY COMPOSITION
DIFFERENCE COMMON LAW COMPROMISE STATUTORY COMPROMISE
LEGAL BASIS Law of contract Statutory
LEGAL BASIS
ACCEPTANCE Written consent of all creditors Majority of creditors bind the
minority
ACCEPTANCE
WHEN Before/After a provisional After final sequestration order
order of sequestration has has been granted
WHEN been granted

EFFECT The sequestration order IS The sequestration order is NOT

discharged – released from his discharged – debtor remains an
EFFECT debts w/o sequestration unrehabilitated insolvent
What constitutes a valid acceptance of the
offer?
Acceptance of section 119 composition
• To give rise to a binding composition, the offer must be
accepted by the creditors whose votes amount to not less
than ¾ in value and ¾ in number of the votes of all proved
creditors, and
• Payment in terms of the composition must have been made
or security for the payment is given
• Zulman & others v Schultz
• Master to provide a certificate to the insolvent that the offer
has been accepted
• Once accepted the Trustee must frame accounts,
administer composition and report to creditors
Are the Restoration of property to insolvent
assets of • Re-vesting takes place by operation of law if
insolvent it is a term of the composition (s 120(2).
Restoration of property to solvent spouse
returned
• Property of the solvent spouse which vested
after in the trustee must be restored (s 122). A
acceptanc composition isn’t binding on creditors of
solvent spouse.
e?
 Illegal inducement to accept composition

Section 141:
• It is a criminal offence for a person to accept a benefit as consideration
for agreeing to, or for not opposing, a composition. An undertaking to
grant a benefit to a person to induce him to accept an offer of
composition is void.
• The person accepting the benefit is liable to pay a penalty to the estate
equal to the sum of:
o the amount of the claim (if any) which he proved against the estate;
o the amount or value of the benefit; and
o the amount paid or to be paid to him under the composition (s 130)
 REHABILITATION
Section 124
Rehabilitation enables insolvent to make a new beginning and
discharges him from all disabilities that flowed from the sequestration
 Rehabilitation
• The court has complete discretion – insolvent has no right to be rehabilitated.
• Automatic rehabilitation AFTER 10 years (S 127A)
• Rehabilitation by the court BEFORE expiration of the 10-year period
Circumstances in which rehabilitation may be sought:
i) Composition of not less than 50 cents in the Rand (s124(1))
• immediately, certificate from Master: creditors accepted an offer of
composition; and payment was made, or security was given for payment of not
less than 50 cents in rand for every concurrent claim proved.
ii) Lapse of prescribed period after confirmation of first account (s124(2))
• After 12 months have elapsed from confirmation by Master of the first account
in the estate, unless the estate has been (1) sequestrated before (3 years from
1st acc) OR the insolvent was (2) convicted of a fraudulent act (5 years from
conviction).
Proviso: This section does not allow for rehabilitation within 4 years from the
date of sequestration, unless the Master has recommended rehabilitation.
iii) No claims proved after 6 months (s124(3))
iv) Full payment of all proved claims (s124(5))
Application for rehabilitation
(i) Form and content of application: (see pg 250)
• Notice of motion + Affidavit setting out the following Sequestration details
Which section you are relying on? Relevant information must be included.
• Composition: Particulars of the composition, stating whether there are creditors claims which have not
been proved + Master’s certificate.
• Lapse of time: Affidavit must show that the insolvent is not barred from applying by s124(2) NB! [See pg
213, lapse of time]– sequestrated before? Convicted of fraud?
• No claim proved: No claim proved? sequestrated before? Convicted of fraud?
• Payment in full: The affidavit must state that the Master has confirmed a plan of distribution providing
for payment as required by s 124(5)
• Any details which might influence the court in making its decision
(ii) Masters report:
• The rehabilitation application must also include the Masters report
(iii) Opposition to the application:
• S127(1): The Master, a trustee, a creditor or any other person interested in the estate may oppose the
granting of a rehabilitation application
• Opposing affidavits must be filed with the Registrar and served on the applicant (who can then respond in a
replying affidavit)
The courts discretion

The rehabilitation of an insolvent is a matter which

lies solely within court’s discretion.
The court may:
i) Postpone
ii) Grant subject to conditions
iii) Refuse
iv) Grant the rehabilitation without any
conditions
Effects of rehabilitation

• Puts an end to sequestration

• Relieves insolvent of every disability resulting from sequestration (Capacity)
• Discharges all debts which were due, or which arose before sequestration
It does not reinvest insolvent with his former estate, except where:
• a composition provides that the estate will reinvest in insolvent; and
• the basis of rehabilitation was that no claims were proved within 6 months of the
sequestration.
Property which was vested in the trustee before rehabilitation which has not been distributed to
creditors remains vested in the trustee for purposes of realization and distribution (s25(1)).
 Effects of rehabilitation
Declaratory orders
• On rehabilitation the assets in the insolvent estate do not pass to the insolvent again
• Except where there is no claim by T or CR’s to an asset of the insolvent
• On application for rehabilitation the insolvent can apply for a declaratory order, that he is entitled
to the asset (Ex parte Parker 1946 CPD 536; Ex parte Kriel 1949 (1) SA 971 (O) 975; Ex parte
Van der Merwe 2008 (6) SA 451 (W) 461-2)
• The court may grant the order on the basis that the trustee and creditors, by making no claim in
respect of the asset, have waived whatever rights they might have had to it. (Ex parte Olivier
1948 (2) SA 545 (C) 554)
Requirements:
• publish notice of his intention to apply in the Government Gazette
• serve a copy of the notice on the Master, the trustee, and all creditors (or efforts made to give notice)
• show that the trustee and creditors have full knowledge of the facts and he must give full information
to establish that the property was acquired adversely to the trustee
PROBLEM
SOLVING
Study Unit 11
 • Don Down wants to apply for his rehabilitation because his estate
has been under sequestration for the past four years. Something
like this has never happened to him before and even while he still
was in a bad financial position and thereafter, while his estate was
under sequestration, he always acted honestly and never behaved
fraudulently. However, the concurrent creditors in his estate,
Ronnie and Timmy, received only 9 cents in the rand of their

Practice respective claims. With regard to Ronnie’s claim there is a deficit

of R12 400 and with regard to Timmy’s claim R16 700. Two years
after the confirmation of the final distribution account, Down

Question inherited R7 000 from his grandfather. While his estate was
under sequestration he was still employed as a tutor at the
University. From his salary he tried to save R450 each month and

1
now has an amount of R6 500 in his savings account and bought a
small car for himself with the balance. During the whole time his
estate was under sequestration the trustee never laid claim to his
only Van Gogh painting.
1.1 How will you advise Don Down to get the best from the
circumstances by way of an application for rehabilitation?
1.2 How will you advise Timmy in these circumstances?
 • He must apply for rehabilitation:
• Court has sole discretion, therefore place sufficient
facts before court;
• Like no previous sequestration, no offence, etc;
Answer • Simultaneously apply for declaratory order;

1.1 • regarding inheritance, car and painting; courts

discretion
• Ex Parter Matthee 1975
• Ex parte roos 1955
• Ex Parte Goshalia.
 • Court has discretion: may refuse, postpone,
condition, unconditional:
• T should oppose granting of application;
• Try for refusal or conditional rehabilitation;

Answer
• Why? See Hockly p 64 and the case of Vorster v
Steyn NO mentioned there;

1.2
• And S’s ability to pay increased dividend;
• Put sufficient facts before the court;
• With regard to given facts, consult Hockly pp 198-
200 especially par (ii);
• Apply.
Practice
Question 2
• By using examples, explain in
your own words the different
groups of creditors in an insolvent
estate provided for by the
Insolvency Act, and the legal
position of each.
Question 2 Answer
• Grouping of creditors • Preferent creditors
• Do not hold an asset as security
• Secured creditors
• But are paid out first from the free residue
• Preferent creditors
• Act gives them preference ss 96-102
• Concurrent creditors
• Eg sequestration costs, sheriff, employees, statutory
• Secured creditors obligations, sheriff, receiver of revenue, etc
• Concurrent creditors
• They enjoy very first preference
• Lowest in rank
• Because they hold a certain asset as security
• Are paid out of free surplus, but only after preferent
• Are paid out of the proceeds of those assets creditors are paid

• E.g. special mortgage, pledge, retention right, • Share pro rata in what is left in the free residue
hypothec s 84, hypothec lessor, etc. • Often only receive a dividend
 Practice Question 3

• A's estate was sequestrated on 20 MARCH 2015. On 25 June 2015 he inherits an

amount of R100 000 from his mother. A has never been convicted of any offense;
his estate has never been sequestrated before and no claims have been proved
against his estate. Critically discuss his chances to apply for rehabilitation and
explain in detail what the position is with regard to the inheritance.
 Question 3 Answer
• All inheritance money received after the sequestration and before rehabilitation
form part of the surrendered estate.
• No creditors prove their claims within 6 months. Sequestration is discharged,
immediate rehabilitation.
 Practice Question 4

4.1 Must I repay my debts before I can apply for rehabilitation?

4.2 When I am rehabilitated, am I reinvested with my former
estate?
 Answers Question 4

4.1 No, when you are sequestrated the yield of the sale of the
assets amongst creditors in accordance with the
Insolvency Law Act 24 of 1936. None of your old creditors can
force you to pay back the “old” debts.

4.2 No, except in two cases if any of your estate remains:

Where a composition provides that the estate will reinvest in
the insolvent; and
Where the reason for the rehabilitation is the fact that no
claims were lodged within the six months of sequestration.
IURI 322 - Law of Insolvency

Study Unit 12

Winding-up of companies & close corporations

 Winding-up of companies

Jurisdiction: Provincial or Local Division of the HC having jurisdiction over the area in which See SU 12 Notes
from Ms. Mahlangu.
the company has its registered office or main place of business.
Modes of winding-up

Winding-up by the court (compulsory winding-up) - initiated by an application

to court; or

Voluntary winding-up may be either a creditors’ or a members’ (ie.

shareholders) voluntary winding-up and both are initiated by a special
resolution of members.

On application by a creditor, member or Master, court may convert a voluntary

winding-up into a compulsory one and confirm any steps already taken in the
voluntary winding-up.
When can a company be wound up by a court ?
Section 344 of CA 1973 (insolvent) and section 81(1) of CA 2008 sets out the various grounds on which a company may be wound up.
i. Special resolution (in/solvent) (s 344(a)& 81(1)(a)(i)) - It must be registered with the Registrar within 6 months after it was adopted. If this
isn’t done, resolution lapses and may no longer serve as a ground for winding-up
ii. Failure to commence or continue with business - (insolvent) 1 year. (s 344(c))
iii. Loss of capital – 75% of issued share capital lost or become useless for its business - (insolvent) (s 344(e))
iv. Inability to pay debts - ((s 344(f) refers to s 345)
Court may wind up a company if it’s unable to pay its debts as described in Section 345 of CA, which determines that a
company is deemed unable to pay its debts in the following cases:
i. A creditor, to whom at least R 100.00 is due, has left a demand for payment which has been neglected for 3 weeks;
ii. A warrant of execution issued on a judgment against company has been returned by sheriff with endorsement that he couldn’t find
disposable property sufficient to satisfy judgment or that the property he found didn’t, upon sale, satisfy the process;
iii. It is proved to the satisfaction of court that the company is unable to pay its debts.
v. Dissolution of external company - (s 344(g)) dissolved in country in which it was incorporated, or has ceased to carry on
business, or is carrying on business only for purpose of winding up its affairs. It may be liquidated as if it were an independent
entity, even if the foreign company to which it is ‘related’ isn’t liquidated or dissolved.
vi. Just and equitable - s 344(h) & s 81(1)(c)&(d) not regarded as some limitless ground for winding up a company and court only
resorted thereto in specific cases as they are reluctant to extend its application. The following instances have been held as just
and equitable by the court:
• Where main object for which company was formed isn’t possible of being attained.
• Where company’s objects are illegal.
• Where there is a justifiable lack of confidence in the conduct and management of the company’s affairs.
• Where a voting power deadlock cannot be resolved except by winding-up.
• NB: Not all grounds are dealt with here – Please see the relevant sections for a complete understanding - See page 286 -287 for further grounds…
Who can apply when the
company is insolvent?
• The company
• One or more creditors
• One of more members
• Any or all of the above parties
• The Master
• A provisional/ final judicial manager
Parties who may apply for
winding-up of a solvent
company
S 81(1) of CA 2008:
Varies according to the basis of the application:
1. Special resolution - The company itself
2. Just and equitable – the company, one or more directors/shareholder/creditors
3. Conversion voluntary winding up to winding up by court – the company
4. No reasonable prospect of business rescue success – the appointed
practitioner of the business rescue process.
5. Termination of business rescue proceedings - one or more creditors
6. Deadlock in voting - the company, one or more directors/shareholders
7. Fraud illegality or misapplication of co. assets – any shareholder with leave of
the court
8. Failure to comply with compliance notice - the CIPC or Take over regulation
Panel
Steps prior to application
Section 346 (3) to (4A) of CA 1973
•Security for costs - Party applying give security
•Master’s report S 346(4) – application must be presented for report
•Notification of certain interested parties S 346(4A) (a)(i)-(iv)
• When presenting application to court, applicant must also
furnish a copy of it to the following:
• registered trade union representing the company’s
employees;
• The employees themselves;
• SARS; and
• The company, unless application was made by the
company
 Powers of court
Section 347 of CA 1973
Court may grant or dismiss any
Dismissal of application :
application for winding-up.
• Initially: provisional winding-up • Application amounts to abuse of the
order and issues a rule nisi. winding-up procedure.
• Court’s power to grant application • Some other remedy is available, and
for winding-up is discretionary they act unreasonably in seeking to
• Discretion is limited where creditor have company wound up instead of
has proved that company is unable pursuing the remedy e.g. BR
to pay its debts
• Court does not require advantage of
company’s creditors
Voluntary winding-up

A company may be wound up voluntarily if it has adopted a

special resolution to that effect and that resolution has been
registered by the Registrar of the Companies Commission (S 349,
s 200, s 350(1) & s 351(1).
• Members’ voluntary winding-up (s 3501(1): can take place
only if company is able to pay its debts in full.
• Creditors’ voluntary winding-up (s79, s 343 & 351): May be
resorted to where the company is unable to pay its debts and
because an application to court is avoided, voluntary winding-
up may bring about a saving of costs.
• Master may intervene and convert the voluntary winding-up
into a winding-up by the court.
Commencement of
winding-up
• A winding-up by the court of an insolvent company is deemed to commence at the
time of the presentation to court of the application for winding-up. (s348 CA 1973)
• A winding-up by the court of a solvent company begins when the final order is made.
(s81 (4)(b) CA 2008)
• A voluntary winding-up commences when the relevant special resolution of members
is registered with the Companies Commission (s 200).
• Determining the precise time of commencement is important because various
consequences of winding-up come into effect when the winding-up commences, as
opposed to when the court makes a provisional or final winding-up order.
Effects of commencement of winding-up
• Concursus creditorum established
• Directors divested of powers and control - functus officio (no longer in office)
• Company doesn’t lose its corporate identity, nor does it lose its assets unless so
ordered.
• Company’s property is deemed to be in custody and under control of the Master
until a provisional liquidator has been appointed.
• Company may not continue with its business except in so far as may be necessary
for its beneficial winding-up.
• Any transfer of shares without the liquidator’s permission is void
• If company is unable to pay debts, every disposition of its property not sanctioned
by court is void
• Stay of proceedings
• Once a winding-up order is made or special resolution for voluntary winding-
up is registered, all civil proceedings by or against company are suspended
until appointment of liquidator.
• Any attachment or execution put in force against the assets is void.
• After appointment of liquidator, civil proceedings may continue or
commence, including execution proceedings put in force before
commencement of the order.
• Notice of winding-up - GG, Registrar, Sheriffs, TU, SARS, EE, Co.
The liquidator
Appointment of liquidator (ss 368-
371)
• Master may appoint any suitable person as the provisional
liquidator: give security to the satisfaction of the Master
for the proper performance of his duties (s 368).
• Any suitable natural person may be appointed by the
Master
• In the case of members’ voluntary winding-up, the person
nominated in resolution;
• In the case of creditors’ voluntary winding-up and a
winding-up by the court, the person(s) nominated by first
meeting of creditors and initial meeting of members.
• Master may decline if not properly nominated,
disqualified , failed to give security timeously
• Master may, at any time, appoint a co-liquidator.
• Master’s refusal or appointment: Any aggrieved person
may request reasons to be sent to the Minister,
• Minister may confirm or set aside the decision
Persons disqualified from being liquidator
• Section 372 (a) – (j) of CA 1973:
• An insolvent;
• A minor or any other person under legal disability;
• A person declared to be incapable of being appointed as a liquidator for dishonesty or abuse of his
position;
• A person who has been removed from an office of trust by court or who has been disqualified from
being a director;
• A body corporate;
• A person who has been convicted of theft, fraud, forgery, uttering a forged instrument or perjury
and has been sentenced to imprisonment without the option of a fine or a fine exceeding R 20.00
• A person who, by misrepresentation or reward, induced or attempted to induce any person to vote
or to nominate him;
• A person not residing in South Africa;
• A person who has acted as director, officer or auditor of company within 12 months before winding-
up;
• An agent authorised to vote for or on behalf of a creditor at a meeting who acts or purports to act
under such authority.
Removal of liquidator from
office??

• The liquidator may be removed from office by the Master if:

• he isn't qualified, or has become disqualified
• he has not performed his duties satisfactorily;
• if his estate has become insolvent or he has
become mentally or physically incapable;
• the majority in number and value of creditors or
members, has requested the Master in writing;
• if the Master is of the opinion that the liquidator
is no longer suitable;
• If Master doesn’t remove, court may, but only if it’s satisfied
that removal of the liquidator will be to the general
advantage and benefit of all interested in the winding-up
 Roles and responsibilities of a Liquidator

• The liquidator must take possession of all the movable and immovable property of the company
• The Liquidator must realise property in the prescribed manner, and apply the proceeds towards
payment of the costs of the winding-up and the claims of creditors, and to distribute any balance
among the members (s 391)
• The liquidator must fulfil the mandate received from a particular creditor and/or that which arises
from the agreement concluded on the company’s behalf which yields a statutory duty
(Commissioner, South African Revenue Service v Stand Two Nine Nought Wynberg (Pty) Ltd &
others 2005 (5) SA 583 (SCA) 587)
• The liquidator must, when administering the assets of the company, have regard to any
directions given by resolution of the creditors or members
• The Liquidator must be seen to be detached, independent, impartial, and even handed in his
dealings with the parties interested in the winding-up
Exercise of powers for which no
permission is required by the liquidator
A liquidator may:
• execute in the name of the company any deed, receipt or other document, using the company’s
seal
• prove a claim in the estate of any debtor of the company and receive payment of any dividend
• draw, accept, make and endorse any bill of exchange or promissory note on behalf of the company

• summon a general meeting of the company, or of creditors, in order to obtain authority in regard to
any matter he considers necessary.

The liquidator also has automatic authority, subject to certain limitations, to take such measures for
the protection and better administration of the affairs and property of the company as the trustee of an
insolvent estate may take in the ordinary course of his duties and without the authority of a resolution
of creditors
Powers of the Liquidator to investigate the
personal liability of members
• The liquidator has a duty to ensure that members of the corporation are liable to
make repayments or whether there is a need to seeks the direction of the Master
regarding repayments

• The liquidator must take steps to enforce the repayments

• The liquidator must establish whether any member, former member, or other
person is, severally liable with the corporation for one or more of its debts

• If the liquidator finds that there is personal liability to a creditor who has proved
his claim, he must inform the creditor concerned and, if the latter recovers any
amount directly from the person concerned, the liquidator must take this into
account when determining the dividend payable to the creditor
Impeachable transactions
In terms of Section 340(1) of CA 1973:
• Every disposition by a company of its property which, if made by an
individual, could, for any reason, be set aside in the event of his
insolvency, may, if made by a company, be set aside in the event of
the company being wound up and unable to pay all its debts, and the
provisions of the law of insolvency apply, mutatis mutandis, to the
disposition.

• Dissolution and Deregistration of a company: Section 82 and 83 of

CA 2008 / Read pages 310-311
Staying or setting aside of winding-up
proceedings
• A court may stay or set aside of winding-up proceedings on application by a liquidator, creditor or member (s354(1))
• This order may be made either on the basis that the winding-up order ought not to have been granted at all, or
because supervening events render a stay or setting aside necessary or desirable. (Ward & another v Smit & others:
In re Gurr v Zambia Airways Corporation Ltd (supra) 180, overruling Storti v Nugent & others 2001 (3) SA 783 (W);
Klass v Contract Interiors CC (in Liquidation) & others 2010 (5) SA 40 (D)).
• Applicant bear ordinary civil onus, on a balance of probabilities (Ex parte Strip Mining (Pty) Ltd: In re Natal Coal
Exploration Co (in Liquidation) (Kangra Group (Pty) Ltd & another intervening) 1999 (1) SA 1086 (SCA)).
• The court may have regard to the wishes of the creditors or members if proved to it by sufficient evidence.
• For evidence to be ‘sufficient’ for these purposes, it should indicate that the creditors have applied their minds to the
matter, and it should provide the factual basis on which they have formed their view (Porterstraat 69 Eiendomme (Pty)
Ltd v PA Venter Worcester (Pty) Ltd 2000 (4) SA 598 (C) 613)
• The evidence must show knowledge of the company’s financial woes and why a postponement would be
advantageous for creditors.

• The court may also intervene in a voluntary winding-up and give directions on how that winding-up must be continued
(s 354(1)).
Winding-up of a
close corporation

• S 66(1) Close Corporations

Act 69 of 1984: must be
administered in accordance
with chapter 14 of 1973
Companies Act (unless
covered in the CCA)
• S 66 (2) Words and phrases
as required by the context
Voluntary Winding up
• A close corporation may be voluntarily wound up through the unanimous written/special
resolution of its members.

Winding up by court
• Jurisdiction: High Court and Magistrates court + Cooperations registered office/place of business
• Grounds mirror those of in/solvent companies
1. Resolution of members
2. Failure to commence or continue with business
3. Inability to pay debts
4. Just and Equitable
Gatenby v Gatenby and Others 1996 3 SA 118 (E)
Appointment of a liquidator
Section 74 of the Close Corporations Act:
• Master must appoint a suitable liquidator.
• The Master: must consider any nominations from the members, can refuse to appoint – must submit
reasons, may appoint a co-liquidator
NB!! No provision is made for the appointment of a provisional liquidator for a close corporation. (Section 368
of the Companies Act-appointment of a provisional liquidator.)

General roles and responsibilities

• Meetings – creditors and members
• Liquidator – report to creditors and members
• Members can be called upon to return money received/owed from the CC prior to liquidation
• Liquidator must investigate personal liability of members (reckless/fraudulent actions)
• Misapplication of money or property – remedy available against former member/officer/accounting officer
NB!!!
o That a close corporation cannot be put under judicial management and
cannot conclude a statutory compromise akin to that by a company under
section 311 of the Companies Act.
o A close corporation may, however, enter into a common-law composition.
If it does, the procedure under the Insolvency Act must be followed.
o It is also important to remember that the principles regarding the setting
aside of dispositions are also applicable to the winding-up of companies
and close corporations that cannot pay their debts.
YOU CAN DO
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