South Africa: Chapter 14 Of The Now-Repealed Companies Act Of 1973 Continues To Apply To The Winding Up Of Insolvent Companies

Last Updated: 19 November 2013
Article by Roodt Inc

The implications of the continued application of chapter 14 of the Companies Act 1973 to companies being wound up on the grounds of insolvency

The general effective date on which the Companies Act 71 of 2008 came into force was 1 May 2011. Consequently, as from that date, the Companies Act 61 of 1973 was repealed, except in so far as the transitional provisions contained in schedule 5 of the new Act provide for the continued application of certain provisions of the old Act.

Of particular significance are the provisions of sch 5 of the Companies Act 2008 in relation to the winding-up of companies and the important distinction in this regard between solvent companies and insolvent companies.

Item 9(1)-(2) of Sch 5 provides, in effect, that despite the repeal of the Companies Act 1973, certain specified provisions of chapter 14 of that Act (which deals with the winding-up of companies, both solvent and insolvent) continue to apply, except in relation to solvent companies. Expressed more plainly, chapter 14 of the Companies Act 1973 continues to apply in relation to the winding up of insolvent. companies.

However, the distinction drawn in Sch 5 of the Companies Act 2008 in terms of which the winding-up of solvent companies is governed by that Act whilst the winding up of insolvent companies continues to be regulated by the Companies Act 1973 raises the question as to what is meant, in this context, by solvent and insolvent.

In Firstrand Bank Ltd v Lodhi 5 Properties Investment CC 2013 (3) SA 212 (GNP) van der Byl AJ held that where item 9(2) of Sch 5 to the Companies Act 2008 refers to solvent companies having to be wound up in terms of the provisions of that Act, it uses the word solvent in contradistinction, not just to companies that are factually insolvent (that is to say, those companies whose liabilities exceed their assets) but also to those that are commercially insolvent in other words, those companies that are unable to pay their debts as they fall due.

Consequently, since the coming into force of the Companies Act 2008, where a company is being wound up on the grounds that it is insolvent, it suffices for the applicant to show that it is commercially insolvent and it is not necessary to show that it is factually insolvent.

This interpretation has since been endorsed in Scania Finance Southern Africa (Pty) Ltd v Thomi-Gee Road Carriers CC 2013 (2) SA 439 (FB) and in Standard Bank of South Africa Ltd v R-Bay Logistics CC 2013 (2) SA 295 (KZD), both of which rejected the decision to the contrary in HBT Construction and Plant Hire CC v Uniplant Hire CC 2012 (5) SA 197 (FB).

Although the Supreme Court of Appeal has yet to speak on this issue, it therefore seems safe to say that the decision in Firstrand Bank Ltd v Lodhi 5 Properties Investment CC was the starting point of an established consensus that is unlikely to be reversed.

This will come as a considerable relief to an unpaid creditor of a company who wishes to bring an application for it to be wound up, for he will not be required to prove that it is factually insolvent (which may be an impossible task in application proceedings, for he will usually lack the evidence necessary to prove factual insolvency), and will be able to succeed by proving commercial insolvency and to rely on such commercial insolvency to trigger the deemed inability to pay the debt in question as provided for in section 345(1) of the Companies Act 1973 by laying before the court either a statutory demand for payment (as envisaged in section 345(1)(a)) or a nulla bona return (envisaged in section 345(1)(b)).

The directors' personal liability for the company's debts

The ancillary question of great importance to such a creditor – namely, the grounds, under the new Companies Act of 2008, on which he can apply for an order declaring that the company's directors are personally liable for the company's debts – has not yet come before the courts, but the answer seems clear.

Such personal liability for the company's debts was provided for in section 424(1) of the Companies Act 1973; however, there is no exact counterpart to this provision in the Companies Act 2008.

It is true that section 22 of the Companies Act 2008 contains an explicit prohibition on reckless or fraudulent trading, but it does not go on to say that anyone who was party to such conduct by the company can be declared personally liable for its debts. (And there are other provisions of the Act that create a liability for damages vis-a-vis the company in relation to this and any other contravention of the Act.) A declaratory provision of personal liability for the company's debts can now be sought only in terms of section 20(9) of the Companies Act 2008 which provides that where there has been an unconscionable abuse of the juristic personality of a company, the court can declare the company (in terms of section 20(9)(a)) to be deemed not to be a juristic person in respect of its liabilities and can make an ancillary order (in terms of section 20(9)(b) of the Act), which implicitly includes an order that its directors are personally liable for some or all of its debts.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions