The Companies Act 2008 provides in sections 128-155 (Chapter 6) for ‘business rescue and compromise with creditors’, which deals primarily with the ‘business rescue’ of companies. The compromise mechanism, contained in section 155, is distinct from the sections dealing with business rescue, which provide for a fairly comprehensive procedure for ultimately developing and implementing a plan to rescue the company from its financial distress under the supervision of a business rescue practitioner. Section 155, on the other hand, provides for the restructuring of the financial affairs of a company without the involvement of a business rescue practitioner, allowing a company to propose a compromise or arrangement to its creditors in a form that is almost identical to a business rescue plan.

Unlike business rescue, the idea of entering into a compromise or arrangement with creditors is not new to South African company law. The Companies Act 1973 provided for two mechanisms for this kind of informal restructuring – a ‘compromise’ and an ‘arrangement’.  Although the former process had a narrower meaning than the latter technically speaking, the distinction was often blurred when the two were combined in a so-called ‘scheme of arrangement’.  To properly understand the utility of the new section 155 compromise, one must consider the historical background to the concept of compromise in this context, and the way in which both of these two mechanisms were applied under the previous legislation.  Although the Companies Act 2008 does not distinguish the concepts ‘compromise’ and ‘arrangement’, it should not be assumed that the Act intended to change the mechanisms entirely – particularly where they still have practical utility – and furthermore, the objects of the Act require that the new versions of these two creatures be interpreted in a way that achieves ‘the efficient rescue and recovery of financially distressed companies’ (see s 7(k) in particular).

Under section 311 of the Companies Act 1973, it was possible for a company to restructure its financial affairs by way of a compromise or scheme of arrangement with either its creditors or members.  Where a compromise was entered into with creditors, there were numerous applications to court require, and the process thus become both costly and cumbersome in practice.  Since there was no automatic moratorium available under the Companies Act 1973, a moratorium against enforcement of claims would have to have been achieved by obtaining an order of provisional liquidation to hold the creditors at bay while renegotiating contractual obligations.

The Companies Act 2008 still allows for both compromises and ‘arrangements’, but the latter are only possible between the company and holders of any class of securities, and only where the company in question is neither under business rescue or liquidation.  Where a company finds itself in financial distress, therefore, it would seem that it will have only two options: filing for business rescue and appointing a business rescue practitioner, or entering into a restructuring agreement by way of the section 155 compromise with creditors.

The compromise mechanism envisaged provides for what is in substance a business rescue plan to be proposed without by the company itself rather than a business rescue practitioner (as would be the case in ordinary ‘business rescue’).  As a more streamlined procedure that allows the debtor to remain entirely in possessions and not comply with fairly onerous formalities relating to notice periods and calling of meetings, it shows promise in principle, but lacks in certain material respects.

Although it is submitted that separate meetings must be held in respect of each class or creditors when approving the plan, section 155 does not make it clear whether approval must be obtained at a single meeting of creditors, or by separate meetings of each class.  Furthermore, where it is not certain that a 75% majority will support the proposal, it would not be advisable to pursue a section 155 compromise instead of filing for business rescue; this high threshold may obstruct the compromise from achieving the object of successfully rescuing financially distressed companies where relatively few creditors are uncooperative.  A financially distressed company may also prefer to make use of business rescue (rather than enter into a compromise with creditors) would be the fact that section 155 does not provide for a moratorium to protect the company from claims of creditors during the period of renegotiation, and – like under the Companies Act 1973 – the compromise procedure is also  available to a company under liquidation.

For a more comprehensive treatment of this topic, see Hans Klopper & Richard S Bradstreet ‘Averting Liquidations With Business Rescue: Does Section 155 Place The Bar Too High?’ 2014 (3) Stellenbosch Law Review.

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.



Part 1 – Finding a trusted adviser

Your relationship with your financial planner is critical to your financial health. Choosing a financial adviser is often difficult and establishing a relationship takes time.

Choose wisely

There are currently over 140 000 so called “financial advisers” in South Africa, of which only approximately 6 000 have the professional designation of being a Certified Financial Planner (CFP®) and who are members of the Financial Planning Institute of South Africa. Choosing a professionally qualified financial planner to look after your financial health is as important as choosing a professionally qualified doctor to look after your physical health. A professionally qualified financial planner is easy distinguishable and has the designation “CFP®” at the end of his name.

Ask penetrating questions

You are entitled to ask penetrating questions pertaining to a financial planner’s tertiary qualifications, experience, contracts and licenses. A client should ask penetrating questions with regards to the advice given and financial products presented. A professional financial planner ought to be able to answer any direct question clearly and coherently. Fuzzy, vague answers to clear questions should be a warning to a client that the experience and/or knowledge level of an adviser is not up to standard.

Your financial health should be the main topic and focus

An experienced financial planner will always keep his focus on his client’s financial needs. It goes without saying that a thorough discussion of a client’s needs is the starting point of a professional relationship with a financial planner. Your needs ought to be understood and addressed by your financial planner in a clear and direct manner. A financial planner functions in the same way as a doctor making a diagnoses and then formulates a medical solution and prescribing medication and/or rehabilitating conduct.

Regular check-ups

Monitoring your financial plan and financial progress should be done at least annually. You are assisting your financial planner to focus on your needs if you make an appointment with him in the same way you see your dentist or doctor for a check-up.

Be a transparent client

It is easier to help a client when the client is transparent and not secretive. It is a matter of trust. One should be able to trust one’s financial planner with sensitive information as. It is very difficult to advise a client accurately when such a client is secretive. An experienced financial planner who has your best interests at heart will want to know about the details in your will, your monthly cash flow, previous marriages, children from a previous marriage, surities that you signed, elderly parents that are or will become part of your financial concerns, etc. The more your financial planner knows, the more he will be able to be of value to you.

An experienced, knowledgeable financial planner and a transparent, involved client can build a mutually beneficial relationship over time. Trust is earned and forms the basis of all relationships – choose your trusted adviser wisely! 

Louw Venter CFP®
For enquiries please email:

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.



Creditors as parties to litigation often find themselves in a predicament where the individual they have a claim against has assets of insignificant value, but being a trustee of a discretionary trust owning substantial assets.

Creditors are left with little else to do but to ask a court to “go behind the trust” to try and find assets against which it can execute a judgment.

Allegations of a trust being a debtor’s “alter ego” or “a sham” often find their way into pleadings and are often used interchangeably.

Our courts have to date mostly shied away from declaring assets registered in a trust to be regarded as assets falling within the personal estate of one of such trust’s trustees, in the hope of being able to execute a judgment against the assets of such trust, and the recent judgment of VAN ZYL AND ANOTHER NNO v KAYE NO AND OTHERS 2014 (4) SA 452 (WCC) has made it even more difficult to do so.

In the VAN ZYL matter Binns-Ward J had to determine whether two immovable properties, one registered in the name of a trust and the other in the name of a company, must be treated as assets in the insolvent estate of one Mr Kaye.

The trust in question was a family trust of which Kaye, his wife and an attorney were the trustees. The property owned by the trust was used by Kaye and his family as their family home. The beneficiaries of the trust were Kaye, his wife and their descendants.  It appeared from the facts before court that financial transactions might have been recorded in the books of various entities over which Kaye exercised control in a manner that did not represent a correct representation of the flow of funds.

The court clarified the difference between finding that a trust is a sham and going behind a trust.  To hold that a trust is a sham, in other words non-existent, will be a finding of fact inter alia on the basis that the requirements for the establishment of a trust were not met, in which event the “trustees” of the trust acted as agents of Kaye when acquiring the property.

The court found that even a delinquent discharge by trustees of their responsibilities, resulting in only one trustee exercising unfettered de facto control over the trust assets or the maladministration of an asset of the trust is not enough to justify a finding that a trust is a sham, that the trust does not exist or that an asset no longer vests in the trust.  All that it does is call into question the fitness of the trustees to hold office.

Going behind the trust form, on the other hand, entails accepting that the trust exists, but disregarding for given purposes the ordinary consequences of its existence. This might entail, the court found, holding the trustees personally liable for an obligation ostensibly undertaken in their capacity as trustees, or holding the trust bound to transactions seemingly undertaken by the trustees acting outside the limits of their authority or legal capacity or in cases where the trustees treat the property of the trust as if it were their personal property and use the trust essentially as their alter ego.  As this is an equitable remedy, it is a remedy that will generally be given when the trust form is used in a dishonest or unconscionable manner to evade a liability or avoid an obligation and not in a situation where a creditor seeks relief against a debtor who is a trustee of a trust.

The court pronounced that there is nothing untoward in trusts being established for the purposes of holding family homes separately or even for a trustee personally paying the mortgage bond and maintenance expenses in respect of such property.

The court went on to find that even if it were to be accepted that Kaye administered the trust without proper regard to his fiduciary duties and in a sense treated it as his “alter ego“, that does not, in itself, make the trust a sham, nor does it vest ownership of the trust’s assets in the trustees of his insolvent estate.

So what does this all mean?  It appears that this judgment is a further nail in the coffin for creditors trying to recover debs from debtors who as part of their estate planning registered all “their” assets in trusts.

As this avenue has now become more difficult to explore parties to transactions will have to be more astute to ensure they have sufficient security in place in respect of debts due to them, in the form of suretyships or security bonds.

Lucinde Rhoode – Director-Dispute Resolution – Cliffe Dekker Hofmeyr Inc – Cape Town

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.



When companies are placed in business rescue Section 135 of the Companies Act 71 of 2008 (“the Act”) provides for a very innovative manner in which the company under business rescue may obtain new finance and credit. This is called post-commencement finance (“PCF”). However, banks and other financial institutions would thus far appear to have been reluctant to get involved and it would appear that they do not necessarily believe that a company under financial distress and under business rescue could present an investment opportunity. It is furthermore not sure as to whether commercial banks in South Africa are prepared to take over the security of another bank and to further get control by advancing PCF.

Historically, before the Act came into law, financial institutions and creditors who have had dealings with liquidators of liquidated companies clearly understood the notion of “costs of administration in the winding-up process. This simply meant that any goods supplied to or services rendered to a company in liquidation must be paid first as a cost of administration and only once such costs were paid in full may any distribution be made to the company’s creditors on their claims that existed upon the commencement of winding up proceedings from the proceeds of the assets realised in the liquidation process.

Often liquidators require financial assistance in the winding up process and may, upon their powers having been extended as such by the High Court, obtain a loan subsequent to the date of provisional liquidation. Such loans are also, at all times, payable as a “cost of administration” in the winding up process in preference to creditors in the winding-up process.

Akin to the loans so being advanced to liquidators of companies in liquidation and ranking ahead of creditors PCF under business rescue also, by statute, enjoys such a “super-preferent” status.

The process of procuring PCF is however much less cumbersome under business rescue in that there is no need to approach the High Court for such funding.

In addition, the Act provides that, should the enticement of this super preferent status fail to be of interest to financiers that the business rescue practitioner may obtain finance secured by assets of the company.  It is even possible to provide already encumbered assets as security to PCF lenders where the value of the asset so encumbered is such that it protects the interests of existing secured creditors.

The most fundamental aspect of PCF and the role of the business rescue practitioner is the issue of cash-flow forecasting. In most business rescue cases the company will only have the cash to survive from day to day. Daily cash-flows and forecasts are under these circumstances maintained by the business rescue practitioner because he has no choice other than to do so in order to assess the performance of the business. However, in many cases, the business rescue practitioner, upon his arrival on the scene at the company, find that there was no pre-existing cash flow forecasting done by the company.

The return negotiated by prospective lenders on PCF loans may be very attractive to such lenders because there is perception of high risk attached to such loans compared to normal commercial loans. The truth is however that, by virtue of the super preferent nature of such loans, the extra security that may be provided by the business rescue practitioners and the statutory protection afforded, PCF lenders often enjoy better protection under business rescue than “normal” lenders. For the past almost four decades providers of debtor in possession (DIP) facilities under Chapter 11 of the American Bankruptcy Code have been investing as distressed lenders and enjoyed good returns.

The assessment of a company’s post commencement financial requirements and the amount of PCF needed during the business rescue period would require a detailed cash-flow forecast. The business rescue practitioner needs to understand the sensitivities relating to the cash flow based on the history of the business and the impact of a possible liquidation on the PCF. The business rescue practitioner needs to assess the terms in the PCF compared to the terms of commercial loans, if available.

The loan agreement will have deal with the duration and pricing and fees relating to the loan which by its very nature may be substantially more onerous than run of the mill loan agreements.  Variances need to be expected and the reporting thereon is crucial

The notion of so-called “vulture funding” and the concept of “loan to loan” are well established in other jurisdictions such as the USA where distressed investors earn above average returns and often take control of the equity in distressed companies by virtue of the funding provided.

It is time that South African entrepreneurs become aware of these opportunities.

SOURCE: Debtor-in-possession Financing – American Bankruptcy Institute

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.


Now that the Holiday Season is a thing of the past, the New Year promises a fresh start for all of us.  Some of us made new resolutions to stay fit, eat healthy or stay active.  Whatever your resolutions may be, we hope that you have a prosperous and successful 2015!

This issue contains informative information regarding trusts and financial planning.  Furthermore it contains articles on the objectives of business rescue and the opportunity for lenders to invest in companies which are placed under business rescue.

L.M. Montgomery states: “Isn’t it nice to think tomorrow is a new day with no mistakes in it yet?   Likewise, it is comforting that this is a new year with no mistakes in it yet!

Hillary Plaatjies


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.