Find Lawyers in Cape Town, South Africa for Insolvency and Reorganization Law

“Insolvency” broadly refers to the situation – 

• where the liabilities of an individual or legal entity exceed the value of his/her/its assets (traditionally termed factual or balance-sheet insolvency); or

• where an individual or legal entity is unable to pay his/her/its debts as and when they fall due for payment in the ordinary course (usually referred to as commercial or cash-flow insolvency). 

Insolvency can lead to the sequestration or liquidation of a debtor’s estate. Upon a sequestration or liquidation order being granted, a concursus creditorum is established and “the hand of the law is laid upon the estate, and at once the rights of the general body of creditors have to be taken into consideration … and nothing can thereafter be allowed to be done by any of the creditors to alter the rights of the other creditors.” (Walker v Syfret NO 1911 AD 141) 

In the South African context, “reorganisation” or “restructuring” law refers either to an informal reorganisation of an insolvent business through negotiation/agreement or to a formal “business rescue”, as defined in chapter 6 of the Companies Act, 2008. Business rescue aims to facilitate the rehabilitation of financially distressed companies through various mechanisms provided for in this Act.  

Insolvency and reorganisation law in South Africa is largely governed by the Insolvency Act, 1936 (as amended); the Companies Act, 1973; and the 2008 Companies Act. While traditionally considered to be a litigation practice area, the changing landscape of insolvency law means that insolvency attorneys are increasingly required to be proficient in a number of other fields, such as corporate and commercial law, transactional law, and labour law. This can largely be attributed to the increasingly complex nature of company structures and the introduction of the business rescue regime, which, as alluded to above, requires a restructuring of the affairs of distressed companies such that they are able to continue in existence as solvent entities. This, in turn, requires attorneys to address a myriad other legal and commercial issues, such as the procurement of post-commencement financing, debt restructuring, and the development and implementation of a viable business rescue plan. However, if insolvency is inevitable, the strategy becomes one of minimising loss and maximising returns for creditors by way of the sale of the assets in settlement of claims either by way of negotiation, business rescue, or traditional insolvency procedures.