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Old insolvency laws out of favour

Oct 19,2015

On 12 October 2015, the Deputy Minister of Justice and Constitutional Development, the Honourable John Jeffrey indicated that we are shortly to receive a revised and consolidated unified Insolvency Bill (“Bill”).

Insolvency Law, as we know it presently is, in addition to substantial case law precedent, governed by –

  • the Insolvency Act, 24 of 1936 (now nearly 80 years old);
  • selected provisions of the Companies Act, 61 of 1973 (the old Companies Act), as read with Item 9 of Schedule 5 of the Companies Act, 71 of 2008 (the new Companies Act);
  • the Close Corporations Act, 69 of 1973 insofar as close corporations are still in existence and are placed into liquidation; and
  • the Cross Border Insolvency Act, 42 of 2000.


The existing framework governing insolvency in South Africa –

  • is disparate, peppered across numerous acts and is therefore not easily accessible;
  • creates inconsistencies in relation to procedures dealing with the administration of insolvent estates for individuals and companies that are the subject matter of the insolvency;
  • does not fully regulate the conduct of liquidators; and
  • is in a number of respects outdated:
  • a party can still be sequestrated or liquidated against the non-payment of debt in the amount of R100 if all of the other relevant elements of an application of that kind are met;
  • an individual can only obtain the benefits of a sequestration if he/she can show the court that such sequestration is to the “benefit of creditors”; and
  • technology and advanced communications play a limited role in this area of our law.

The existing framework also provides limited mechanisms for dealing with cross border insolvency – the Cross Border Insolvency Act 42 of 2000 is stillborn in that the Minister has never gazetted States or Countries to which the Act would apply and is accordingly of limited assistance.

The announcement by the Minister that the Bill will consolidate the laws relating to insolvency of natural persons, Companies, Close Corporations, Trusts, partnerships and other legal entities with or without personal legal personality, and also incorporate “cross border insolvency” comes therefore as something of a relief and is likely (naturally dependent on its content) to be well received. Certainly, from a practitioner’s point of view, uniformity of approach with respect to the insolvency of juristic entities and individuals will simplify matters and will be welcomed.


The proposed Bill will also make provision for the application of business rescue to any commercial entity that has “10 or more employees” and will further introduce provisions dealing with cross-border insolvency mechanisms. This will allow liquidators to have their powers recognised in foreign jurisdictions and presumably in African and regional jurisdictions. Additionally, new provisions will require liquidators to become members of recognised professional bodies through an Insolvency Practitioners Bill. It is proposed that a Council will be set up and tasked with regulating the registration of insolvency practitioners, improving standards of professional conduct and qualifications and facilitating transformation across the insolvency industry.

The Insolvency, Business Rescue and Restructuring Department at Werksmans intends to monitor the new Bill as it develops and further intends to make submissions to the Department of Justice in respect of the working draft once it is published. Any comments from clients are welcome and can be submitted to We look forward to seeing how the process unfolds and we are confident that the Bill will achieve, as a useful starting point –

  • the harmonisation of legislation with respect to the winding up of various juristic persons and individuals;
  • the creation of a body vested with powers of oversight in relation to the regulation of the liquidators’/trustees’ profession; and
  • a more practical and usable platform from which South Africans may institute local and cross-border insolvency proceedings.

One can only hope that the arm of Government which is ultimately vested with the administration of insolvent estates receives similar attention so that the affairs of estates in liquidation and insolvency can be handled more expediently without prejudicing the interests of all stakeholders when the Bill is promulgated.


The new Bill comes as a “breath of fresh air” and in an environment where lawyers and insolvency practitioners have been conducting insolvency practice for decades under an archaic Insolvency Act which became law in South Africa in the 1930s. Insolvency practice and thinking have been modernised dramatically across the globe and more recently in South Africa with the introduction of business rescue proceedings for financially distressed companies in terms of Chapter 6 of the new Companies Act. Bringing all insolvency legislation into one Act is a really good initiative and one which should be welcomed. It makes insolvency legislation far more “user friendly” and understandable to the layman. The legislation as it stands contains complex insolvency procedures making it difficult for creditors to extract a meaningful dividend from an insolvent estate and for cash strapped individuals to obtain the benefit of a “fresh start” free of debt.

In particular, regulation of the Insolvency Industry by the introduction of legislation dealing with the registration and training of insolvency practitioners and liquidators must be welcomed and will boost the image of the Insolvency industry in South Africa.

In summary, the proposed Insolvency Bill will be beneficial and, no doubt, good for the economy.

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