Welcome to the FIRST issue of Independent Advisory News.

It is with great excitement and enthusiasm that we launch this newsletter which we hope will become  essential reading for anyone who wants to keep up to date with the latest news and developments in  our fields of expertise.  This newsletter will also serve as a platform for sharing expert legal knowledge and information which is relevant to all affected persons.

We have taken the liberty signing you up for this newsletter because of our previous dealings or connections with you.   If you ever find that what we offer in our newsletter is not for you, simply click “unsubscribe” at the bottom of this email.

November-this is the time of the year when many people are “hitting the wall”.  Wikipedia states that the meaning of ‘hitting the wall” is, when endurance sports athletes, like cyclist or marathon runners suddenly experience fatigue or loss of energy during their long race.    Amazingly, athletes who push through the wall will emerge on the other side with a “second wind”, renewed energy and a determination to complete the run.

Do you remember the goals and resolution you set out to achieve in the beginning of this year?  Each passing year, change happens whether it is in your personal life or business life, whether the change is good or bad, we are forced to adapt to change and push through the wall.    If you are hitting the wall, be strong, don’t let adversities get you down, push through the wall and find your second wind.    Soon we will hear “jingle bells” playing in the shops and the big hunt for Christmas presents will commence.  Hopefully you will soon have a relaxing, fun filled and safe holiday!

Hillary Plaatjies


The maturing of the Business Rescue has resulted in a constant flow of judgements from our Courts and naturally the issue of the fees and disbursements of Business Practitioners has now also come before our Courts in the as yet unreported judgement of Murgatroyd vs Van Den Heever  NO [1]

The judgement has thankfully provided clarity with regard to the question of how a business rescue practitioner ought to be remunerated and importantly to what extent the expenses that he had reasonably incurred are also to be included as part of his cost to the liquidation of the company.

It is reasonable to assume that the extent of a Business Rescue practitioner’s remuneration and expense only really become an issue if the company is subsequently liquidated and the body of creditors are presented with an additional charge as part of the cost of the administration of the liquidated estate.

So although our Courts have now clarified the test to determine the reasonableness of a business rescue practitioner’s remuneration and disbursements there remains a lingering resentment amongst disgruntled creditors that Business Recue Practitioners are simply greedy over paid individuals and that the cost of a failed business recue is simply added onto the already substantial expenses of post liquidation costs of administration at their expense.

It is very difficult to argue this position in the singular instance that ultimately ends up in liquidation. The true benefit to creditors is however to be measured in those instances where a Business Rescue leads to a successful restructuring of the affairs of a company. The benefits to creditors, society and the larger economy are enormous and far out way the instances where business rescue proceedings failed.

A successful business rescue, either as a restructured continuing business or in the form of a controlled wind down of the affairs of the company must in all instances be infinitely more preferable than the destructive implications of a liquidation process.

It is an acceptable fact that the liquidator of company will earn far more from the liquidation of a company, than what the business rescue practitioner will from the same matter. A successful business rescue therefor not only benefits creditors, employees, shareholders and the economy at large but further avoids the further expense of liquidators’ fees and disbursements.

Remunerating a professional business rescue practitioner that can achieve these results at R2000.00[2] per hour then seems inconsequential compared to the ultimate cost of liquidation.

The competent and skilful business rescue practitioner will only accept an appointment in matters where he is confident that he can achieve a result that would ultimately benefit all affected parties and avoid the liquidation of that subject company. It is the ability to deliver this result that differentiates individual business rescue practitioners and those individuals that have the ability to consistently deliver an improved outcome are worth every cent that they are remunerated.

[1] Case no 20456/2014 South Gauteng Local Division (Johannesburg) before the Honourable Meyer J

[2] The maximum remuneration of a senior business rescue practitioner inn terms of Regulation 128(3) of the Companies Act

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.


“A paid occupation, especially one that involves prolonged training and a formal qualification”

(Definition of Profession –Oxford Dictionaries)

The significance of a modern insolvency system as a key foundation of sustainable economic development has widely been acknowledged and documented by international institutions such as the World Bank and the United Nations Commission on International Trade Law (UNCITRAL). In the context of global economic developments, insolvency laws and systems are increasingly being recognised as a fundamental institution, essential for the development of credit markets and entrepreneurship in developing countries, and, in turn, those insolvency systems depend on the existence of sound and effective institutional and regulatory frameworks.

It should be acknowledged that creditors today are more likely to vote in favour of some kind of reorganisation which enables the insolvent company to continue to exist rather than pick over the bones of a dead carcass. The liquidation v business rescue debate is continuously being played out in our courts and in two recent SCA judgements it was affirmed that while business rescue may often seem an obvious choice, the option of liquidation should not be ignored. The court also held that mere savings on the costs of the winding-up process in accordance with the existing liquidation provisions can hardly justify the separate institution of business rescue. Therefore although there is a discernible international trend to move towards corporate rescue mechanism, it isn’t always to the advantage of creditors and as such in the public interest to create an artificial alternative to the liquidation of a company.

The insolvency profession has evolved considerably in recent years. These days, IPs are no longer the ‘Undertakers’ of old but are increasingly running businesses, constructing and negotiating deals or investigating the affairs of the company. Practitioners accordingly have to possess certain specialist skills if they are to convince creditors of the feasibility and benefits of the painful process of bankruptcy as oppose to other alternative proceedings available. Insolvency work is also as much about people as it is about financial figures and boardroom tactics. On the battlefields populated by dying companies, rogue directors, anxious creditors and destitute employees, practitioners could become enemies or allies. From an economic viewpoint, and especially in the current global financial situation, confidence in skills of the insolvency practitioner and the regulation of insolvency practitioners is essential.

In conclusion it is submitted a number of factors exists which policy – and lawmakers should consider in order to holistically develop an effective and efficient regulatory framework for South African insolvency law. In the South African context the transformation theme will remain a complex and emotive process, and as such it is imperative that law reform takes place on the basis of a rational, structured policy approach and policy documents and objectives not be plucked out of the stratosphere. Any attempt to regulate the profession should be done against the background of generally accepted social and economic goals, but nonetheless also produce a system where practitioners would be required to have the skills, knowledge and experience so as to maintain the integrity of the insolvency system, and profession.

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.


By Hillary Plaatjies

Due to the increase in International Trade and Investments into the worldwide markets, trade and movement of assets across borders are more frequent and as a result thereof cross-border Insolvencies are becoming more frequent.   Cross-border Insolvency law primarily deals with situations where an insolvency procedure is initiated in one jurisdiction, in relation the property of a debtor who is situated in another jurisdiction.[1]   The law of insolvency on the one hand, and conflict of laws (Private International law) must be considered

A question which is increasingly imposed are whether an order made by a foreign court, appointing a foreign representative, will be recognized by a South Africa court and what steps must be taken by the foreign representative to deal with assets of the debtor in South Africa.

In South Africa, the common law system dealing with Private International Law and precedent must be applied in cross-border insolvency matters.  The statutory position will come into effect, once the cross-border Act[2], comes into full effect.  The Cross-border Insolvency Act was assented to on 28 November 2003.[3]  This Act is based on the UNCITRAL Model Law on cross-border Insolvency.  The purpose of this UNICITRAL Model Law on Cross-border Insolvency is to provide effective mechanism and to create modern legal framework to effectively address cross-border insolvency proceedings and to regulate co-operation between foreign courts.  South Africa build the element of reciprocity into the cross-border provisions.  No countries have been designated whose insolvency court orders would be reciprocally recognized in South Africa and the Act[4]cannot be implemented until the Minister of Justice has designated the foreign states to which the Act will apply.

Cross-border insolvency is approached by States using either a territoriality approach or the universality approach.  The territoriality approach seeks to protect local assets for the benefit of local creditors.   It confines the Insolvency proceedings to the jurisdictional limits of the country in which the assets and debts are located[5].  Universality approach supports co-operation between states when dealing with multinational corporations.  Universality approach treat cross-border insolvency as a single matter to ensure equal treatment to creditors from different jurisdictions and to which the courts of other countries would give their assistance.

South Africa is not a party to any international convention or treaty on Cross-border insolvency.  Unless the situation is governed by a treaty or legislation, the common law principles and precedent regarding recognition of a foreign representative in South Africa is applicable.  The common law regulates recognition of foreign representatives by South African courts.

Property as defined in the Insolvency Act[6] includes all types of property, movable and immovable situated in South Africa.  In South African Insolvency Law, the property vests in the trustee in a sequestration as provided for in section 20 of the Insolvency Act[7].   In a liquidation, the company remains owner of its property and the liquidator obtains control of that property.[8]  The common law draws a distinction between immovable and movable assets.In the case of movable assets, the principle is that the foreign representative may claim any movable property without first having to obtain recognition.  The movable assets are deemed to be vested in the foreign trustee and recognition is deemed to be a formality.

A foreign representative who wants do deal with immovable property, must first obtain recognition by the courts.  The law of location of the property (lex rei sitae) principle applies in respect of immovable property and recognition must be obtained by the court where the property is situated.

In Ward v Smit: In re Gurr V Zambia Airways Corp Ltd[9]the court held that a foreign representative of a juristic person who wants to deal with movable property, immovable property or incorporeal property in South Africa, must apply for recognition to the High Court of South Africa.   The court held that a recognition of a foreign liquidator is in the discretion of the court but dependent on considerations of comity, convenience and equity.  The South African courts exercise their discretion when hearing such an application based on comity, convenience and equity.  If recognition is refused by a South African court, a foreign creditor may apply for a sequestration or winding-up of the estate in the jurisdiction.


Foreign representatives have no locus standi to deal with any property in South Africa belonging to a debtor or sue or defend actions for the company under provisional or final liquidation unless the foreign representative applied to the South African court for recognition.

It has been submitted that a foreign representative, who seeks recognition from a court, must satisfy the court of his appointment, but this will not be submitting a letter of request as required by previous legislation.  Application must be made by the foreign representative to a division of the High Court in South Africa with necessary jurisdiction, where the assets are situated.

The discretion of the court as to whether it should grant recognition of a foreign representatives is absolute.  However, in practice, the discretion is granted in the interest of comity, convenience and equity.  In Ward v Smit: in re: Gurr v Zambia Airways Corporation Ltd[10] it is stated that the court has wide discretion to recognise or not and would strive to protect local creditors if desirable to do so.

In practise, application for formal recognition has been put into a principle.  The recognition order in these instances is a declaratory order regarding the foreign representative entitlement to administer the assets as if they were in the relevant jurisdiction where his authority derives from.   It is also submitted that a foreign provisional representative should not be recognized where it is uncertain if his appointment will become final but the court has a discretion in these instances. In some instances, the court will be reluctant to grant recognition of foreign representative if he is a provisional trustee and not sure if he is going to be the final trustee.  South African courts lean towards the territoriality approach and will protect the interest of local creditors.

The court may impose conditions for example a notice to interested parties to be published in the Government Gazette and local newspapers.  It has been submitted that a foreign representative, who seeks recognition from a South African court, must satisfy the court of his appointment, but this will not be submitting a letter of request as required by previous legislation.   The court may request the foreign representative to provide appropriate security to the Master of the High Court.


The Cross-border Insolvency Act 42 of 2000 cannot come into effect because of the Minister of Justice’s failure to designate certain states.   This act does not provide assistance to a SA insolvency representative or agent who institute insolvency proceedings against a debtor who also has assets or business in a foreign jurisdiction.   To achieve such reciprocity, the foreign state would need a similar act in which SA is a designated state.

The Cross-border Insolvency Act, when implemented, will only be applicable to designated countries.  Due to this system of designation, the South African law will in future follow a dual approach to recognition of foreign bankruptcy orders[11] in that the foreign representatives of designated countries will follow the procedure of the Cross-border Insolvency Act, whilst those representatives from non-designated countries will still have to follow the general route that is based on common law and precedent.

[1] Meskin Insolvency Law 17.1

[2] Cross-Border Insolvency Act 42 of 2000

[3] By proclamation no R73 of 2003 published in GG 25768 of 27 November 2003

[4] Cross-Border Insolvency Act 42 of 2000

[5] Smith & Ailolo (1999) 11SA Merc LJ192

[6] Section 2 of Insolvency Act, Act 24 of 1936

[7] Act 24 of 1936

[8] Section 361 of the Companies Act

[9] 1998 (3) 175 (SCA)

[10] 1998 (3) SA 175

[11] Michele Oliver and Andre Boraine, University of Pretoria

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.


Since 1 May 2011 it became possible for businesses operating under the auspices of a company or close corporation to file for business rescue in terms of the new Companies Act, 71 of 2008.

Previously, companies were placed in liquidation and employment opportunities were lost when a business went into financial distress. Much has already been written about the process of filing for business rescue by way of a resolution and which has the effect of an immediate moratorium against all legal actions against the company whilst under business rescue.

A business rescue practitioner then takes control of the affairs of the company and must develop a business rescue plan to either restore the company to solvency or, alternatively, place a company’s creditors in a better position than what they would have been in had the company being placed in immediate liquidation is then appointed.

Once a business rescue plan has been adopted the plan is final and binding upon all creditors of the company and no creditor may institute action for any previous claim against the company, except to the extent provided for in the business rescue plan. The question arose whether this can be achieved by way of a pre-pack?

The concept of a “pre-pack’ has been used internationally over many years and means different things to different people in the world. The gist of a “pre-pack” is however that, when you are going into some form of “filing”, the outcome of the process is already known upon filing. In other words, all the work is being done upfront.

In the USA one has the ability to file pre-packs and they are frequently used. The creditors are solicited beforehand and typically companies would go out and ask for between 90 and 100% concurrence of the terms of the proposed restructuring. The debt is normally converted to equity. The Company would under those circumstances only prepare a pre-packed filing when they know that the creditors would vote for a plan. This makes the bankruptcy process relatively short and less costly. The major advantage lies in the speed of the process

In the United Kingdom the filing of pre-packs has been around for the last 20 years. It started with practitioners who felt that one needs the certainty of a transaction and to avoid loss of value especially in “people businesses” and to reduce risk of contracts terminating.

In such cases all the work is done pre-filing and the process entails that, immediately upon the bankruptcy filing, the sale of the business or assets or part of it into a new entity will take place in terms of an arrangement under which the sale has been negotiated with the purchaser prior to the appointment of an administrator, and the administrator effects the sale immediately on, or shortly after, his appointment

One of the most important requirements is a proper valuation beforehand and those who know the UK system will inform you that, often, the major legal debate is often the valuation as opposed to the process. During the past 5 years there has been a lot of activity and an increase of prepacks. A criticism of this process by some creditors relates to a perceived lack of transparency. It is so that, by its nature, practitioners cannot have much interaction with smaller trade creditors prior to and during prepacks. Mostly, the interaction will be with major financial creditors and lenders. Should the practitioner however be selling the business back to the same directors or shareholders there will be more scrutiny of the process.

The other reason why they are now common in the UK is that case law allows it. An administrator must hold a meeting of creditors to approve his proposals within 10 weeks of being appointed. It was held in cases that notwithstanding the 10 weeks, an administrator could sell the business and assets before the meeting and then report to the creditors that he had done so.

In Australia however, pre-packs are not ideally used. An Australian restructuring would be done before company becomes insolvent. There are some strict duties upon directors to prevent the company from trading whilst insolvent and personal liability may be incurred whilst trading whilst insolvent. The Australian Law is quite strict in that once a company is insolvent it must be handed over to a professional practitioner.

The case law in Australia has developed in such a way that the practitioner has a duty which is slightly different than the position in the United Kingdom. In Australia, the practitioner is not allowed to rely on valuations. They need to run the process by testing the market.

The question is then whether it is achievable in South Africa? The answer has to be that it should be achievable like in the USA and UK. We also rely heavily on a proper valuation and we do not need an Order of Court to sanction an adopted business rescue plan. The key therefore is, when you are in financial distress, to start negotiations early and to involve the major creditors to secure your pre-agreed 75% statutory vote. The terms of a business rescue plan will then, providing that there is no creditor hostility and threats of liquidation, be finalised and immediately be published shortly after the filing of the business rescue resolution. The involvement of the previous shareholders and directors will, as in the UK, be subject to similar scrutiny.

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.