Business rescue was introduced as a mechanism to rehabilitate financially distressed companies and preserve value. In practice, however, it is often invoked only once liquidation is imminent. This article considers how the defensive use of business rescue, rather than its application as a proactive restructuring tool, materially undermines its prospects of success, with many processes effectively constrained before they begin.

Chapter 6 of the Companies Act 71 of 2008 introduced business rescue as a mechanism to rehabilitate financially distressed companies. Its purpose is clear, to facilitate the restructuring of a company in a manner that allows it to continue operating on a solvent basis or, failing that, to achieve a better return for creditors than immediate liquidation.

In principle, it is a powerful and necessary tool for struggling companies. In practice, however, its effectiveness is often undermined by the circumstances in which it is invoked.

In many cases, by the time business rescue is considered, the business is no longer capable of being rescued. A mechanism built for intervention – not reaction – business rescue is designed to operate at the point of financial distress, not financial collapse.

The statutory framework assumes that, while the company is under pressure, it retains sufficient operational substance and stakeholder confidence to support a restructuring process. The moratorium on creditor claims is not an end in itself; it is a tool to create space within which a viable business rescue plan can be developed and implemented.

Central to this framework is the requirement of the “reasonable prospect of rescue”. This is a substantive threshold. It requires a credible, supportable basis on which the company can be rehabilitated, whether through operational restructuring, the introduction of new capital, or a compromise with creditors. It is not satisfied by the mere hope that conditions might improve.

In the current economic environment, that threshold is increasingly difficult to meet. South African businesses are operating under sustained pressure: elevated interest rates, constrained demand, rising input costs and ongoing infrastructure challenges. In this context, financial distress is often prolonged rather than sudden. Businesses absorb pressure for as long as possible, drawing on facilities, extending creditor terms and reducing internal buffers, while the inevitable is looming.

By the time formal proceedings are considered, the position has often materially deteriorated. Business rescue is therefore frequently initiated not as part of a restructuring strategy, but as a response to imminent liquidation. Its immediate function becomes the moratorium – a means of halting enforcement action and stabilising the position.

This is a fundamental shift. A process intended to enable restructuring becomes, in effect, a defensive measure. Where business rescue is invoked in these circumstances, a critical element is often missing: a realistic pathway to rehabilitation.

The underlying business may no longer be viable on any sustainable basis. Liquidity may be exhausted. Access to additional funding (including post-commencement finance) may be limited or unavailable. Creditor relationships may already be compromised. In these conditions, the business rescue practitioner is required to formulate a restructuring plan within a set of constraints that materially limit its prospects of success.

Where business rescue is initiated early and while the business still retains operational stability, there is scope to intervene meaningfully. Funding can be secured, cost structures adjusted and stakeholder support mobilised. The process functions as intended. Where it is initiated at the point of imminent liquidation, the position is fundamentally different. At that stage, the process becomes a futile exercise, and where the restructuring of the business is left with minimal options. The business rescue practitioner then has the unenviable task of managing a business that has largely exhausted any possibility of it being successfully restructured. Value erosion has already occurred, and the ability to reverse such erosion is limited.

The distinction between those two scenarios is often the difference between a viable business rescue and an inevitable failure.

The defensive use of business rescue also shapes stakeholder behaviour. Creditors are increasingly attuned to proceedings that appear to have been initiated to delay enforcement. Where confidence in the underlying viability of the business is limited, support by stakeholders for the proposed business rescue plan is correspondingly weak.

Funders adopt a similarly cautious approach. Post-commencement finance is, by its nature, risk capital (and often unsecured). It is unlikely to be made available in circumstances where there is no clear and credible restructuring thesis. Without stakeholder alignment, the process becomes self-limiting.

These dynamics are amplified by the current economic environment. Recent increases in input costs (fuel crises) have placed sustained pressure on margins across multiple sectors. At the same time, constrained consumer demand has limited the ability of businesses to pass those costs through. The result is a gradual erosion of profitability and liquidity.

Importantly, this erosion is often not immediately visible. Businesses continue to trade, but with reduced financial flexibility and increasing reliance on short-term measures. It is within this environment that business rescue is increasingly being invoked, not at the point of manageable distress, but at the point where that accumulated pressure becomes unsustainable.

None of this detracts from the value of business rescue as a mechanism. Where it is used as the statute intended, it remains a workable option for a proactive and well-considered restructuring strategy. Business rescue remains one of the most effective mechanisms for preserving value in the South African economy and provides a structured framework within which businesses can reorganise, negotiate with stakeholders and, where necessary, compromise debts and gain access to new capital.

The issue is not the tool. It is the timing and purpose of its use.

Business rescue is too often positioned as a last line of defence. In doing so, it is expected to resolve circumstances that have already progressed beyond the point at which meaningful and successful intervention is possible.

The question is not whether business rescue works. The statutory framework is clear, and where properly applied, it is effective. The question is whether it is being used in the way contemplated by Chapter 6.

When business rescue is deployed as a defence to liquidation, or to frustrate creditors rather than as a considered restructuring mechanism, its prospects of success are inherently limited. In that sense, many business rescues do not fail because the process is flawed. They fail because, by the time they begin, the outcome is already largely determined.

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As South African companies continue to suffer from an ailing economy, and where we are seeing an increasing number of companies filing for liquidation, there is no doubt that the role and impact of the Chief Restructuring Officer (CRO) cannot be ignored.

Recent statistics released by STATS SA, confirm that 233 companies were placed into liquidation in April of this year. In 2026 alone, 891 companies have met their demise through a liquidation process. The University of Stellenbosch’s Bureau for Economic Research (BER) reported this week that the business confidence index had dropped by eight percentage points directly attributable to the price cost impact brought about by the ongoing middle east conflict. According to BER, falling confidence is a warning signal that the economy is losing momentum.

The knee-jerk rush to file for a formal business rescue process needs to be carefully considered by the boards of stressed companies. Proper consideration should first be given to the appointment of a CRO as opposed to a business rescue practitioner. This allows a CRO to take a fresh look at the business and to offer effective turnaround strategies.

Of course it will always come down to ”horses for courses” as financial pressure on the entity might be too great, requiring an urgent filing for business rescue and where the benefit of a moratorium on claims against the company provides the required breathing space needed in the restructuring process. The default position is of course a filing for liquidation, which effectively ends the life of the company with subsequent job losses and cessation of trade.

But it takes a brave director to be able to recognize a decline of the company into the abyss of financial disaster. The last thing that would be high on the board’s agenda in a cash strapped entity would be to admit a potential slide towards business failure and where they would just hold up their hands and actively look for the outside assistance of an independent supervisor, such as a CRO.

Board members of failing companies need to accept that the slow slide towards financial distress is often as a consequence of their own limited management skills in being able to trade the entity out of its financial distress. Often the fear of failure and where directors, not used to making unpopular and difficult decisions, place themselves into a proverbial “rabbit in the headlight” scenario and which makes the need for the appointment of an independent turnaround consultant even more necessary.

The risk of personal liability and opening oneself up to scrutiny by creditors after the company has filed for insolvency, should persuade directors to engage a CRO as early as possible.

A CRO would have as an objective the restructuring of the affairs and business of the company, so as to ensure that the entity can continue to trade into the future on a solvent and effective basis. To do this, the CRO needs to remain independent and do his best to make the hard decisions for the commercial benefit of the operation. The achievement of stability, being able to trade profitably, without ongoing decline are the objectives for the CRO.

A restructuring led by a CRO is aimed at delivering an entity back into the market with its debt restructured, operational and financial changes having been made, with cash burn being reduced, with prejudicial contracts renegotiated, or terminated, and with management and employees realigned to upscale business profits and upside for shareholders and stakeholders. The objective must be to maximise the returns for lenders and creditors faced with the potential fallout of massive debt write offs in the event that these companies file for business rescue or liquidation.

In the recent RT Global CRO Study (March 2026), “The CRO in Transition – Restructuring that Creates (More) Value”, conducted together with the renowned IFUS-Institute in Europe, submissions were made in support of the CRO restructuring option. RT Global submitted that ” in many crisis situations, the CRO is still brought in as a “firefighter”, far too late, and in an environment already shaped by political dynamics, and with the CRO having limited decision-making authority.”

RT Global were of the view that “the CRO office, with clear governance and real executive authority, is becoming the international standard in restructuring. The CRO mandate determines whether restructuring remains an issue of damage control – or becomes a strategic leadership tool.”

In order for South African corporates to consider the clear advantages in appointing CRO’s in failing entities, it is clear that the CRO must be brought in as early as possible and prior to significant damage having impacted the business and its ability to trade out of decline. This requires a change in mindset and where directors and management need to be mature enough to recognize the need for intervention and supervision and to do so as early as possible.

CRO’s must be given clear and concise mandates and with the required milestones in place. Targets for the achievement of both operational and financial turnaround must be set up front, so that all stakeholders are on the same page from day one.

Realistic outcomes must happen within as short a timeframe as possible, so that the turnaround can be given the best possible chance to succeed.

For South African corporates, agility in distressed situations must be a top priority and particularly so in volatile and uncertain times. The appointment of a competent CRO, that has the ability to create stability and a workable turnaround for the company must bode well for distressed companies and for the South African economy.

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The Gauteng High Court, Johannesburg, has delivered an important judgment in White Rivers Exploration Proprietary Limited v Polsun Limited, reaffirming the power of an adopted business rescue plan to fundamentally reshape a company’s equity structure. The decision will be of interest not only to business rescue practitioners, but also to lenders, investors and shareholders involved in distressed restructurings.

At its core, this case concerned a familiar commercial problem. A financially distressed company required fresh capital if it was to survive, which solution was not simply an operational turnaround or a compromise of debt. It was a full recapitalisation: all of the existing issued shares were to be cancelled and new shares issued to an incoming investor as part of the rescue funding package. The Court described this mechanism as lying “at the very heart of the restructuring” and as the commercial quid pro quo for the capital required to rescue the company.

In practice, distressed capital is often only available if the investor can enter on a clean equity footing. The judgment acknowledges that reality. Business rescue, on this approach, is not confined to preserving an existing shareholding structure while adjusting debt around the edges. It can, where the circumstances justify it, become the vehicle for a complete reset of ownership.

White Rivers Exploration (“WRE”) was placed into business rescue on 6 January 2023 by board resolution in terms of section 129(1) of the Companies Act 71 of 2008 (“2008 Companies Act”). A business rescue plan was subsequently adopted in April 2023 with the requisite statutory majorities from bother creditors and shareholders. The business rescue plan provided for an immediate capital injection of £300 000 and, critically, for a full recapitalisation of the company through the cancellation of all existing shares and the allotment and issue of 100 new ordinary shares to Lexington Gold South Africa. The business rescue plan was implemented, and a notice of substantial implementation was filed, resulting in the termination of the business rescue proceedings.

Polsun, a foreign minority shareholder WRE, sought to challenge the completed restructuring. It contended that the cancellation of its shares pursuant to the adopted and implemented business rescue plan was unlawful and unconstitutional, relying on section 25 of the Constitution. Polsun further sought to set aside the business rescue proceedings and to have its prior shareholding reinstated, effectively requiring the Court to unwind a fully implemented and terminated business rescue almost two years after the substantial implementation.

In an application for security for costs brought by WRE, the Court rejected that challenge and held that Polsun chances of success were slim. It held, first, that section 137 of the 2008 Companies Act, read together with section 152(6), expressly authorises a business rescue practitioner to cancel shares in accordance with an adopted business rescue plan. This is significant because it confirms that the power to alter securities, including an equity wipe-out and reissue, is firmly grounded in the statutory framework of Chapter 6 of the 2008 Companies Act, rather than being treated as an incidental or implied power.

Secondly, the Court reaffirmed the binding force of an adopted business rescue plan. Once the requisite statutory majorities have been obtained and the plan has been adopted, section 152(4) of 2008 Companies Act renders it binding on the company and all affected persons, whether or not they supported it. The judgment further situates this within a foundational principle of company law, namely that a shareholder (especially a minority shareholder) accepts that validly constituted majority decisions may prevail notwithstanding any adverse impact on their rights.

Thirdly, the Court rejected the constitutional attack. The complaint was not simply that Polsun had lost an asset. The issue was whether that deprivation was arbitrary. The Court held that the challenge based on section 25(1) of the Constitution could not succeed in light of section 137 of the 2008 Companies Act and the statutory scheme in Chapter 6. Put differently, where securities are altered pursuant to a law of general application and in accordance with a duly adopted business rescue plan, a constitutional challenge of this nature is unlikely to succeed absent an attack on the empowering legislation (being s 137 in this particular case).

Perhaps the most commercially significant aspect of the judgment is its treatment of finality. The Court emphasised that once a plan has been implemented and a notice of substantial implementation has been filed, business rescue terminates by operation of law under sections 132(2)(c)(ii) and 132(2)(b) of the 2008 Companies Act. At that stage, there is no longer an extant business rescue to set aside, and the completed process is not susceptible to retrospective undoing. That is a critical message for investors and creditors. Rescue transactions depend on certainty. If implemented plans could later be unravelled with ease, the willingness of third parties to fund distressed companies would be materially undermined.

The judgment also illustrates that procedure remains decisive in business rescue litigation. The Court held that Polsun’s failure to join interested shareholders and creditors was fatal. It also criticised the attempt to rely on section 172(1)(a) of the Constitution without engaging the remedial framework in section 172(1)(b), particularly given that the rescue process had already been fully implemented and time had passed before the institution of the main application.

Although the case arose in the context of an application for security for costs, the Court’s assessment of Polsun’s prospects makes the broader lesson clear. Business rescue under Chapter 6 of the 2008 Companies Act is a structured, sequential and collective process. It is designed to facilitate rehabilitation or a better return for creditors than immediate liquidation. That purpose would be frustrated if dissenting shareholders could revisit an implemented plan long after the rescue has concluded.

The decision confirms that business rescue is not just about restructuring debt or preserving existing arrangements. It can also reset ownership and control through recapitalisation, as long as the statutory process is properly followed.

For professionals in the restructuring and insolvency space, White Rivers Exploration v Polsun highlights two key points. First, equity is not protected in business rescue. Second, once a plan has been properly adopted and implemented, it is final. That finality is not just procedural but it provides the commercial certainty needed to support business rescue funding.

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A recent judgment handed down by Nyathi J in Maralco Business Advisors CC t/a Maralco Plant Services v GMK Civils Proprietary Limited [1], serves as an important reminder that liquidation proceedings are not a debt-collection mechanism where the underlying indebtedness is genuinely disputed.

The matter concerned an application for the final winding-up of GMK Civils Proprietary Limited on the basis that the company was allegedly unable to pay its debts as contemplated in section 344(f), read with section 345(1)(c), of the Companies Act 61 of 1973. The applicant alleged that the respondent was indebted to it in the amount of R817 994.50 arising from a plant rental facility allegedly concluded on a thirty-day basis and supported by a certificate of balance.

The respondent opposed the application on several grounds. Central to its defence was that its sole director neither concluded nor authorised the alleged facility agreement relied upon by the applicant. The respondent further contended that, even on the applicant’s own version, the alleged agreement was void for uncertainty because it failed to record an essential term, namely the rental rates or a mechanism by which such rental rates could be determined. On this basis, the respondent argued that the invoices relied upon by the applicant could not establish the indebtedness alleged.

The Court ultimately dismissed the winding-up application with costs, reaffirming the long-established principle set out in Badenhorst v Northern Construction Enterprises Proprietary Limited [2], namely that liquidation proceedings should not be used to enforce payment of a debt that is bona fide disputed on reasonable grounds.

Importantly, Nyathi J did not merely accept a generic allegation of dispute. The Court carefully analysed the nature of the disputes raised and found that they constituted substantive contractual disputes incapable of proper determination in motion proceedings seeking liquidation relief.

The applicant relied heavily on a certificate of balance clause as prima facie proof of indebtedness. However, the Court drew an important distinction between proof of indebtedness and proof of liability itself. Nyathi J held that while a certificate of balance may constitute prima facie proof according to its terms, it cannot conclusively establish liability where the validity and enforceability of the underlying agreement are themselves credibly challenged.

In particularly strong language, the Court held that “a certificate cannot bootstrap validity”. This is a significant statement for commercial litigants and insolvency practitioners alike. Certificate of balance clauses are routinely relied upon in commercial litigation and insolvency proceedings, particularly in matters involving facilities, running accounts, or credit agreements. The judgment makes it clear that the evidentiary value of a certificate remains dependent on the existence of a valid contractual foundation.

The Court further held that the respondent had raised a bona fide dispute on reasonable grounds regarding both authority and certainty of essential terms. In relation to authority, the respondent’s sole director squarely denied signing or authorising the agreement. Although the applicant argued that the documents emanated from the respondent’s offices, that services had been rendered and accepted, and that part-payments had been made from time to time, the Court held that these considerations did not permit the respondent’s version to be rejected on the papers.

Nyathi J specifically referred to the principles set out in Plascon-Evans Paints Ltd v Van Riebeeck Paints [3] and held that the respondent’s version could not be rejected as far-fetched or untenable.

The Court also rejected the applicant’s reliance on section 20(7) of the Companies Act 71 of 2008, which permits a person dealing with a company in good faith to presume that the company has complied with all formal and procedural requirements. While the Court accepted that this may be a relevant consideration at the level of “commercial probability”, it nevertheless found that the issue of authority remained genuinely disputed on the papers.

Equally significant was the Court’s treatment of vagueness and certainty of contractual terms. The respondent argued that the alleged agreement failed to specify either a fixed rental amount or an ascertainable mechanism by which the rental could be determined. The Court found that this was not a contrived defence. Instead, it constituted “a substantive contractual contest unsuited to motion liquidation proceedings”.

The judgment repeatedly emphasises the limited role of winding-up proceedings in the resolution of contractual disputes. Nyathi J noted that winding-up proceedings are not designed to resolve material disputes concerning the existence of indebtedness and reaffirmed that where a debt is bona fide disputed on reasonable grounds, the creditor’s remedy lies in action proceedings.

Perhaps the most striking passage in the judgment appears in paragraph 19, where the Court stated that contested issues of authority, contract formation, and essential terms should be ventilated by way of action proceedings “with oral evidence and discovery, not the blunt instrument of corporate death by winding-up”.

That phrase captures the policy rationale underpinning the Badenhorst principle. Liquidation proceedings carry severe commercial consequences and are not intended to operate as procedural leverage in ordinary commercial disputes.

Notably, however, the Court stopped short of criticising the applicant’s conduct as abusive or vexatious. Nyathi J accepted that the applicant had relied on a documentary trail, invoices, and a certificate of balance, “often invoked in commerce”. The Court accordingly refused to grant punitive costs and instead ordered costs on the ordinary party-and-party scale.

The judgment serves as a timely reminder that creditors considering liquidation proceedings must carefully assess the underlying contractual foundation of their claims before invoking the insolvency process. Disputes relating to authority, contract formation, certainty of essential terms, or enforceability may well render liquidation proceedings inappropriate, even where invoices have been rendered, services performed, and partial payments made.

For insolvency practitioners and commercial litigants alike, the judgment is a reaffirmation that the Badenhorst principle remains firmly embedded in South African insolvency law, and that the courts will continue to guard against the use of winding-up proceedings as a substitute for ordinary action proceedings.

[1] Maralco Business Advisors CC t/a Maralco Plant Services v GMK Civils (Pty) Ltd (2026) ZAGPPHC (20 April 2026).

[2] Badenhorst v Northern Construction Enterprises (Pty) Ltd 1956 (2) SA 346 (T).

[3] Plascon-Evans Paints Ltd v Van Riebeeck Paints[3] (Pty) Ltd 1984 (3) SA 623 (A).

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This article considers the recent decision in Trustees, Inkwazi Trust v Skema Holdings (Pty) Ltd and its implications for business rescue applications under section 131 of the Companies Act 71 of 2008. The judgment reinforces the principle that access to business rescue is not automatic and that courts will closely scrutinise whether a credible and factually supported basis for rescue exists. It also highlights the importance of demonstrating that the company itself, and not the wider group, is capable of rescue.

The decision in Trustees, Inkwazi Trust v Skema Holdings Proprietary Limited [1] is a measured but firm application of section 131 of the Companies Act 71 of 2008 (the “Companies Act”). It demonstrates how the existing principles will be applied where business rescue is invoked in response to sustained creditor pressure. What emerges clearly is that access to business rescue is not automatic. The Court will interrogate, at the outset, whether the statutory requirements have been properly met on the evidence provided in the application.

Section 131(4)(a) of the Companies Act 71 of 2008 provides that, after considering an application, a court may place a company under supervision and commence business rescue proceedings if it is satisfied that the company is financially distressed, or has failed to pay over any amount in terms of an obligation under or in terms of a public regulation or contract with respect to employment-related matters, or that it is otherwise just and equitable to do so for financial reasons, and that there is a reasonable prospect of rescuing the company.

In this case, the enquiry turned on whether Skema Holdings was financially distressed and whether such a prospect had been established. The Court reaffirmed that this is not a superficial exercise. While an applicant is not required to prove that rescue will succeed, there must be a proper factual foundation demonstrating a realistic and workable pathway to that outcome. Assertions that a restructuring is possible, or that value exists within a broader commercial structure, are insufficient without supporting detail. The enquiry is forward-looking, but it must be grounded in objective, ascertainable facts.

A central issue was the manner in which the applicants framed Skema Holdings’ position within the broader group of companies. Considerable reliance was placed on group-level value, including property holdings and operational activities said to exist elsewhere in the structure. The Court rejected this approach. It made it clear that the enquiry under section 131 is confined to the affairs of the company before it. The existence of value, operations or employment within the group does not, without more, establish that the company itself is capable of rescue.

Once that distinction is applied, the deficiencies in the applicants’ case become apparent. The Court was not satisfied that Skema Holdings was shown, on the founding papers, to conduct a meaningful operational business. The position regarding the “axle business”, which was relied upon as evidence of ongoing activity, was not clearly articulated at the outset. The explanation as to how that business remained attributable to Skema Holdings, only emerged after it had been challenged in opposition. This, in the Court’s view, pointed to a case that evolved in response to criticism rather than one that was properly formulated from inception.

The same difficulty arose in relation to the asset base. The proposed rescue depended materially on immovable properties, yet many of these were held by subsidiaries and were encumbered. The founding affidavit did not set out how those assets could be lawfully accessed or deployed for the benefit of Skema Holdings. Although further explanations were provided in subsequent affidavits, they did not adequately address the constraints posed by ownership structures and secured creditor rights. The Court was not persuaded that value located within the group could simply be translated into a workable rescue for the company itself.

This fed directly into the assessment of the proposed rescue strategy. The applicants relied on a combination of allegations of property realisation and prospective funding to address the company’s indebtedness. However, the evidence put up consisted largely of indicative proposals and transactions that were incomplete or conditional. The implementation of the rescue strategy depended on future events, including the cooperation of creditors and the conclusion of further agreements. The Court accepted that business rescue is inherently forward-looking, but emphasised that the proposed plan must be supported by evidence demonstrating that it can be implemented. On the facts, that threshold was not met.

The reliance on employment considerations did not alter this conclusion. While the preservation of employment is a recognised objective of Chapter 6 of the Companies Act, the employees relied upon were not shown to be employees of Skema Holdings itself. Their positions were linked to other entities within the group. As a result, the broader impact on employment did not establish that the company before the Court had a viable business capable of rescue.

The manner in which the case was advanced also weighed against the applicants. A series of supplementary affidavits were filed in response to issues raised by the respondents, introducing material that was not contained in the founding papers. Although the Court admitted this material, it emphasised that an applicant must stand or fall by its founding affidavit. The incremental development of the case was relevant in assessing whether a coherent factual basis for rescue existed at the time the application was launched. The Court found that it did not.

Timing was a further consideration. The application was launched after the winding-up proceedings had been argued and judgment reserved. While business rescue may, in principle, be invoked at any stage, the Court emphasised that timing remains relevant in assessing the bona fides of the application. In the context of the evidential shortcomings identified, the timing supported the inference that the application was, at least in part, aimed at delaying the consequences of liquidation.

On the evidence before it, the Court held that the applicants had not established a reasonable prospect of rescuing Skema Holdings. The company’s financial position, the absence of a clearly established operational business, and the reliance on assets and transactions not shown to be within its control, undermined the rescue case. The proposed plan was contingent and insufficiently substantiated.

The application was dismissed, as was the strike-out application, with costs awarded against the applicants.

The judgment underscores the importance of a properly substantiated business rescue application. A business rescue application must demonstrate, on the papers, that the company itself has a viable business and a plan that is capable of implementation. Reliance on group value, anticipated transactions or future cooperation will not meet that standard.

[1] Trustees, Inkwazi Trust v Skema Holdings (Pty) Ltd [2026] ZAKZDHC (13 April 2026).

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When directors fall short of their legal duties, the consequences can be severe, ranging from reputational damage to personal liability. In South Africa, the Companies Act 71 of 2008 (“Companies Act”) provides the framework for directors’ responsibilities, while the King V Report on Corporate Governance for South Africa 2025 (“King V Report”) reinforces the importance of ethical leadership and access to independent, professional advice. Together, these instruments highlight that effective governance begins with a clear understanding of directors’ obligations. Our aim is to provide directors and stakeholders with a concise, accessible resource that underscores both the legal framework and the governance principles shaping boardroom accountability today.

I hope that you find these publications informative and please feel free to contact me for any advice or for further information.

Kind regards,
Dr. Eric Levenstein | Director and Head of Insolvency & Business Rescue

Download the guide here.

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In a restructuring environment often shaped by urgency and commercial pressure, the recent judgment in Tamela Mezzanine Debt Fund I Partnership v KT Wash Detergents Proprietary Limited [1] offers a timely recalibration of first principles. It reminds practitioners, funders and stakeholders alike that business rescue is not an exercise in optimism. It is a structured, creditor-driven process that must be grounded in transparency, fairness and demonstrable commercial logic. Where those elements are absent, even a seemingly viable plan will not survive.

KT Wash entered business rescue pursuant to section 129 of the Companies Act 71 of 2008 (the “Act”). A business rescue plan was subsequently published proposing the sale of the business as a going concern. Despite this, the plan failed to secure the required statutory support, achieving only 50.73% of creditors’ voting interests, instead of the required 75%. That outcome is significant in itself, but what followed is what makes the case particularly noteworthy.

Section 153 allows of the Act provides a mechanism to intervene where a business rescue plan has been rejected. It allows a business rescue practitioner to pursue a revised plan, or an affected person to approach the court to set aside the vote as inappropriate. In doing so, it prevents the automatic collapse of the process following a failed vote and creates space for further engagement where justified.

In this instance, an application to set aside the rejection of the plan was brought by a creditor (unusually so) and not by the business rescue practitioners.

Section 153 of the Act is more commonly invoked by business rescue practitioners seeking to salvage a plan that has failed to achieve sufficient support. Here, however, a creditor, who was also a significant post-commencement financier, sought to overturn the collective decision of the creditor body. The argument advanced was that the vote rejecting the business rescue plan was “inappropriate” and should be set aside. This was premised on the basis that it undermined a viable business rescue plan that depended on their ongoing post-commencement finance. They contended that rejecting the plan was commercially irrational, as it jeopardised the rescue process and would likely result in liquidation.

The court did not accept that proposition.

Pullinger AJ approached the matter from a fundamental starting point. The enquiry was not whether the business rescue plan might have produced a better outcome than liquidation, nor whether the court would have preferred the commercial result proposed. The question was whether creditors had been placed in a position to make an informed decision when exercising their vote. On the facts, they had not.

The court found that the business rescue plan put before creditors, lacked the essential factual foundation required by the Act. It did not adequately explain how the proposed purchase price had been determined, nor did it provide a transparent valuation methodology. It also failed to substantiate the dividend outcomes that creditors could expect under the business rescue plan. In the absence of this information, creditors were effectively being asked to approve a transaction without being able to properly assess its fairness or its comparative benefit. In those circumstances, the court held that their rejection of the plan could not be said to be inappropriate.

The judgment is important for what it does not do as much as for what it does. The court did not attempt to substitute its own commercial judgment for that of the creditors. It did not seek to repair or supplement the deficiencies in the plan. Nor did it treat section 153 of the Act as a mechanism to salvage a proposal that had not met the required evidentiary threshold. Instead, it affirmed that business rescue remains, at its core, a creditor-driven process. Where creditors are not given sufficient information to evaluate a plan, they are entitled to reject it, and the court will be slow to interfere with that decision.

From a commercial perspective, the implications are clear. Business rescue plans must do more than present an attractive outcome. They must be capable of withstanding scrutiny. This requires a level of detail and transparency that enables creditors to interrogate the proposal and make an informed decision. Valuations must be explained, assumptions must be defensible, and the distributional consequences must be clear. Absent this, even a plan that appears viable in principle may fail in practice.

The judgment also reinforces the position of creditors within the restructuring framework provided by Chapter 6 of the Act. Their role is not passive. The statutory voting regime places real power in their hands, and this decision confirms that the courts will respect the exercise of that power, where it is grounded in rational commercial reasoning. At the same time, the case serves as a caution to creditors who seek to take a more interventionist approach. Even a significant funder, as a creditor, cannot rely on the court to override the collective will of creditors where the underlying plan is deficient.

Importantly, the dismissal of the application did not bring the business rescue proceedings to an end. The adjourned meeting is to be reconvened, at which creditors may table a motion requiring the business rescue practitioners to prepare and publish a revised plan. In the event that no such motion is tabled, the business rescue practitioners will be obliged to file a notice terminating the business rescue proceedings. For now, the company remains under supervision, and the success of the process will depend on whether creditors elect to pursue a revised plan and, if so, whether such plan secures the requisite support.

The broader message is clear. Business rescue is, at its core, a creditor-driven process. Approval cannot be assumed, and it cannot be compelled. Where creditors do not support a plan, the process does not bend to accommodate it – it resets. The process now returns to creditors, who will determine whether a revised plan is to be pursued. If a revised plan is proposed and secures the requisite support, the company may yet be restructured. Failing that, the business rescue practitioners will be obliged to terminate the proceedings in accordance with the Act.

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[1] Tamela Mezzanine Debt Fund I Partnership v KT Wash Detergents (Pty) Ltd & Others [2026] 1 All SA 215 (GJ).

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Rising fuel prices are once again dominating economic commentary in South Africa. Business Day reports that the JSE just had its worst month since the 2008 financial crisis, with the all share index having plunged almost 14% in March 2026. While the immediate focus is often on inflation and consumer impact, the implications for business are more complex. This article considers how fuel cost increases are increasingly acting as a trigger for financial distress across key sectors, and why early intervention is critical in preserving value.

South African businesses are well accustomed to operating under sustained pressure. Load-shedding, elevated interest rates, civil unrest, constrained demand and margin compression have become embedded features of the commercial environment. The ongoing crisis in the Middle East has sharply brought into focus the volatility of markets and where the increased price of oil are set to drive inflation to unprecedented levels worldwide.

What distinguishes a sharp increase in fuel prices is not merely the additional cost, it is the role fuel can play as an inflection point: the moment at which existing pressure translates into financial distress for corporates.

Fuel is a uniquely systemic input. It underpins logistics, distribution, production and service delivery across most sectors of the economy. When fuel prices increase, businesses experience an immediate escalation in operating costs, often without the ability to respond in real time. Unlike many other cost drivers, fuel cannot be deferred or meaningfully reduced without operational consequence.

In our current financial environment, this is pivotal. Projected increases come at a time when many businesses are already operating with limited liquidity buffers. Fuel, in this context, does not create distress in isolation. It exposes underlying fragilities and accelerates them.

The impact is most acutely felt in working capital.

Even where fuel is procured through fleet cards, bulk supply arrangements or credit facilities, the cost is incurred immediately and settles over short cycles, typically within 7 to 30 days. The result is that while payment may not be instantaneous, the pressure on cash flow is both rapid and concentrated. At the same time, revenue (particularly in sectors with extended debtor terms) lags behind. This creates a familiar but critical dynamic: costs increase now, while recovery follows later, if at all.

It is at this point that the inflection occurs.

In practice, the early indicators are rarely dramatic, but they are consistent and ever creeping. Businesses begin to stretch creditor payment cycles, rely more heavily on overdrafts and short-term facilities, and experience mounting pressure on stock and inventory funding. Liquidity tightens, often despite turnover remaining stable or only marginally reduced. These developments may not yet constitute formal insolvency, but they are frequently the precursors to it.

Certain sectors are particularly exposed. Transport and logistics businesses experience a direct and immediate escalation in operating costs. Retail and manufacturing absorb the increase through supply chain and distribution channels, often without the ability to pass costs through in real time. Construction and mining operations face higher input costs across plant, fuel and contractor pricing.

Agriculture warrants particular attention. Diesel is a critical input for planting, harvesting and irrigation, meaning that rising fuel costs affect not only on-farm operations but the broader agricultural value chain, including storage, transport and ultimately food pricing. In a sector already exposed to climate variability and input cost volatility, fuel increases can quickly shift marginal operations into distress.

From a restructuring and insolvency perspective, fuel is seldom identified as the primary cause of failure. Formal proceedings typically refer to an inability to pay debts as they fall due, breaches of funding arrangements or sustained creditor pressure. In reality, however, fuel price shocks often act as the catalyst, the event that removes the remaining margin for error in an already constrained business.

Importantly, this is not a question of long-term profitability. Businesses rarely fail because they are unviable over time. They fail because they run out of cash in the short term. That distinction is critical.

The practical implication is that businesses should not wait for distress to crystallise. Those operating in fuel-sensitive sectors should be actively stress-testing cash flow assumptions, reassessing pricing and pass-through mechanisms, and engaging with funders and key creditors at an early stage. In appropriate circumstances, early consideration of restructuring options including negotiating a compromise of debt, a reconfiguration of unwieldy overhead costs, negotiations with landlords for better terms; all feature in what simply needs to be done in a potentially constrained trading environment. When all of this has an impact on the ability to trade on a solvent basis, the timely intervention of a business rescue process, may preserve significantly more value than reactive intervention.

The difference between resilience and distress is often not strategy, but timing.

In the current environment, fuel price increases are accelerating that timeline. Businesses experiencing pressure should engage early to assess liquidity and restructuring options. Once cash flow pressure crystallises into default, the range of available solutions narrows significantly.

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Introduction

Liquidation proceedings place companies in an undesirable legal and operational position which they or other affected persons may often seek to escape from. Section 131(1) read with section 131(6) of the 2008 Companies Act (“business rescue applications“) and section 354(1) of the 1973 Companies Act (“setting aside applications“) provide mechanisms whereby affected persons may either interrupt ongoing liquidation proceedings or set aside a liquidation order that has already been granted.

Regrettably, there has been an uptick of affected persons abusing these processes, in bad faith, by launching business rescue applications merely to delay and disrupt ongoing liquidation proceedings or launching setting aside applications where there is no basis for such relief.

The courts have adopted a strict approach when considering the merits of either business rescue applications and setting aside applications. This article discusses the requirements for successful business rescue applications and setting aside applications, and serves as a cautionary tale to affected persons of distressed and/or insolvent companies that business rescue applications and setting aside applications brought in circumstances where a company ought to be wound up may be regarded as an abuse of the provisions of the 2008 and the 1973 Companies Acts.

The abuse of business rescue applications: Globustarr Trading Co LLC v Mayana Properties (Pty) Ltd [2025] 3 All SA 160 (GJ) (“Globustarr”)

In the recent reported judgment of Gloubustarr, the Court found that Mayana Properties Limited’s (“Mayana“) business rescue application, brought in terms of section 131(1) of the 2008 Companies Act, was an abuse, and placed Mayana in final liquidation by order of the court.

Section 131(1) prescribes that:

“Unless a company has adopted a resolution contemplated in section 129, an affected person may apply to a court at any time for an order placing the company under supervision and commencing business rescue proceedings.”

Section 131(6) prescribes that:

“If liquidation proceedings have already been commenced by or against the company at the time an application is made in terms of subsection (1), the application will suspend those liquidation proceedings until –

• the court has adjudicated upon the application; or
• the business rescue proceedings end, if the court makes the order applied for.

Mayana had brought a business rescue application in circumstances where there were ongoing proceedings brought by Globustarr Trading Co LLC (‘Globustarr“) for Mayana’s winding-up. In terms of section 131(6), Mayana’s business rescue application would have ordinarily had the effect of suspending Globustarr’s ongoing liquidation application pending the adjudication of Mayana’s business rescue application.

However, the Court determined Mayana’s business rescue application to be an abuse (and came to this conclusion after considering Mayana’s conduct throughout the proceedings), for the following reasons:

• Mayana filed its answering affidavit to the liquidation application one court day before its (unopposed) hearing date, and without a reason for this late filing placed before the court;
• Unsubstantiated claims of fraud (which form a part of Mayana’s opposition) were pleaded in the answering affidavit;
• Despite being required to do so in terms of the practice directives of the Court, Mayana failed to deliver heads of argument and a practice note, and did not cooperate in the preparation and filing of a joint practice note; and
• There was a delay of at least a month in bringing the business rescue application.

The Court concluded that Mayana’s actions, as outlined above, formed part of a deliberate and concerted attempt to frustrate the ongoing liquidation application. Essentially, the Court held that Mayana’s business rescue was merely launched in pursuit of delaying the adjudication of the application for Mayana’s winding-up.

The Court held that section 131(6) of the 2008 Companies Act (which would have resulted in the suspension of the ongoing liquidation proceedings) did not, and could not, apply to business rescue applications constituting an abuse.

In addition, the Court held that Mayana’s business rescue application was meritless as it failed to set out the requirements for a successful business rescue application such as a detailed business rescue plan, projected funding and the cost of business rescue, financial statements, and where necessary and possible, management accounts, comparative income statements indicating Mayana’s previous profits and shedding light as to its trading going forward and the availability of necessary resources to enable Mayana to meet its operations and expenditure.

Therefore, a business rescue application can constitute an abuse by virtue of the circumstances under which it was launched (i.e., the applicant’s conduct) and/or the merits, wherein the business rescue application lacks merit to such an extent that it constitutes an abuse.

The Court in Globustarr found Mayana’s business rescue application to be an abuse and subsequently granted an order placing Mayana in final liquidation. As a show of its disdain, the Court also awarded punitive costs against the director of Mayana in his personal capacity.

Globustarr serves as a warning to all applicants in business rescue applications not to abuse the business rescue process as the courts will not tolerate such abuse.

Setting aside applications in terms of section 354(1) of the 1973 Companies Act: a relook at the seminal case of Ward and Another v Smit and Others: In re Gurr v Zambia Airways Corporation Ltd 1998 (3) SA 175 (SCA) (“Ward“) 

In Ward, while the word “abuse” is not explicitly used, the Court was critical of the appellant’s (the “Local Liquidators“) case before it to set aside the winding-up order granted in South Africa for Zambia Airways Corporation Limited (“Zambia Airways” or the “Company“).

Zambia Airways was an external company in terms of South African law, that was incorporated in Zambia and had an office in Johannesburg. In 1994, it was voluntarily wound-up in Zambia, with the Local Liquidators appointed as the joint liquidators. Shortly after its liquidation in Zambia, the Company was finally wound-up in South Africa by order of court.

Subsequently, the first respondent in Ward was appointed as the Company’s provisional liquidator (the “Foreign Liquidator“), and had already begun the process of winding-up the Company’s South African estate, had held two meetings of creditors when the Local Liquidators brought an application, among other things, seeking recognition in South Africa, the power to “administer” the Company’s South African estate and setting aside the winding-up of the Company in South Africa.

The Court highlighted that the Local Liquidators had taken approximately five months after the final winding-up order was granted to apply for their recognition in South Africa, and during which time the Foreign Liquidator was appointed and had begun the work of winding-up the Company’s estate in South Africa.

The Court, in Ward, was then tasked to determine whether to set aside the Company’s winding-up in terms of section 354(1) of the 1973 Companies Act, which reads as follows:

“The Court may at any time after the commencement of a winding-up, on the application of any liquidator, creditor or member, and on proof to the satisfaction of the Court that all proceedings in relation to the winding-up ought to be stayed or set aside, make an order staying or setting aside the proceedings or for the continuance of any voluntary winding-up on such terms and conditions as the Court may deem fit“.

The Court in analysing and applying this section seminally held that section 354(1) offered the court “a discretion to set aside a winding-up order both on the basis that it ought not to have been granted at all and on the basis that it falls to be set aside by reason of subsequent events“.

The Court held that in order for such an application to succeed “exceptional circumstances” must exist and outlined that such an applicant in such proceedings must additionally demonstrate:

• how the insolvency came about;
• the company’s full financial position, including its obligations to any creditors;
• whether the company was run with probity; and
• why they did not initially oppose the winding-up or appeal against it.

Other factors considered by the courts in setting aside applications are whether there were any delays in seeking the setting aside as well as any developments in the winding-up.

In applying the above factors for consideration, the Court held that the Local Liquidators had not satisfied section 354(1) of the 1973 Companies Act, due to the fact that a sufficient explanation was not placed before the court as to why the winding-up in South Africa was not opposed, a sufficient explanation was not proffered for the delay in seeking recognition and by the time this recognition was sought, the winding-up of the Company’s estate in South Africa had already commenced with “considerable progress” already made.

Accordingly, the Court in Ward found no acceptable reason or set of exceptional circumstances to set aside the winding-up and the matter was dismissed with costs.

Conclusion

While the abuse in Globustarr was more apparent and deliberate, Ward, almost 30 years earlier, set the precedent that practitioners (as a whole) are not to abuse the statutory and court processes afforded to them and that, whether it is relief under section 131(1) of the 2008 Companies Act or section 354(1) of the 1973 Companies Act, the relief is not merely for the asking.

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Looking ahead to 2026, restructuring of businesses are set to increase as continued pressures brought about by tough trading conditions continue to impact the survival of corporates in South Africa. One of the key indicators of continued financial pressure for corporates into 2026, are some of the delistings on the Johannesburg Stock Exchange (JSE) in 2025 due to filings for business rescue. Both PSV Holdings and Murray & Roberts are set to delist in January 2026 amid financial challenges.

We have also recently seen filings for business rescue in Daybreak Foods (chicken farming), Prax South Africa (oil) and where the South African Post Office, and Mango Airlines continue in their business rescue processes.

After four years of uncertainty, Stefanutti Stocks (construction) has managed to stay out of business rescue after settling with Eskom (R580 million) in regard to work done at the Kusile Power Station, and by reaching new terms with its lenders. The informal restructuring of the entity was run by Metis Advisory after being appointed in 2019, to assist navigating potential financial constraint brought about by a cash flow crunch.

Whether corporates are in need of an informal turnaround or by participating in a formal business rescue process, what is certain is that many struggling companies require independent intervention in order to be able to fend off potential liquidation and closure.

Our current business rescue framework supports the case for robust practical workarounds for companies that are entering positions where they cannot meet obligations to creditors, and where they need a breathing space from creditors to negotiate terms for repayment.

The objective of business rescue is to preserve value, to allow for a moratorium (stay) on claims against the company so that the appointed business rescue practitioner can work towards the rehabilitation or preservation of the company as a going concern.

What is important for struggling companies to understand is that the option of a formal business rescue process allows these companies to reset, take a hard look as to the manner in which they trade, and to get independent advice from experts in turnarounds and restructuring, namely from the restructuring advisor/business rescue practitioner, so as to allow it to continue to trade and participate in the South African economy. All rescue efforts are focused on averting a final closure of the entity in a liquidation scenario.

The current business rescue regime that was introduced in Chapter 6 of the 2008 Companies Act in 2011, is company (debtor) centric and rescue-driven. The primary objective of business rescue is the ability to compromise historical debt, renegotiate prejudicial contracts, reconfigure the company’s workforce and ultimately work together with all stakeholders to develop and implement a business rescue plan that enables the company to continue operating as a going concern. Only where this is not possible, does the process default to a secondary objective, to provide creditors with a better return than they would receive in an immediate liquidation. This shift in focus demonstrates a deliberate legislative intention to preserve value, safeguard jobs, protect investment, and maintain economic participation wherever possible. The objective being to provide a distressed company with the opportunity for a “fresh start”, and where the company is provided with a runway to trade its way out of distress, through a restructuring process and where the company would have the opportunity to trade out to a position of solvency into the future.

In practice, however, business rescue is underutilised. This is because, business rescue is often considered very late in the distressed curve and where directors fear handing over the reins to an independent person, namely the business rescue practitioner, and where they would lose control of the company and the restructuring process. Directors are also reluctant to admit having traded the company into a period of financial difficulty and which behaviour would reflect on poor leadership, and often is reflective of a failure to timeously take the necessary steps to prevent financial collapse.

In reality, business rescue is a highly effective restructuring tool, but its success depends on being utilised at the right time. It provides companies with a mechanism to remain economically active while offering potential investors opportunities to acquire assets or equity, and provide creditors with the prospect of a better return and the unlocking of value, compared to what would result in a liquidation.

In April 2025, a significant development in insolvency and business rescue practice came about with the introduction of the Johannesburg High Court’s Pilot Project, namely the formation of a Dedicated Insolvency Court, which established both an Insolvency Motion Court and an Insolvency Trial Court. Alongside sequestration and liquidation proceedings, business rescue matters are now also handled by this specialised court. The new Insolvency Court, is staffed with judges trained in insolvency law, which promises more equitable and informed decisions. Equally important was that prior to the introduction of the new Insolvency Court, there were significant delays in court hearings. Insolvency and business rescue matters are inherently urgent. Under the Insolvency Court, hearings follow a four-week cycle from date of enrolment, a welcome improvement, given the time-sensitive nature of business rescue and the critical importance of swift action to protect value and preserve companies who find themselves in financial distress. The new Insolvency Court in Johannesburg adds a refreshing and very exciting dimension to insolvency practice, for all of us involved in the insolvency and business rescue. We are hoping that in 2026, we are going to see the roll out of other insolvency courts in the other divisions of the High Court country -wide.

Business rescue is important for South Africa’s economy in that it allows for –

• Job creation and preservation – in many business rescue matters we see the preservation of jobs and employment, particularly when we are able to rescue the company and where it does not collapse into liquidation, causing the ultimate demise/end of the company’s life, with the consequent loss of jobs and retrenchments. By offering continued employment to a large part of the workforce, assists in keeping unemployment figures down, and where companies can continue to trade, albeit with a reduced number of employees, cutting overheads and the cost of running the business.
• Distressed companies having access to finance – often companies go into rescue because they are financially distressed – they cannot pay their debts in the ordinary course of business. By filing for business rescue, these companies have the opportunity for distressed funding lines in the form of “post -commencement finance” – PCF, and where anyone providing such PCF would be preferent in a business recue. This promotes new capital and would enable a company to be restructured. PCF provides a funding lifeline and where the company can buy some time (breathing space) to have its restructuring BR plan approved by creditors, have the plan implemented and where the company can exit from rescue on a solvent basis, enabling the company to continue to trade on into the future.  This can only be a positive for the company, its stakeholders (particularly for its suppliers of goods and services) and to the SA economy as a whole.
• Potential for increased investment in distressed companies – over the last decade we have seen a marked increase in the opportunity for cash flush investors to acquire assets or distressed companies out of business rescue. We have seen multiple examples of this and where third party offerors have concluded transactions at deep discounts and where these acquirors have walked away with value assets and companies. So the opportunities available to bed down these distressed M&A transactions have increased. These transactions have occurred in the mining/resource space, and in retail and manufacturing, and where we have seen consolidation of sectors as a result of these transactions happening out of rescue.
• Supports entrepreneurship – fresh start principles of restructuring – the chance for a company to be rescued and have a second chance (a fresh start) is of course fundamental to restructuring models in most jurisdictions across the globe, and we have certainly seen this with some of the successful rescues that have taken place in South Africa over the last few years.

It is important that a country like South Africa has viable and effective restructuring mechanisms whether it be on an informal basis (as seen in Stefanutti Stocks) or where a formal intervention such as business rescue is required.

Successful rescue regimes promote investment, bolster the economy and where jobs and viable businesses are preserved through the rescue process. Companies which were on the verge of collapse, are restructured and brought back from the cliff edge of disaster, and where they are placed back into local economies for the benefit of all stakeholders.  The important challenge is for South Africa to ensure that it continues to have a reliable and workable framework for turnarounds of distressed companies. This would enable positive outcomes for SA Inc, and where skilled practitioners are able to implement and supervise these opportunities for rescue. If creditors and banks are confident in the rescue regime applicable, they will continue to support the company after its exit from the rescue process.

In 2026, it is very important that practitioners continue to highlight successful rescues and restructuring outcomes and where they promote the benefits of the process. Examples of companies having been successfully restructured or rescued, and where a better return to creditors has been achieved as to what would have resulted in a liquidation, must be shared with all stakeholders and the South African public as often as possible. This promotes confidence in the local economy and where creditors know that they will be able to maximize returns in distressed situations.  Restructuring and formal business rescue processes remains active, and we are seeing more and more boards of directors starting to consider the urgent need for a formal restructuring alternative at a much earlier stage in the distressed curve, and where such intervention averts the potential for significant destruction in value brought about by liquidation.

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