All posts by IARecove


If you wait to do your will another day, it may end up being too late. If that happens, your loved ones could be the ones waiting to settle your estate, which may not end well for them.

If you plan your estate, your family would not have to wait around for answers if you die.

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For newlyweds, one of the most important tasks to attend to is estate planning. The estate planning will depend on what the couple wants and what form of marriage they are in. It is therefore important to keep the following in mind when planning the years ahead together.

 Marriage in community of property

There is a joint estate, with each spouse having a 50 percent share in each and every asset in the estate (no matter in whose name it is registered);

  1. In the event of the death of one spouse, the surviving spouse will have a claim for 50 percent of the value of the combined estate. The estate is divided after all the debts have been settled in a deceased estate.
  2. When drafting a Last Will and Testament, spouses married in community of property need to be aware that it is only half of any asset that he or she is able to bequeath.
  3. Upon the death of one spouse, all banking accounts are frozen (even if they are in the name of one of the spouses), which could affect liquidity.

Marriage out of community of property without the accrual system

Each estate planner (spouse) retains possession of assets owned prior to the marriage. Each spouse’s estate is completely separated, even in the event of death. If you want your spouse to inherit something, you would need to outline this in your Will.

Marriage out of community of property with the accrual system

This is identical to a “marriage out of community of property” but the accrual system will be applicable. The accrual system is a formula that is used to calculate how much the larger estate must pay the smaller estate once the marriage comes to an end through death or divorce.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. (E&OE)


The recent judgment in Booysen v Jonkheer Boerewynmakery (Pty) Limited and Another[1]  reminded us again that we would appear to have lost sight of the fact that business rescue was always intended to be a mechanism whereby companies experiencing financial distress should be afforded breathing space in order to restructure its affairs. The intention of the legislature was to ensure that businesses be rescued and being saved from liquidation as opposed to merely been liquidated by every dissatisfied and the recalcitrant creditor. The ability to stay legal proceedings against the entity while exploring restructuring options is vital for a successful business rescue regime.

The aim with the business recue provisions in Chapter 6 of the Companies Act 71 of 2008 (‘the Companies Act’) was surely that business rescue could only be achieved under circumstances where there is “peace and quiet” and circumstances under which the business rescue practitioner could go about this tasks unhindered and pursue the possibilities of restructuring the affairs of the company and finding common ground with creditors in order to arrive at a business rescue plan that balances the rights of all affected persons.

Section 133 of the Companies Act was in my view drafted to provide for a general moratorium on legal proceedings by creditors or other parties against the company under business rescue. It would however appear to have become common practice that unhappy creditors willy-nilly launch liquidation or legal proceedings against companies under business rescue without seeking the written consent of the practitioner and merely proceeds to request the court to grant it leaves to pursue with legal action.

This has not been without legal challenges, and in this regard the courts initially had differing views as to what ‘legal proceedings’ are[2] in certain instances and whether ‘arbitration’ or labour law issues are included. The matter was settled in the SCA[3] where it was held that on the basis that the phrase ‘legal proceeding’ may, depending on the context within which it is used, be interpreted restrictively, to mean court proceedings, or more broadly, to include proceedings before other tribunals, including arbitral tribunals.[4]

The SCA[5] also thereafter that where a right to cancel an agreement had accrued prior to the commencement of proceedings that the subsequent cancellation is not ‘enforcement action’.

The SCA also held that if cancellation is ‘enforcement action’, such steps would change the basic principles of the Law of Contracts, which provides for a unilateral act of cancellation in the case of a breach of contract.

It was held that the moratorium did not apply to proceedings for the ejectment of a company in business rescue from a premises where the lease regulating rights of occupation had been validly cancelled and the company had failed to vacate and was thus not in lawful possession of the property[6].

The Act provides that during business rescue proceedings no legal proceedings (including enforcement action) against a company may be “commenced or proceeded with” in any forum, except with the written consent of the business rescue practitioner[7] or with the leave of the court, in accordance with such terms as the court may deem “suitable”.[8]

This provision in the Act was the subject matter of conflicting decisions in certain judgments to date and which judgements were thoroughly analysed in the abovementioned Jonkheer judgment.[9] In Jonkheer, the court referred to the various conflicting judgments on the issue and the opposite views which have been expressed as to whether the provisions of the Act require a separate prior application[10] to be made for leave to commence or proceed with legal proceedings, or whether such leave may be sought in one and the same matter.[11]

In the further recent judgment of Arendse[12]  the court held that if “the legislature had intended to limit the grant of leave to ‘exceptional circumstances’[13], that test would have been expressly stated”. The court then held that it is “given wide powers not only to grant leave, but also to determine the terms on which such leave is granted”.

The Jonkheer judgment then also dealt with the vexing issue as to whether an adopted business rescue plan could be amended. I am of the opinion that, like any agreement or arrangement between parties, a business rescue plan may be amended by giving notice to the stakeholders or affected persons who initially adopted the business rescue plan.

In Jonkheer however the issue was whether there could be a unilateral amendment of business rescue plan by a practitioner.  It was contended buy the business rescue practitioner that the business rescue plan was subject to a proviso in terms of which the practitioner had reserved the right to amend that business rescue plan unilaterally, without reference to creditors

The court held that whole scheme of sections 150 and 153 of the Companies Act is that there is no room for a business rescue practitioner to reserve to himself the right to amend a business rescue plan and that this would circumvent the Companies Act in terms of which claims, which are to be discharged in terms of a rescue plan, derive their binding force.

I agree with this judgment insofar as the prohibition of the unilateral amendment of a business rescue plan by the practitioner is concerned but remain of the view that a business rescue plan may be amended by the same parties who adopted it, namely all creditors or affected persons.

By: Hans Klopper
Independent Advisory

[1]Booysen v Jonkheer Boerewynakery (Pty) Limited and Another (10999/16) [2016] ZAWCHC 192; [2017] 1 All SA 862 (WCC) (15 December 2016)

[2]Van Zyl v. Euodia Trust [Page 478(5)] (Edms) Bpk 1983 (3) SA 394 (T) at 397 as to mean: ‘…the ordinary meaning of legal proceedings in the context of s 13 [“regsgeding” in the signed Afrikaans version] is a law suit or “hofsaak”,’ a definition accepted in Lister Garment Corporation (Pty) Ltd v. Wallace NO 1992 (2) SA 722 (D) at 723; The test in the Van Zyl case supra was accepted in Chetty t/a Nationwide Electrical v. Hart NO and Another (12559/2012) [2014] ZAKZDHC 9 (25 March 2014).

[3] The Chetty (a quo) case, supra, was reversed on appeal in Chetty t/a Nationwide Electrical v Hart and Another NNO 2015 (6) SA 424 (SCA) .

[4]Delport PA and Vorster Q, Henochsberg on the Companies Act 71 of 2008.

[5] Cloete Murray and Another NNO v. FirstRand Bank Ltd t/a Wesbank 2015 (3) SA 438 (SCA).

[6]Kythera Court v Le Rendez-Vous Café CC 2016 (6) SA 63 (GJ)

[7]Section 133(1)(a) of the Act.

[8]Section 133(1)(b) of the Act.

[9]Booysen v Jonkheer Boerewynakery (Pty) Limited and Another (10999/16) [2016] ZAWCHC 192; [2017] 1 All SA 862 (WCC) (15 December 2016)

[10]Merchant West Working Capital Solutions (Pty) Ltd v Advanced Technologies (Pty) Ltd and Another, [2013] ZAGPJHC 109, decided on 10 May 2013; Redpath Mining SA (Pty) Ltd v Marsden NO and Others [2013] ZAGPJHC 148 decided on 14 June 2013; Msunduzi Municipality v Uphill Trading 14 (Pty) Ltd & Others [2014] ZAKZPHC 64 decided on 27 June 2014; Elias Mechanicos Building and Civil Engineering Contractors (Pty) Ltd v Stedone Developments (Pty) Ltd and Ors 2015 (4) SA 485 (KZD).

[11] Safari Thatching Lowveld CC v Misty Mountain Trading 2 (Pty) Ltd 2016 (3) SA 209 (GP).

[12] Arendse and Others v Van der Merwe and Another NNO 2016 (6) SA 56 (GJ)

[13] As was held in Redpath Mining SA (Pty) Ltd v Marsden NO and Others

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. (E&OE)


“Loan to own” is a term used in both the USA and Canada as a way to secure a position for a potential investor to ensure that its post commencement finance (“PCF”) or DIP Finance places that investor in a strong enough position to eventually take control of either the assets or the equity in the company.

In the USA “loan to own”, or “offensive” DIP lending, underwent a significant change in the late 1990s and early 2000s as new sources of funding. Distressed investment funds entered the market. There are substantial differences in the approach by commercial banks as opposed to that of distressed investment funds in the USA.

First, commercial banks will look at financing economics and the possibility of future lending opportunities. Distressed investment funds frequently focus on the opportunity to acquire the debtor’s business at a deep discount.

Second, unlike commercial banks, most distressed investment funds do not originate loans to healthy companies. Their funds rather focus on the economic advantages available by investing in distressed companies, including the high short-term fees available via DIP loans.

Third, distressed funds also seek to take advantage of various “loan-to-own” strategies that involve acquiring a dominant or, in some cases, a “fulcrum” position in the capital structure of a distressed company and converting that debt position into equity through a bankruptcy proceeding. For example, under one common approach, the fund simply buys the debt of a distressed company from its existing lenders (normally commercial banks) at a deep discount.

Four, the fund may also acquire the debtor’s equity and, with it, some amount of management control. In addition to the acquisition of discounted debt, a fund can attempt to take ownership by providing DIP finance to the company with the goal of converting the DIP finance claim into equity in the reorganized company through a reorganization plan or, more commonly, with the intention of credit-bidding the acquired debt to then acquire assets of the debtor at auction.

Then, in the USA, like in SA, commercial banks are not in the business of owning and operating their borrowers. It is therefore distressed investment funds, which more frequently employ loan-to-own post-petition financing strategies.

Lastly, in the USA DIP funders profit through fees and interest earned in the deployment of capital. As a result, commercial banks are attracted are to the DIP financing market by the high fees and interest rates and the relative likelihood of repayment typical of DIP loans.

It is also necessary to look at how a DIP financier or for that matter PCF lender, being the distressed investment fund, control the process.

First, in order to assure that it will have an opportunity to credit-bid its PCF obligations and, if applicable, its acquired pre-commencement debt, the offensive PCF lender will typically include milestones in the credit agreement requiring the BRP to undertake a sale process. By doing this the PCF lender can therefore use the PCF agreement to exert significant control over the business rescue proceedings.

Second, a PCF lender could closely examine the company’s business operations. Information obtained from both the initial diligence before the PCF facility is secured and from the reporting requirements in the PCF credit agreements will provide the lender with a head start over other potential bidders in terms of diligence.

Thirdly, although the PCF lender must contend with other potential bidders at auction, the lender should be a step ahead of those bidders.

Then, typical reporting requirements contained in the PCF loan agreement will provide the lender with access to key information regarding the debtor’s business operations. This increases the likelihood that the distressed investment fund may be selected as the “stalking horse” bidder.

Furthermore, the reorganized debtor may then be significantly de-levered because of the conversion of secured debt to equity.

This then leads one to the question as to whether there any chances of distressed investment funds being developed in SA. Because it is would appear to be clear that banks are unlikely to develop such a “products’ may be viewed differently by a specific banking group. In other words, other funders are looking at the possibilities. It is however so that, in a high profile rescue matter, the desire to maintain or strengthen the bank’s relationship with the company can be just as important as the PCF financing loan economics.

Lastly we look at the miscellaneous issues contained in DIP Finance agreements and which potential PCF lenders in South Africa may look at.

Firstly, the agreement will provide for the loan structure and amount. The structure of a DIP loan is frequently determined by the working-capital needs of the debtor and whether it will be structured as a term loan, revolving loan, or some combination of the two, the loan structure itself is likely to have little impact on the outcome of a debtor’s case. The amount of the loan and the perception of liquidity that it can provide can demonstrate an important affirmation of a debtor’s prospects of a successful reorganization.

Second, one will look at price and fees. The pricing of DIP financing agreements is largely driven by macroeconomic factors. In the aftermath of the 2008 financial crisis, commercial lending effectively halted, and the DIP financing market froze along with it. As the DIP financing market dried up, with some former participants going out of business themselves, the few remaining participants could demand extraordinary fees. Without access to reasonably priced DIP financing, many troubled companies focused on workouts and other out-of-court restructurings. As the credit crisis eased and DIP financing again became more widely available, the fees charged for post-petition financing have decreased. Nonetheless, DIP loan pricing terms continue to be favorable when compared with pre-crisis fees and interest rates.

Third, the term and maturity. Whatever the terms of the DIP loan, one of the overriding concerns of a DIP lender is always how and when the loan will be repaid. The lender’s strategy in structuring the timing elements of the loan reflect this concern. Generally, a DIP loan will have a considerably shorter term than a typical pre-petition corporate credit agreement. A DIP lender always faces the possibility that adverse events might occur that could impede the debtor’s emergence and impair the lender’s recovery. For example, many lenders found themselves in difficult positions as the economic landscape changed rapidly in 2008. In addition, most lenders have little interest in becoming embroiled in drawn-out, contentious bankruptcy proceedings.

A lender funding a restructuring therefore typically will seek to limit the period that its borrower remains in bankruptcy and impose milestones to ensure that the debtor continues to progress toward a sale or confirmation and emergence.

Debtors, on the other hand, seek to secure enough time in chapter 11 to carry out a restructuring or sale. Some commentators have expressed concern that short-term DIP loans can make it very difficult for effective reorganization.

Fourth, the security to be provided. A lender can either secure its loan with a lien on the unencumbered assets of the debtor, if any, or through a priming lien on already-encumbered assets.

Furthermore, covenants and events of default. Credit agreement covenants and events of default are lenders’ primary means to control their relationships with their borrowers. In the bankruptcy context, lenders seek to impose various covenants and events of default, among other things, to ensure that the lender receives up-to-date financial performance data. It also provides the lender with an escape route in the event that the borrower’s business falters and ensures that the debtor adheres to a restructuring or sale strategy on a timeline that is acceptable to the lender. Together, these tools can provide powerful levers for DIP lenders to exert control over the bankruptcy case. Borrowers are required to report their performance regularly with respect to financial covenants to lenders. Outside of bankruptcy, these metrics are designed as “canaries” to ensure that the lender is made aware of the borrower’s declining financial health before default becomes inevitable. Examples include debt leverage ratio covenants, fixed-charge coverage ratio covenants, maximum debt-to-equity ratio covenants, and interest-coverage ratio covenants. These metrics, which measure the health of a company in various ways, are rarely as useful in the context of a DIP financing credit agreement because, by definition, the DIP loan borrower is already in distress.

DIP financing credit agreements, therefore, frequently contain financial covenants that measure minimum performance rather than overall financial health, which can provide the lender with an early escape route-without having to wait for an actual payment default-in the event that the borrower’s business falters. Minimum EBITDA covenants are common, usually with increasing minimum levels over time.


Hans Klopper of Independent Advisory


  • Perlman F.G, Baer H.P, Kevane H, Bagby I, Corbi R.J, Farnsworth S, Krause S, Kriegel M, Lucas J.W and Maman M : “Debtor-in-Possession Financing: Funding a Chapter 11 Case” American Bankruptcy Institute
  • Salerno TJ, Kroop J.A and Hansen C : “The Executive Guide to Corporate Bankruptcy” – Second Edition (BeardBooks 2010)


I recently concluded that banks or other financial institutions are not sources for post commencement finance (“PCF”) in business rescues as is envisaged in terms of Chapter 6 of the Companies Act 71 of 2008. It also became clear that none of the South African commercial banks have thus far developed any “products” that can be described as ideal for “distressed funding”.

I suspect that commercial banks might feel that it is simply not an area where they will find a return or where there will be sufficient volumes to justify the development of such banking products. It is also understandable that conventional governance of depositors’ and shareholders’ funds will not permit distress lending.

It is must however also be understood that where a bank is exposed as a creditor in a business rescue matter that they will evaluate the matter on its own merits been made clear that the availability of and the providing of PCF is not entirely “embargoed” by banks.

We have found that the bank, as a PCF lender, would consider granting PCF when, under circumstances where the bank can be described as a “defensive pre- commencement lender” seeking to maximize the value of its pre-commencement claim. The bank may then agree to provide PCF in an amount designed to ensure a successful reorganization and which may be conditional upon them being involved in the business rescue decision making process.

At a minimum, such PCF would be expected to cover anticipated working-capital and the expenses in the business rescue process needed for the period necessary to effect operational changes or restructure the debtor’s business. In some instances, however, the nominal amount of the PCF may significantly exceed the debtor’s working-capital needs, even with the additional costs that will be incurred because of the debtor’s filing for business rescue. The effect of such a higher nominal amount of PCF may be that that the company under BR will have the benefit of increased creditor confidence and as consequence of which suppliers may be more willing to provide products on terms more advantageous to the company than what they would have been prepared to do under regular uncertain business rescue circumstances.

Furthermore, customers may continue to utilise the company’s service with the confidence that the company will ultimately emerge from Business Rescue. It is therefore so that a relatively large PCF facility can decrease the negative operational impact of a BR filing. I suspect that South African banks have thus far provided the most PCF to date but also believe and will not be surprised if all this is “defensive” PCF financing.

It has been alleged that there is an unwritten rule or understanding amongst banks in South Africa that the one bank will not bail out a company with PCF to enable a company to repay its debts with another bank. We have practically experienced in recent dealings with a parastatal lender that the borrowers had to certify the lender that the finance being obtained by shareholders (two levels up) were not to be utilised for purposes of settling the debts of a company under business rescue.

We have also found in practice that a further major stumbling block for potential PCF financiers arises when there is a pre-commencement cession of book debts in favour of a bank as security for its overdraft of whatever is owing to the bank. There is a view that banks are in terms of its cession of book debts entitled to rely on book debts created post the commencement of business rescue proceedings as additional security. This is despite them not having provided the finance that enabled the BRP on behalf of the company to render the service or manufactured the product that enabled to BRP on behalf of the company to create the invoice. All of this post the commencement of business rescue proceedings.

Its seems untenable that the PCF financier may not, as first charge, rely on the proceeds of the post BR book debts. The law in this regard needs to unfold We are of the view that in order for PCF to succeed under such circumstances the BRP needs to enter into an agreement with the bank in order to have future debts released from the cession.

It is clear to us that distressed funding or, PCF, remains one of the most topical issues in restructuring businesses and for the business rescue process to work. There is no doubt that the ability of a company under business rescue to continue trading or carrying on with its business activities depends entirely on its ability to procure PCF in some form or another.

Internationally the motivation of distressed investment funds to get involved in PCF of debtor in possession finance under Chapter 11 in the USA (“DIP finance”) is often very different from that of commercial banks. While a commercial bank may seek to profit through fees and interest earned over the course of a long-term relationship with a borrower, the business model of distressed investment funds is entirely different.

We need to look at the various forms of PCF that are available. First, there is conventional post commencement trade credit and in terms of the Companies Act the BRP may incur credit in the ordinary course of its business. This will be treated as PCF and suppliers and trade creditors typically extend this credit on similar terms as existed before the commencement of BR proceeding if they are comfortable that the debtor has sufficient cash flow to pay them on a timely basis. Such PCF enjoys the protection of section 135 of the Act and must be repaid in the order that such debts were incurred.

Second, Secured PCF which is permitted in terms of the Companies Act and under which circumstances the BRP obtains post commencement credit secured by either a lien or pledge or any other agreed form of security over assets that are otherwise unencumbered. This may appear to be preferable and safe in theory but distressed businesses under business rescue usually do not have unencumbered assets, any equity in assets that are already encumbered, or all their assets are fully encumbered by other lenders. Security for the PCF lender is therefore a logical option to have, but usually of little practical assistance.

However. an alternative, in rare cases, is a second or reversionary form of pledge or lien over assets already encumbered. This is done in the USA under Chapter 11 procedure in terms of what is called Super Priority Secured Financing. How it is works is that, under circumstances where a debtor under Chapter 11 is unable to obtain credit in any of the traditional DIP finance ways, the Bankruptcy Court can allow the debtor to obtain financing secured by a first lien on already encumbered assets of the estate. This means that secured creditors that already have liens on the assets will be pushed down or “primed”. This must be done with Bankruptcy Court approval, and creditors whose liens are being “primed” must have the opportunity to object.

The only way the Bankruptcy Court will allow such financing is if  the debtor makes an appropriate case that it is unable to obtain credit in any other way and it must be demonstrated that the creditor whose security is eroded is “adequately protected.” This essentially means that the creditor whose lien is being primed needs to be shown that even though its lien is being pushed down, it will not be unduly harmed by this event.


Hans Klopper of Independent Advisory


  • Perlman F.G, Baer H.P, Kevane H, Bagby I, Corbi R.J, Farnsworth S, Krause S, Kriegel M, Lucas J.W and Maman M : “Debtor-in-Possession Financing: Funding a Chapter 11 Case” American Bankruptcy Institute
  • Salerno TJ, Kroop J.A and Hansen C : “The Executive Guide to Corporate Bankruptcy” – Second Edition (BeardBooks 2010)


Background to Debtor in Possession (“DIP”) Finance in USA

The Common Law Origins of Debtor Financing

In the USA the modern Bankruptcy Code’s DIP financing provisions are codifications of practices developed in the common law era prior to the enactment of a national bankruptcy law.

Modern DIP financing grew out of practices developed in nineteenth-century railroad receiverships, which were governed by a special body of common law.

When a large rail company became insolvent back then the bondholders would approach the courts appoint a receiver. The receiver took control of the rail company’s property as the “hand of the court.”

Akin to a moratorium under the modern Bankruptcy Code this stayed the process while a recapitalization of the railroad was being formulated.

The receiver was authorised to issue new debt in the form of “receivers’ certificates” which were made attractive to new and existing investors by securing a first lien on the bankrupt rail company’s assets.

This was the background that led to the introduction of debtor financing into the Bankruptcy Act in the 1930s.

Pre 2011 – in South Africa

In cases of financial distress prior to the enactment of the Companies Act of 2008 and a restructuring of its affairs was possible, a moratorium was achieved by the granting of a provisional order of liquidation.

When a provisional liquidator was appointed to the company and found that there was merit in continuing with a company’s trading operations, leave to borrow money was obtained by applying to court.

Such loans became a cost of administration and were repayable as a first charge and protected by the Order of Court.

Ensuring access to finance is available for businesses in business rescue

Where does a Business Rescue Practitioner (“BRP”) look to obtain Post Commencement Finance? Shareholders, creditors or the companies’ customers?

In South Africa, BRP’s came to the conclusion that they must look elsewhere than to commercial banks for PCF funding.

Much has been said about the formation of funds here in SA such as distressed hedge funds in other jurisdictions but not much of it has been seen.

The challenges for BRP’s in obtaining PCF are:

  • The majority of funders that are prepared to provide funding, mostly proved too slow in making decisions.
  • The harsh reality is that PCF is mostly required at a time when a company is almost at the end of its ability to provide security.
  • Where the PCF funder cannot secure his PCF and have only the relative cold comfort of ranking ahead of all pre commencement creditors the appetite to provide PCF seems to be waning.
  • There is also uncertainty as to whether a PCF funder will rank ahead of a secured creditor under circumstances where they provided funding to maintain or preserve a secured creditor’s security. This position should surely be akin to section 89 of the Insolvency Act where the costs of maintaining and preserving security rank ahead of the claim of the secured creditor?
  • The reality is therefore that PCF will only be attracted where the business model is sound, where there is a prospect that the business will be a going concern going forward.

Understanding current decisions from Financial Institutions and Courts on Funding

In our Law reports until 31 December 2016 the mention of PCF is limited to three cases and also not really relevant to funding as such.

These cases are:

Copper Sunset Trading 220 (Pty) Limited v Spar Group Limited and another 2014 (6) SA 214 (LP)

In this case the BRP contended that the procuring of PCF was conditional upon a business rescue plan being adopted.

The respondents voted against the plan and upon application the court set that vote aside as inappropriate and adopted the BR Plan. It would be interesting to hear as to whether PCF was ever procured.

Prior to the above mentioned case, there were the cases of Commissioner South African Revenue Services v Beginsel NO and another 2013(1) SA 307 (WCC) and the Cape Point Vineyards case. In both cases the references to PCF was obiter.

Suffice to say that our law has not as yet developed much and we are therefore bound to look at what happened in other jurisdictions.

What transpired under Chapter 11 in the USA is no different from what happens here and the Americans refer to “defensive DIP Financing” as the typical DIP financing situation.

This happens when a pre-commencement lender (pre-petition in the USA) secured by a form of security over the assets of the company under Chapter 11 is faced with two primary choices:

  • extend additional financing post-business rescue to permit the company to either reorganize, or sell its assets in an orderly fashion under Chapter 11, or, alternatively,
  • risk the uncertainty of a piecemeal liquidation of the debtor’s assets.

Therefore, rather than taking a chance with a fire sale, many lenders conclude that financing a case is more likely to protect the going-concern value of the borrower.

American studies have shown that commercial banks have provided the majority of DIP financing in the USA by way of such “defensive DIP Finance”.

The experience in SA to date, would also appear to indicate that the banks and financial institutions involved in matters where business rescue was filed, have reluctantly agreed to provide post commencement finance and mostly only because they had to protect their pre-business rescue debt and/or maintain their security.

Independent Advisory


The Customs and Excise Act 91 of 1964 does not prevent a liquidator from taking possession of property in terms of the Insolvency Act 24 of 1936.

Commissioner, South African Revenue Service v Van der Merwe and Others (598/2015) [2016] ZASCA 138 (29 September 2016).

  1. The Background
    • Pela Plant (Pty) Limited (Pela), was provisionally liquidated on 20 July 2014 after a failed business rescue. By the time that the liquidation order was made final on 16 September 2014 twenty three pieces of heavy earthmoving equipment belonging to Pela had not yet been cleared by the Customs authorities and was retained in Durban’s harbour.
    • The company had exported the equipment, valued at R25 million, to the Democratic Republic of the Congo. After completing its operations there, it was repatriated to South Africa.
    • During March and June 2014, the equipment arrived in the country and was stored in the warehouse of Trans-Med Shipping CC, acting as UTI’s sub-agent, who was appointed by Pela as it’s clearing and forwarding agent regarding the equipment. A dispute arose between SARS and Pela as to whether or not VAT and customs duties were payable and if so how much. A dispute that had not been resolved at the time of the Pela’s liquidation.
    • The intervention of Pela’s liquidation created an interesting further complication. Usually, customs duty and VAT have to be paid in full prior to the release of any items held in bond. However the liquidators refused to pay SARS prior to the release of the equipment and contended that the provisions of the Insolvency Act are peremptory in this regard and that SARS was obliged to release the equipment to them and to submit a claim in the winding up of Pela’s affairs, as provided for in terms of the Insolvency Act. SARS disagreed and refused to release the equipment.
  1. The Appeal
    • Having unsuccessfully demanded the release of the equipment from UTI and the SARS, the liquidators launched an urgent application in the Durban High Court (DHC) contending that the provisions of the Insolvency Act trump those of the Customs and Excise Act.
    • SARS and UTI opposed the application essentially contending it couldn’t release the equipment unless all custom duties and VAT were paid in full.
    • The DHC ruled in favour of the liquidators and order SARS and UTI to release the equipment to the liquidators. Both SARS and UTI sought to appeal the order of the DHC and the Supreme Court of Appeal (SCA) was left with the final determination.
    • The SCA found, unlike SARS had argued, that there was no inferred “embargo” in favour of SARS and that there is nothing in either the Customs Act  in or the Insolvency Act which infers that goods subject to a lien in favour of SARS cannot be dealt with under the laws of insolvency.
  1. Conclusion:
    • The SCA concluded that the Customs and VAT Acts do not absolve SARS from releasing the equipment to the liquidators, to be dealt with in terms of the laws of insolvency, without the liquidators first having to pay duty and VAT and ordered the immediate release of the equipment.
    • The appeal was dismissed with costs, including the costs of two counsels.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)


If you die without a will, an administrator will have to be appointed to administer your estate which will be distributed according to the laws of intestate succession. As such, your assets may not be distributed as you would have wished. It also means that the process will be delayed and that there will be additional expense and frustration which most people would not want to inflict on their loved ones during a time of loss.

Marriage and property

When drafting your will, it’s important to consider the nature of your relationship with your ‘significant other’. If you are married in community of property, you only own half of all assets registered in your name and that of your spouse. Your spouse therefore still remains a one half share owner of any fixed property you may want to bequeath to a third party which could potentially present difficulties.

If you are married in terms of the accrual regime, the calculation to determine which spouse has a claim against the other to equalise the growth of the respective estates only occurs at death. Your spouse may therefore have a substantial claim against your estate necessitating the sale of assets you had not intended to be sold.

Alongside your will, you should also prepare the following in relation to any immovable property you may own:

  1. State where your title deeds are kept and record any outstanding bonds and all insurance
  2. File up-to-date rates and taxes receipts
  3. Record details of the leases on any property you have
  4. State who collects your rent
  5. State who compiles your yearly accounts
  6. State where your water, lights and refuse deposit receipts are kept

If you die without a will

According to the according to Intestate Succession Act, 1987, your estate will be distributed as follows:

  1. Only spouse survives: Entire estate goes to spouse.
  2. Only descendants survive: Estate is divided between descendants.
  3. Spouse & descendants survive: The spouse gets R250 000 or a child’s share and the balance is divided equally between the spouse and descendants.
  4. Both parents survive: Total share is divided equally between both parents.
  5. One parent: Total Estate goes to the parent.
  6. One parent & descendants: Half the Estate goes to the parent; balance is divided equally amongst descendants.
  7. No spouse; No descendants; No parents; but descendants through mother & descendants through father: Estate divided into two parts: half to descendants through mother; half to descendants through father.
  8. No spouse; No descendants; No parents; No descendants through mother or father: Full Proceeds of the Estate has to be paid into the Guardians Fund in the event of no descendants whatsoever.


This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)



The Supreme Court of Appeal today dismissed an appeal against a judgment of the Western Cape Division of the High Court, Cape Town concerning the constitutionality of a policy that seeks to regulate the appointment of insolvency practitioners, primarily as provisional trustees and liquidators, but also as co-trustees and co-liquidators (and other comparable positions) under various statutes.

The policy was issued by the Minister of Justice and Constitutional Development in terms of s 18(1) of the Insolvency Act 24 of 1936 (the Act), pursuant to his powers in terms of s 158(2) of the Act and was to come into operation on 31 March 2014.

The challenge to the policy was made in two parts, ie, Part A was for an interim order restraining its implementation, and Part B, was to have it reviewed and set aside. In the Western Cape Division of the High Court, Gamble J dealt with the urgent application in respect of Part A and interdicted the appellants from implementing the policy.

The review application in Part B came before the court a quo, Katz AJ, in which the policy was challenged on four bases. These were that it infringed the right to equality provided for in s 9(3) of the Constitution; it unlawfully fettered the discretion of the Master; is ultra vires the Act; and was irrational. The court a quo largely upheld the respondents’ contentions and granted the application. And acting in terms of s 172(1)(a) of the Constitution, declared the policy inconsistent with the Constitution and invalid.

The SCA, after reviewing clauses 6 and 7 of the policy, upheld the court a quo’s finding that the policy is unconstitutional. The court held that clause 7.1 of the policy embodied strict allocation of appointments in accordance with race and gender, which were arbitrary, capricious and displayed naked preference, which is prohibited by s 9(3) of the Constitution. The court held that the policy’s arbitrariness was not saved by clause 7.3 of the policy as it does not resolve the fact that clause 7.1 requires the Master to make an appointment in accordance with a rigid quota.

With regards to the question whether the Master’s discretion was unlawfully fettered, the SCA held that there was a limited residual discretion left for the Master to exercise in making appointments in terms of clause 7.3 of the policy, and so the Master’s discretion was not improperly fettered in that regard.

On the issue of the rationality of the policy, the SCA lamented the fact that there was no explanation by the Master for the basis upon which the policy was formulated. There was for instance no proper explanation regarding how the ratio in the policy was determined, and no proper figures to show the number of practitioners in each category. Thus, the court held that in the absence of proper information about the basis upon which the policy was formulated, and proper information concerning the current demographics of insolvency practitioners, it was not possible to say that the policy was formulated, on a rational basis properly directed at the legitimate goal of removing the effects of past discrimination and furthering the advancement of persons from previously disadvantaged groups.

In a concurring judgment, Wallis JA (Mpati P, Swain and Mathopo JJA concurring) held that given the purpose of the insolvency legislation, the actions of the Minister in determining the policy under s 158 of the Act, and the actions that the Master must undertake in terms of that policy, must be in accordance with the interests of creditors in the liquidation of the estate or the winding-up of the company or close corporation. And that as the policy was formulated on the basis that those interests were irrelevant, and on its face it does not recognise or serve those interests, it was outside the legitimate powers vested in the Minister, and the promulgation thereof involved a breach of the principle of legality.

The SCA accordingly dismissed the appeal with costs.

Click Here to Read this case study

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)


On 29 May 2015, in the case of Dormell Properties 282 CC v Bamberger[1], the Supreme Court of Appeal (SCA) set out the importance of, firstly, expressly pleading a suretyship clause in a plaintiff’s particulars of claim and, secondly, ensuring that the contract to which a deed of suretyship is annexed is duly signed by all parties thereto.

The case

There were two agreements of importance. The first agreement was a written offer to lease agreement concluded between Dormell and Edulyn, duly represented by Bamberger in his capacity as sole director, in terms of which Bamberger undertook to bind himself as surety for Edulyn’s obligations under a second agreement, being the agreement of lease.[2]

The first agreement

The first agreement was properly signed by the parties; however, the agreement of lease was only signed by Bamberger. Annexed to the agreement of lease was a deed of suretyship which Bamberger signed. The deed of suretyship and agreement of lease were annexed to Dormell’s particulars of claim as if this suretyship was the instrument that bound Bamberger as surety and co-principal debtor for the fulfilment of the obligations of Edulyn.[3]

In the court a quo, Savage AJ found that ‘a contract of suretyship requires a valid principal obligation with someone other than the surety as debtor and the liability of the surety does not arise until this principal obligation has been contracted (Caney [C F Forsyth and J T Pretorius Caney’s The Law of Suretyship in South Africa 6 ed (2010)] at 47)’.[4] In the SCA the appellant conceded that no express reference to the first suretyship clause was made in the particulars of claim, but argued, inter alia, that the omission caused no prejudice to Bamberger.[5]

The suretyship clause

Dormell’s cause of action was based on the deed of suretyship attached to the agreement of lease and not on the suretyship clause in the first agreement. To seek to change this now would amount to an amendment of the particulars of claim and the advancing of a case which was not initially pleaded. Bamberger therefore contended that he was not given the opportunity to raise any defence which he could have raised to the suretyship clause.[6]

The SCA set out that ‘the purpose of pleadings is to define the issues for the parties and the court. Pleadings must set out the cause of action in clear and unequivocal terms to enable the opponent to know exactly what case to meet. Once a party has pinned its colours to the mast, it is impermissible at a later stage to change those colours.’[7] Furthermore the court found that Dormell should have expressly alleged a valid contract of suretyship (i.e. that the terms of the deed of suretyship were embodied in a written document signed by or on behalf of the surety which identified the creditor, the surety and the principal debtor). Dormell had to allege the cause of the debt in respect of which the defendant undertook liability as well as the actual indebtedness of the principal debtor.[8]

In the Dormell case the deed of suretyship was invalid and enforceable because it was annexed to an agreement of lease which wasn’t signed by Dormell, and therefore the suretyship was in respect of a non-existent obligation. Dormell conceded that the suretyship pleaded was invalid, but argued that Bamberger would not suffer any prejudice if Dormell was allowed to rely on the suretyship in the first agreement instead. The court found that although it does have discretion regarding keeping parties strictly to their pleadings, it does not agree that this discretion reaches as far as to place a party in the disadvantageous position of not being permitted to raise any legal defence.[9]

In deciding the above, the court looked at whether Bamberger would have conducted his case materially differently, had Dormell’s case been pleaded properly. The court found that he would have, in that he would have been in the position to raise the defence of non-excussion (i.e. that Dormell should have first claimed the outstanding amounts owed from Edulyn and only if they could not pay this amount, should Dormell have claimed from Bamberger).[10] He had not raised this defence in his plea or at the trial because the deed of suretyship annexed to the agreement of lease in terms of which he had waived the defence of non-excussion (which was not signed by Dormell) was relied upon.[11]


The SCA therefore found that Bamberger would suffer prejudice if it were to allow Dormell to rely on the suretyship clause in the first agreement which was not relied upon in the particulars of claim.[12] It is therefore crucial to, firstly, expressly plead the details of a valid suretyship clause in a plaintiff’s particulars of claim and, secondly, to ensure that the contract to which a deed of suretyship is annexed is duly signed by all parties thereto. If you do not do you may find yourself in a situation where the courts will not allow you to enforce a valid suretyship.

[1] (20191/14) [2015] ZASCA 89 (29 May 2015)

[2] ibid para 1-3

[3] ibid para 5

[4] Dormell Properties 282 CC v Bamberger (20191/14) [2015] ZASCA 89 (29 May 2015) para 8

[5] ibid para 8

[6] ibid para 10

[7] ibid para 11

[8] ibid para 12

[9] Dormell Properties 282 CC v Bamberger (20191/14) [2015] ZASCA 89 (29 May 2015) para 15

[10] ibid para 19

[11] ibid para 20

[12] ibid para 21

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)