LIQUIDATION & SEQUESTRATION: NOT FOR THE MERE TAKING

The Johannesburg High Court of South Africa has recently introduced a dedicated Insolvency Court, which aims to divert all insolvency related applications (whether opposed or unopposed) away from the ordinary Court rolls to allow for quicker turnaround times, whilst reducing the backlog of cases on the ordinary Court rolls.

To cater for this new dedicated Court, directives were published by the office of the Deputy Judge President of the division which give guidance to legal practitioners enrolling such applications.

Whilst the focus of the Court may not have been this, a recent judgment by the Honourable Acting Justice Gilbert has shone a light on concerning practices by the legal fraternity in relation to insolvency matters.

To premise this judgment, it is necessary to explore the consequences of an order for the winding up of a company or the sequestration of an individual. These orders have far-reaching and, in some cases, devastating consequences. 

For example, upon the granting of a liquidation order, all the property of the Respondent company is deemed to be in the custody and control of the Master of the High Court pending the appointment of a provisional liquidator. Once a provisional liquidator is appointed, they will administer the assets of the insolvent company pursuant to their statutory powers.

Additional consequences include:

1. Directors, managers and office bearers losing their power and ability to direct and manage the affairs of the company; and

2. Such persons are unable to effect transactions on behalf of the company, even where those transactions would otherwise be valid.

Likewise, the granting of a sequestration order will prevent the insolvent from controlling assets within their estate. 

The effect of this cannot be understated as the impact extends well beyond just one party and a creditor. 

The rights and interests of employees is one of the main issues which must be considered when an application for liquidation or sequestration is launched. Upon an order being granted, a concursus creditorum (meeting of creditors) comes into effect, meaning nothing can be done to diminish or otherwise dispose of assets in the estate, since it would prejudice the rights of creditors.

Whilst this may sound like it would not amount to much, the problem lies in the deemed date of the winding up order, which will be deemed (in terms of section 348 of the Companies Act 61 of 1973 (“the old Act”) to be the date on which the application for the order winding up a company is presented to the Court. This would mean a retrospective operation of the moratorium on payments made by the company, which can include salaries paid to employees (even in good faith).

It is for this very reason that section 346 (4A) of the old Act exists (with similar provisions finding their way into the Insolvency Act 24 of 1936), which requires that a copy of the application for the winding up of a company must be furnished:

1. to every registered trade union representing employees of the company; and

   
   

2. to the employees themselves.

Now that the legal position has been suitably set out, we now turn to the concerning trends emerging in Motion Courts. 

In Gilbert AJ’s judgment in the matter of Rent a Tank JHB (Pty) Limited v Fuelgiants (Pty) Limited [2025] ZAGPJHC 517, Gilbert AJ dispenses with 8 (eight) applications which were enrolled in the unopposed Insolvency Court which he was presiding over.

Gilbert AJ further saw fit to make a ruling in respect of each of those cases together, since the issues extended to each matter. 

Given the consequences of a winding up order, it is entirely expected for a party becoming aware of an application which will have an adverse effect on them opposing the relief or otherwise intervening to prevent suffering prejudice. Indeed so, in almost every liquidation application where the Respondent becomes aware of the application, the relief is opposed.

However, of the 12 (twelve) matters before Gilbert AJ, there were only 3 (three) which complied with the requirement as set out above relating to effective notice to employees. However, even in the face of non-compliance, these non-compliant matters remained on the roll and were argued. 

Whilst the remainder of Gilbert AJ’s judgment focused on the conduct of legal practitioners involved in the applications, this article serves to focus on the requirements for a valid order to be granted and what will happen thereafter.

In terms of section 344 of the old Act, the grounds for the winding up of a company by a Court are as follows:

1. the company has passed a special resolution for its winding-up;

2. the company commenced business before the Registrar certified it was entitled to do so;

3. the company has not commenced business within a year of incorporation or has suspended its business for a whole year;

4. in the case of a public company, the number of members is reduced below seven;

5. the company cannot pay its debts as described in section 345;

6. in the case of an external company, that company is dissolved or ceases operating in the country in which it has been incorporated; or

7. it is just and equitable to do so.

A company will be deemed unable to pay its debts if a creditor who is owned a sum greater than R100.00 (yes, the amount really is that low) has served on that company a demand to pay the sum and the company has neglected payment or to secure the debt for 3 (three) weeks thereafter.

After the application for the winding up of a company, the granting of an order and appointment of a liquidator, the liquidator must then convene a meeting with creditors, realise the assets, proceed with advertisements, and distribute funds to creditors as per the liquidation and distribution agreements.

Insolvency matters are therefore extremely complex, and not having the right legal team to assist and advise can mean your efforts may be futile before they are even launched. 

Contact us at info@rouxlegal.com for expert assistance in navigating the minefield that is insolvency proceedings.

By Cameron Phillips

(Senior Associate)

24 June 2025

While every reasonable effort is taken to ensure the accuracy and soundness of the contents of this article, neither the writer/s of the article nor the publisher shall bear any responsibility for the consequences of any actions based on information and/or recommendations contained herein. The URA article material is for informational and educational purposes only.