Corona Virus (COVID-19) pandemic is having a significant impact on businesses and the economy. What options are there for companies and close corporations in financial distress?

In these uncertain times, the business community may be considering what options are available for businesses that are in financial distress or will be financially distressed in the near-term future.

The options available are as follows:


Knowledge is power and businesses should immediately investigate how to go about accessing initiatives and interventions by the South African government and the private sector, including where to get funding or payment relief to help businesses navigate through this tough time. Once equipped with all the information business should endeavour to access such funding right away.


Restructuring is corporate action taken by a company to significantly change the financial and operational aspects of the company, usually when the business is facing financial pressures.

Restructuring involves reorganising the debt, operations or structure of a company as a way of limiting financial harm and improving the business.

In cases where a company is having trouble making payments on its debt, it will often consolidate and adjust the terms of the debt in a debt restructuring, which requires the buy-in of financiers or creditors, creating a way to pay off creditors and financiers. It is recommended that businesses have open and frank discussions with financiers or creditors to discuss the possibility of payment holidays and extension on existing facilities.

A company may also decide to restructure its operations or structure by cutting costs, such as payroll, or reducing its size through the sale of assets.

A business should also consult with their broker or insurer to determine whether it may be covered for business interruption under an insurance policy.

If the restructuring mentioned above, will not do or fails to provide the liquidity required, then more formal legal procedures may be appropriate.

The following formal legal proceedings are also available to a financially distressed business:


Chapter 6 of the Companies Act 71 of 2008 (the “Companies Act”), as amended by the Companies Amendment Act   (the “Amendment Act”), which came into operation on 1 May 2011, introduced statutory corporate rescue procedure into South African corporate law.

The rescue procedure is aimed at providing a company with a chance to reform its business in a way that would either maximise the likelihood of its continued existence on a solvent basis or result in a better return for the creditors of such a company that would result from its liquidation.

Once business rescue proceedings are commenced, the rights of creditors are restricted by way of a moratorium on any legal proceedings which include any enforcement action against the company save for the exceptions stipulated in the Companies Act.  The calling up of any guarantee or surety a company has given may also not be called up except with leave of the court.

Save for the agreements that have been expressly excluded by the Companies Act the appointed rescue practitioner may suspend or with leave of the court cancel entirely, partially or conditionally any obligation of an agreement which existed at the commencement of proceedings.

In brief, the rescue procedure provided to facilitate the rehabilitation of a financially distressed company entails:

  • Placing the company under the temporary supervision of a business rescue practitioner;
  • A temporary moratorium (stay) on the rights of claimants against the company or in respect of property in its possession; and
  • The development and implementation, if approved of a business rescue plan to rescue the company by restructuring its business, property, debt, affairs, other liabilities and equity.

The board of directors or various affected persons (including shareholders, creditors, registered trade unions and employees) can initiate business rescue by an application to court when the business is financially distressed.


Where restructuring opportunities have been exhausted, or business rescue is not recommended or is unsuccessful, liquidation may be necessary.

The threshold for liquidating a company is that it is unable to pay its debts as they fall due.

Liquidation further implies that the business will cease to operate usually as a result of financial problems. The liquidation may come about as a result of a voluntary legal court process by the company or close corporation, or compulsory liquidation following legal action by the creditors of a company or close corporation.

Liquidation should only be considered if restructuring and business rescue options have been exhausted.

A company or close corporation facing a compulsory application for liquidation may be able to persuade the court depending on the circumstances not to grant a liquidation order and instead order that the company commence business rescue proceedings.

Take note that the above is merely general information and should not be used or relied on as legal or other professional advice.

If you think your business is in financial distress and you need some help with a plan of action, then please feel reach out to us for assistance.

Contact Kugen Pillay at Goldberg & de Villiers Inc for professional advice. Kugen can be contacted on 060 997 7011 | kugen@goldlaw.co.za


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