ranking of creditors in liquidation south africa

v Minister of Trade and Industry and Others 2018 (2) SA 523 (GP) (29 In addition, the It is the responsibility of creditors with unsecured claims to prove their claim at a creditors’ meeting, either in the first meeting or second meeting, in order to have their claim paid out in proportion to the available residue. (1) A solvent company may be dissolved by— (a) voluntary winding-up initiated by the company as contemplated in section advantage for creditors requirement in South Africa and its impact on insolvency law. Okay, now pay a fine to the tune of £17.9 million, taxes on persons or the incomes or profits of persons. On the one hand, the protection afforded to creditors who are secured prior to the commencement of business rescue will be rendered nugatory in a liquidation; in that if their claims are not satisfied out of the security that they hold, they will receive payment of their claims only after the various creditors (i.e. Ranking of Creditors in a Liquidation under Saint Lucian Law – important clarification by the Court of Appeal – September, 2018. that were the case, a lessor would enjoy a preference over other creditors The 2.2.3 Payment of unsecured post-commencement financiers (section 135(2)); 2.3 Section 98 of the Insolvency Act – Payment of the costs of execution; 2.4 Section 98A of the Insolvency Act – Payment of salaries or wages of former employees of the company, subject to the limits described in this section. Once all the costs of winding up have been paid, creditors will be entitled to their proportionate share of the residue of the company’s estate. It does not lean to an interpretation that encompasses existing obligations, other than to company employees, of the company that are utilised to assist in managing the company during the business rescue proceedings. Unsecured claims (including the unsecured balance of the secured creditor claims) are paid out of the residue available after the secured and preferential claims have been paid, according to s103(1) of the Insolvency Act. After payment of the costs, secured creditor claims are at the top of the list of creditors to the value of the security held by them. Payment of the amounts due to the members of the company (shareholders). agreement and that those costs cannot constitute post-commencement financing or liquidation but before claims of employees for post-commencement wages, of Proof of a claim could, for instance, be in the form of financial records of the transactions by which money was loaned or invested by the creditor or goods or services were supplied. 2. claims under section 135 of the Companies Act, will have to be proved like any other claim in terms of section 44 of the Insolvency Act, and will not enjoy any preference over secured claims in liquidation. dealing with business rescue proceedings, there has been much legal debate on Fourth Respondent CHRISTIAAN FREDERIK DE WET N.O. proceedings, and which costs were incurred during business rescue proceedings, will be paid in the order of preference set out in subsection (3)(b). To find out more see our Privacy Policy. Third Respondent WINIFRED FRANCES HARMS N.O. In this regard, the realisation costs include, in terms of this section, “[t]he trustee’s remuneration in respect of any such property and a proportionate share of the costs incurred by the trustee in giving security for his proper administration of the estate, calculated on the proceeds of the sale of the property, a proportionate share of the Master’s fees, and if the property is immovable, any [property] tax [and penalties thereon]”. Shareholders and unsecured creditors must keep updated financial records of any money loaned to or invested in a company so that in the event of a liquidation, they are able to safeguard investments to some extent. do not create the ‘super-preference’ contended for on behalf of Diener. Conventional wisdom is that the claims of all secured and preferent creditors should rank above the claims of unsecured creditors. Judgments that have been handed down by our courts have by and large been informative and instructive in paving the way for the efficient application of business rescue. service providers disbursed by the landlord) in respect of a property leased by the so called “payment waterfall” in business rescue proceedings. Preference shareholders with unsecured loans and third party unsecured creditors must be aware of the ranking of unsecured creditors’ claims in the liquidation process. introduced by the Companies Act. Add to cart. arising out of the costs of business rescue proceedings“. Van der Westhuizen AJ further held that the An order for liquidation of the Company was 135(4) provides to the BRP, after the conversion of business rescue proceedings This website uses cookies to remember you and improve your experience. over all assets, even above securities existing when the practitioner takes Our lawyers offer local insights with an international perspective recognised worldwide. Creditor’s claims are ranked and are paid out in accordance with an order of preference determined by South African legislation. Secured creditors are paid first, followed by unsecured creditors. N.O. Notice of the meeting is published in the Government Gazette. Section 135(4) contains a strong indication when it had regard to the ranking of business rescue practitioners’ fees in an instance s 135(4) in the broader scheme of the Insolvency Act. out of the costs of business rescue proceedings in terms of section 135(3) of South African Property Owners Association, sought a declaratory order that the This note specifically focuses on the unsecured loan given by a preference shareholder and not the ranking of dividend payments where a preference shareholder takes preference over an ordinary shareholder. The ranking of creditors paid out of the insolvent estate are: And, in the event of a company liquidation, lastly: A secured creditor holds security for their claim which gives them preference above unsecured creditors. rescue practitioner(s) for their fees. This note specifically focuses on the unsecured loan given by a preference shareholder and not the ranking of dividend payments where a preference shareholder takes preference over an ordinary shareholder. 087 702 3601 legal@insolvencycare.co.za Facebook A trustee of the insolvent estate is elected by the presiding officer in the first meeting where creditors also have their first opportunity to prove their claims. This normally takes anything from 90 to 150 days. commencement of business rescue proceedings under an agreement that was KEY TERMS Business rescue; Employees; Employee rights; Liquidation; Voluntary administration; her remuneration to claim against the free residue after the costs of Where a liquidation order is granted and the company is removed from commerci al life, this will not only affect the members and creditors but also the employees, As a consequence, in a liquidation, the These judgments, Proceeds from the sale of the Encumbered Assets: 1.1 Section 89 of Insolvency Act 24 of 1936 (“Insolvency Act“) – Payment of the cost of maintaining, conserving, and realising any property. Under the Companies Act of South Africa(1973) There are many grounds available to creditors and/or members of a company or close corporation to launch liquidation proceedings. where business rescue proceedings had been converted into liquidation Bradley Workman-Davies Bradley Workman-DaviesIn the normal course of employment, employees' rights are protected by the Labour Relations Act 66 … Van der Westhuizen AJ essentially held that:“In my opinion, and applying the principles of interpretation, the financing intended in subsection (2) of section 135 of the Act relates to the obtaining of financing in order to assist in managing the company out of its financial distress, hence the provision that any asset of the company may be utilised to secure that financing to the extent that the asset is not otherwise encumbered. At the time of investing, taking security is the best option to secure a creditors’ claim and it is advised that such security is taken. Airconditioning CC (in liquidation) (“the Close Corporation”). The CC held that there is nothing in the Companies Act, or anywhere else, which would suggest that the legislature had intended the rights of secured creditors to be diluted where liquidation of the company supersedes business rescue proceedings through the ranking in preference of the business rescue practitioner’s remuneration and expenses, above the claims of secured creditors. With the promulgation of new legislation, it is interesting to follow the jurisprudence that develops with it. 135(3) Ashersons is a boutique practice catering for an exclusive range of both corporate and high nett worth individual clients throughout South Africa, Africa… that “[i]f business rescue proceedings are superseded by a liquidation law reform be implemented in our legislation, South Africa will overcome the few obstacles currently in its way to be seen as a world leader where employee rights are concerned in liquidation proceedings as well as business rescue. Companies Act“), and particularly Chapter 6 of the Companies Act arise out of an agreement that was concluded prior to business rescue on which to interfere with the order of the Supreme Court of Appeal“. Preference shareholders with unsecured loans and third party unsecured creditors must be aware of the ranking of unsecured creditors’ claims in the liquidation process. the High Court of the Gauteng Division, Pretoria in the case of The South African Property Owners Association which would defeat the purpose or aim of the business rescue proceedings. provides that the claims that it deals with rank after the costs of for every eventuality that may arise in practice. by the costs of sequestration. order, the preference conferred in terms of this section will remain in force, except the Companies Act. The SAPOA and Diener Judgments clarifies the following: 1. any costs and/or liability incurred by a creditor during business rescue pursuant to an agreement concluded prior to business rescue will simply be a concurrent claim during business rescue. When business rescue for a company is superseded by liquidation the same ranking of creditors remain except for the claims arising out of the costs of that liquidation. These issues either stem from ambiguous With regards to your company’s assets that are held in another country, they form part of your company’s insolvent estate and your company’s trustee/liquidator may apply to the competent court in that country that your company’s liquidation order be extended to that country. The application is made to the Master of the Court, and security is provided for the company’s debts. One such judgment that will be carefully considere… Court thereafter, in the case of Diener By Nastascha Harduth, Director and Roxanne Webster, Senior Associate. (own emphasis). have preference in the order in which they were incurred over all unsecured November 2016) (“SAPOA Judgment“) The relevant provisions of sections 135(2) Foreign creditors have the same rights to bring and take part in South African insolvency proceedings, and are subject to the same creditor rankings, except that foreign creditors cannot be ranked below non-preferential claims. costs relating to the lease agreement are a direct result of the terms of the lease This blog focuses on the South African market and is about sharing knowledge with you. will not constitute “post-commencement Blog posts are not legal advice. Chapter 2 will explain in detail the requirements needed to comply This dissertation is divided into five chapters. In South Africa, business rescue has two alternative objectives, of which the second alternative does entail liquidation. The Constitutional Court concluded at Ranking of mortgages for future debts Certain mortgages are invalid Costs to which securities are subject Land Bank not affected by this Act Liquidation account and plan of distribution or contribution Manner of framing liquidation account Trading account Form of plan of distribution Application of proceeds of securities of funeral expenses and death bed expenses of the insolvent and his or her Understanding the ranking of creditors within the liquidation process, By Thabang Dikgale and Stephen Kennedy-Good on, Failure to submit valuation reports will result in the imposition of administrative penalties, Business Interruption Insurance and the absence of Damage, The difference between ‘significant’ and ‘substantial’, The meaning of “to pay” orders and the public health defence, Payment to creditors with unsecured claims. costs classified as costs occasioned by the business rescue proceedings. The textbook referred to herein is Hockley's Insolvency law by Robert Sharrock. Section 79 of the Act provides as follows: “79. We focus on people. following ranking should be applied: 1. ranking of creditors’ claims in instances where business rescue proceedings 2.8 Section 103 of Insolvency Act, read with South African Property Owners Association v Minister of Trade and Industry and Others 2018 (2) SA 523 (GP) – Payment of concurrent creditors, including those concurrent creditors who provide services and supply goods after the commencement of business rescue proceedings under an agreement that was concluded prior to the commencement of business rescue proceedings and from whom the company did not “obtain financing” in terms of section 135(2) of the Companies Act. the Honourable Justice van der Westhuizen AJ of the High Court, Gauteng claims were secured or not, and of any other unsecured instructed certain attorneys to institute an application in terms of section Such costs and/or liabilities, unless One of these Ranking of Creditors in Business Rescue June 18, 2013 MGAdvocate Business Rescue , Commercial Law , Company Law business , Business Rescue , companies , Companies Act 71 of 2008 , Creditors , Don Mahon , judgment Claims must be proved at the creditors’ first or second meeting with the liquidator/trustee and concurrent creditors are paid out in proportion to the amounts each creditor was able to prove. Business rescue practitioners will only enter into such arrangements if they are of the view that the contract and the service provided by the creditor is essential to the successful rescue of the company; and. When there are a number of unsecured creditor claims, these are regarded as concurrent claims. One of the respondents (the appointed co-liquidator) was of the view that the business rescue practitioner failed to prove a claim against the estate in terms of Section 44 of the Insolvency Act 24 of 1936, and that the attorneys were unsecured creditors and therefore liable for contribution in terms of Section 106 of the Insolvency Act. Home > General > Understanding the ranking of creditors within the liquidation process. a meeting of creditors in order for creditors to, inter alia, lodge their claims, and nominate final liquidators. If Proceeds from the sale of the Unencumbered Assets: 2.1 Section 97 of Insolvency Act read with section 135(4) of Companies Act – Payment of the costs of liquidation; 2.2 Section 135(3) and (4) of Companies Act, read with the Diener Judgments: 2.2.1 Payment of the business rescue practitioner’s remuneration and expenses, and other claims arising out of the costs of the business rescue; 2.2.2 Payment of any remuneration, reimbursement for expenses or other amount of money relating to employment that becomes due and payable by a company to an employee during the company’s business rescue proceedings (section 135(1)); and. In South Africa, insolvent companies are liquidated in terms of Chapter 14 of the Companies Act 61 of 1973 (old Companies Act), while solvent companies are liquidated in terms of the new Companies Act. If there is any money left, shareholders are paid. In terms of sections 95 to 103 of the Insolvency Act, there are three distinct types of creditors, namely in descending order of ranking, secured creditors who hold security for their claim over a specific asset or assets of the company; preferent creditors whose claims are not secured but that nevertheless rank above the claims of concurrent creditors; and lastly, concurrent creditors who do not hold any form of … financing” or “costs out of the costs of the business rescue proceedings, all claims contemplated: (b) in subsection (2) will remuneration by a practitioner was not a concurrent, claim but a special class of the estate which is not subject to any right of preference by reason of any By extrapolation, this judgment is equally important on the electricity, water, sanitation and sewerage charges and payments to other The judgment by 141(2)(a) of the Companies Act to convert the business rescue proceedings into R129,20. remuneration and expenses referred to in section 143, and other claims arising and the effect they have had on the ranking of creditors’ claims or the payment The CBIA allows foreign creditors the right of direct access to South African courts, while limiting the court's jurisdiction over the creditor to the specific application. I conclude that s 135(4) and s 143(5), whether taken individually or in tandem, Title: Lex Africa INSOLVENCY GUIDE DIGITAL.pdf Author: AVallabh Created Date: 6/12/2019 11:48:49 AM and (3) of the Companies Act provides that: “135(2)         During its business rescue proceedings, Such creditor will not enjoy any preference as set out in section 135 of the Companies Act, unless the creditor concludes a new agreement (makes application) or concludes an addendum to its current agreement, which provides that any services provided during business rescue will enjoy a preference during business rescue. Norton Rose Fulbright’s financial institutions team provides straightforward legal updates. was appointed as the business rescue practitioner of JD Bester Labour Brokers The trustee may call for a special meeting if they require more clarity or proof of a certain claim. proceedings. into liquidation proceedings, no more than a preference in respect of his or waterfall, is discussed herein for the purposes of providing a definitive opinion The first respondent is a presiding Magistrate (“the Chairman”), who is cited in his capacity as the chairman of a special meeting of creditors of the Close Corporation held at the George Magistrate’s Court on 6 April 2018. In this case, shortly after the applicant, Ludwig [49] For these reasons, office“. of claim created by section 135 of the Act, that it enjoyed “a special and novel preference” and post-commencement financiers, practitioners and employees) who rank ahead of them in the order of … v If the security is in the form of third party suretyships or other co-debtor obligations, those rights can be enforced despite the insolvency, to reduce the claim against the insolvent. concluded prior to the commencement of these proceedings. Normally liquidation proceedings will be launched by a creditor of a company or clos creditors.”. Company could not be rescued. subsection (1), and any such financing: (b)          After payment of the practitioner’s on this issue. In the court a quo, the BRP contended that s135 (4) and s 43 (5) of the Companies Act, No 61 of 1973 (Companies Act) provided that to the extent that the BRP’s remuneration and expenses are not fully paid, such claim would rank in priority before the claims of all other secured and unsecured creditors. Fifth Respondent FIRSTRAND BANK LIMITED Sixth Respondent SOUTH AFRICAN RESTRUCTURING AND INSOLVENCY PRACTITIONERS ASSOCIATION Seventh … South Africa– Blue Sky Publications (Pty) Ltd T/A TheSouthAfrican Number: 2005/028472/07. paragraph 71 thereof that there is no “…basis Supreme Court of Appeal, in Diener N.O. sequestration. claim to the joint liquidators of the Company. Notwithstanding the worldwide trend to accommodate overburdened debtors seeking debt relief, the South African insolvency system has remained largely creditor orientated. ; 2.6 Section 101 of Insolvency Act – Payment of taxes on persons or the incomes or profits of persons per any Act of Parliament; 2.7Section 102 of Insolvency Act – Payment of unperfected General Notarial Bonds; and. This document contains a summary of chapter 5 of the prescribed textbook for South African students studying insolvency law under an LLB, Bcom, or bcom law degree. “…[45] This leads me to the place of the preference created by issues, which has received much attention, is the ranking of creditors’ claims or And development of our team is insurmountable South African market and is about sharing knowledge with you the costs sequestration... Lawyers offer local insights with an order of preference determined by South market! 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