{"id":818509,"date":"2025-04-04T13:00:00","date_gmt":"2025-04-04T11:00:00","guid":{"rendered":"https:\/\/businesstech.co.za\/news\/?p=818509"},"modified":"2025-04-04T12:45:37","modified_gmt":"2025-04-04T10:45:37","slug":"warning-to-struggling-businesses-in-south-africa","status":"publish","type":"post","link":"https:\/\/businesstech.co.za\/news\/business\/818509\/warning-to-struggling-businesses-in-south-africa\/","title":{"rendered":"Warning to struggling businesses in South Africa"},"content":{"rendered":"\n

Companies considering using business rescue laws to delay paying debts have been warned that the courts are aware of this tactic and are clamping down on the practice.<\/p>\n\n\n\n

According to legal experts from Webber Wentzel, these ulterior motives disguised as good faith business rescue proceedings are becoming an increasing concern in South African insolvency law. <\/p>\n\n\n\n

The experts include Julian Jones (Partner), Caellyn Eedes (Senior Associate), and Liso Potwana (Candidate Attorney) at Webber Wentzel.<\/p>\n\n\n\n

Companies are abusing the business rescue process to delay or obstruct liquidation proceedings, undermining the integrity of the legal framework designed to assist financially distressed businesses.<\/p>\n\n\n\n

They explained that the Companies Act was introduced to provide an alternative to liquidation, encouraging business rescue to rehabilitate struggling enterprises.<\/p>\n\n\n\n

However, as Webber Wentzel points out, the courts are now seeing a troubling rise in cases where business rescue applications are filed not to genuinely save a business but rather to stall or evade creditors.<\/p>\n\n\n\n

A recent ruling highlighted the judiciary’s growing intolerance for these tactics.<\/p>\n\n\n\n

In December 2021, a creditor asked the court to close down a company that could not pay its debts under section 346 of the Companies Act, 1973 (1973 Act). <\/p>\n\n\n\n

The case was repeatedly delayed, and the court noted that the respondent’s late answering of the affidavit was “cynically designed to delay the adjudication of the liquidation application.”<\/p>\n\n\n\n

Just before the court hearing, the company being sued tried to delay things again by filing a business rescue application. <\/p>\n\n\n\n

Normally, under section 131(6) of the Companies Act, 2008 (2008 Act), when a business rescue application is filed, any liquidation (or company closure) process is paused until the court makes a decision. <\/p>\n\n\n\n

The question before the court was whether this business rescue attempt was a real effort to save the company or just a way to buy time and avoid liquidation.<\/p>\n\n\n

\n
\"\"<\/a>
Webber Wentzel’s legal experts Julian Jones (left), Caellyn Eedes (middle), and Liso Potwana (right).<\/em><\/figcaption><\/figure><\/div>\n\n\n

To make a ruling, Webber Wentzel noted that the Johannesburg High Court leaned heavily on a 2024 Supreme Court of Appeal (SCA) ruling.<\/p>\n\n\n\n

In that case, the SCA held that business rescue applications filed for ulterior motives do not trigger the suspension of liquidation proceedings under section 131(6). <\/p>\n\n\n\n

This means courts can ignore business rescue applications if they are made for the wrong reasons.<\/strong><\/p>\n\n\n\n

In the aforementioned case, the High Court meticulously reviewed the respondent’s business rescue application and its conduct throughout the case.<\/p>\n\n\n\n

The court found that the company had no real defence against liquidation. It also said the business rescue application was filed at the last minute to delay the case. <\/p>\n\n\n\n

The court ruled that the application was an abuse of the system and refused to let it pause the liquidation process.<\/p>\n\n\n\n

Having found the business rescue application to be an abuse of process, the court dismissed the respondent’s attempt to delay the winding-up proceedings. <\/p>\n\n\n\n

According to Webber Wentzel, this ruling confirms that section 131(6) does not protect applications that lack genuine intent or substance.<\/p>\n\n\n\n

The judgment also resolves longstanding uncertainty around the definition of “liquidation proceedings” in section 131(6). <\/p>\n\n\n\n

The court decided that both the application to close a company and the process of winding it up are covered. So, unless a business rescue application is made honestly and correctly, it cannot block the liquidation process.<\/p>\n\n\n\n

Webber Wentzel stressed that the ruling sends a clear message that courts will not tolerate manipulating business rescue laws to obstruct legitimate creditor claims. <\/strong><\/p>\n\n\n\n

The court also took strong action against the person responsible for the abusive business rescue application. It ordered that this person\u2014not just the company\u2014had to pay the legal costs personally. <\/p>\n\n\n\n

“For businesses, creditors, and legal practitioners, this ruling sets a clear precedent and reinforces the court\u2019s role in safeguarding South Africa\u2019s insolvency framework,” said Webber Wentzel.<\/p>\n\n\n\n

<\/p>\n","protected":false},"excerpt":{"rendered":"

Legal experts from Webber Wentzel have warned businesses thinking of misusing business rescue laws to delay paying their debts.<\/p>\n","protected":false},"author":92,"featured_media":818533,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[9872],"tags":[20044,22135,853,9455],"class_list":["post-818509","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business","tag-business-rescue","tag-liquidations","tag-south-africa","tag-webber-wentzel"],"_links":{"self":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/818509","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/users\/92"}],"replies":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/comments?post=818509"}],"version-history":[{"count":5,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/818509\/revisions"}],"predecessor-version":[{"id":819723,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/818509\/revisions\/819723"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media\/818533"}],"wp:attachment":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media?parent=818509"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/categories?post=818509"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/tags?post=818509"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}