Yes. Generally, a creditor is able to take security over all types of assets, including working capital assets and accounts receivable. Security can be taken over both movable and immovable property. Security is most commonly affected over the following:

• Land and buildings by the registration of a mortgage bond 
• Corporeal moveable assets (also referred to as tangible assets) by the registration of a special or general notarial bond. It is also possible to grant security over corporeal movable property by means of a pledge. However, this is less commonly used because it requires the creditor to maintain possession of the pledged property for purposes of perfecting the security. There are other specific forms of security for specific assets such as patents and trade markets, shops, aircraft, etc. 
• Incorporeal assets (also referred to as intangible assets) by concluding a pledge and cession in securitatem debiti (a cession for security). Incorporeal assets include claims to receivables, shares and financial instruments but exclude trademarks, copyright and patents.
  

Business rescue

Business rescue proceedings are regulated in terms of Chapter 6 of the Companies Act, 2008 ("2008 Companies Act"). The proceedings seek to facilitate the rehabilitation of a company that is "financially distressed" by providing for the temporary supervision of the company and the management of its affairs as well as a temporary moratorium of the rights of creditors against the company, and the restructuring and reorganizing of the affairs of the business, property, debt and other liabilities and equities of the company. Furthermore, business rescue provides for the development and implementation of a business rescue plan, which seeks to maximize the likelihood that the company will continue to exist on a solvent basis in the future, or where it is not possible for the company to continue on a solvent basis, to ensure a better return for the company's creditors and shareholders than would result from the (immediate) liquidation of the company. 

In order for Business Rescue proceedings to be initiated, either the company must be capable of being rescued or it must result in a better outcome for creditors or shareholders than if the company were to be liquidated. Business Rescue proceedings can be initiated in one of two ways:

• Voluntarily, by way of a resolution approved by the board of directors of the company concerned
• Compulsorily, upon application to the court by any person who is an "affected person" in relation to the company concerned 

The winding up of a company, also known as liquidation, results in the dissolution of that company and the distribution of its assets among the company's creditors according to their ranking. 

Liquidation proceedings can be either voluntary or compulsory, and the process is regulated in terms of different legislation depending on whether the company is solvent or insolvent. Solvent companies are woundup in accordance with the 2008 Companies Act, whereas insolvent companies are wound up in accordance with the provisions of the Companies Act, 1973 ("1973 Companies Act"). 

For a solvent company, the company may be voluntarily wound up by shareholders through the adoption of a special resolution. The resolution must be filed with the Companies and Intellectual Property Commission (CIPC). The resolution must state whether the winding-up is a members' voluntary winding up or a creditors' voluntary winding up. The following apply in the case of a voluntary winding up by the company:

• The company must arrange for security for the payment of the company's debts or must obtain consent from the Master of the court to dispense with such security.
• The resolution, while not strictly necessary, usually also makes a provision for the appointment of a liquidator.

The compulsory winding-up of a solvent company is initiated through an application to a competent court, accompanied by an affidavit by the party making the application. A court, with jurisdiction, may order that a solvent company be wound up in any of the following scenarios: 

• The company has passed a special resolution that it will be wound up by the Court. 
• The company has applied to the court to have its voluntary winding-up continued by the court.
• The Business Rescue Practitioner has applied for liquidation on the grounds that there is no reasonable prospect of the company being rescued. 
• The company or one or more directors or shareholders of the company have applied to the court for an order to wind up the company based on various grounds.
• A shareholder has applied, with leave of the court, for an order to wind up the company on the grounds that the directors or other persons in control of the company are acting in a fraudulent or otherwise illegal manner, or that the company's assets are being misapplied or wasted.
• The Commission has applied to the court for an order to wind up the company. 

An insolvent company may be wound up by the court or voluntarily by the company's creditors or its members through the passing of a resolution. 

A court may grant an order for winding up an insolvent company, if one of the following has occurred:

• The company has by special resolution, resolved that it be wound up by the court.
• The company commenced business before it was entitled to commence business.
• The company has not commenced its business within a year from its incorporation or has suspended its business for a whole year. 
• In the case of a public company, its members have been reduced to below seven. 
• Seventy-five percent of the issued share capital of the company has been lost or has become useless for the business of the company. 
• The company is unable to pay its debts. 
• The company is an external company, the company has been dissolved, or the company has ceased to carry on business in the country in which it has been incorporated.
• It appears to the court that it is just and equitable that the company be wound up.

If the application to wind up an insolvent company is successful, the company will be declared insolvent and the company will no longer proceed to operate its business.

Compromise (creditors' scheme of arrangement)

A compromise is a voluntary process, provided for in section 155 of the 2008 Companies Act, whereby the board of directors or the liquidator appointed to wind-up a company may propose an arrangement or a compromise of its financial obligations to all, or any class of, its creditors. 

A compromise under this section can also provide for a special or alternative means of winding up a company or for the takeover of a company and the termination of the process of the winding-up on the basis of, for example, an acquisition of all its issued shares and its creditors' claims, subject to the discharge of the provisional, or the setting aside of the final, winding-up order. 

Section 155 prescribes a process whereby: 

• All creditors, or a class of creditors, of the company and the CIPC must be provided with a copy of the proposal and notice of a meeting to consider the proposal (section 155 also prescribes the content of the notice).
• A meeting must be held where all creditors, or each class of creditors affected by the proposal, may vote on the proposal.
• If the proposal is approved by the creditors voting at the creditors' meeting(s), then the company may apply to the court to approve the proposal, thereby making it a court order that will be binding on all of the company's creditors or all members of the relevant class of creditors.

Business rescue

The company must be in "financial distress." This means that the company must appear to be reasonably unlikely to pay all of its debts as they become due and payable within the immediately ensuing six months. A company will also be considered to be in "financial distress" if it appears reasonably likely that the company will become insolvent within the immediately ensuing six months. Regardless of the nature of the "financial distress," for business rescue proceedings to be initiated, there must either be a reasonable prospect of rescuing the company or the outcome of the business rescue proceedings must deliver a better outcome for creditors or shareholders than if the company were to be liquidated.

Liquidation

A company does not have to be insolvent for liquidation proceedings to be initiated (see section above on solvent companies). In the case of an insolvent company, a company will be deemed insolvent for purposes of liquidation proceedings when its liabilities, fairly estimated, exceed its assets, fairly valued and/or it is unable to pay its debts as and when they fall due in the ordinary course of business.  

The 1973 Companies Act provides a number of circumstances in which a competent court can wind up an insolvent company, which include the following: 

• The company has passed a special resolution resolving for the winding up of the company.
• The company commenced business before it was entitled to commence business. 
• The company has not commenced its business within a year from its incorporation or has suspended its business for a whole year. 
• In the case of a public company, the number of members has been reduced to below seven. 
• Seventy-five percent of the issued share capital of the company has been lost or has become useless for the business of the company. 
• The company is unable to pay its debts. 
• In the case of an external company, that company is dissolved in the country in which it has been incorporated, or has ceased to carry on business or is carrying on business only for the purpose of winding up its affairs.
• It appears to the court that it is just and equitable that the company should be wound up. 

Compromise (creditors' scheme of arrangement)

There is no solvency requirement. The company must not already be engaged in business rescue proceedings. However, this process can still be followed if the company has commenced a winding-up or liquidation process.

Business rescue

Only companies incorporated in South Africa and foreign companies that have subsequently been registered as a domestic company in South Africa can be placed into liquidation or business rescue in South Africa under the 2008 Companies Act or the 1973 Companies Act. These processes would not apply to a foreign company registered as an "external company" in South Africa.

Liquidation

Only companies incorporated in South Africa and foreign companies that have subsequently been registered as a domestic company in South Africa can be placed into liquidation or business rescue in South Africa under the 2008 Companies Act or the 1973 Companies Act. These processes would not apply to a foreign company registered as an "external company" in South Africa.

Compromise (creditors' scheme of arrangement)

Compromise under the 2008 Companies Act can only be used in relation to companies incorporated in South Africa and foreign companies that have, subsequent to their incorporation, been registered as a domestic company in South Africa. This process would not apply to a foreign company registered as an "external company" in South Africa.

Business rescue

Yes. However, such rearrangement must be provided for in the business rescue plan and subsequently approved by the majority of creditors.

Liquidation

A liquidator may propose an arrangement or compromise with the company's creditors. This would need to be implemented in accordance with the provisions of section 155 of the 2008 Companies Act, which provides for a scheme of arrangement with creditors. This provision is available for both solvent and insolvent companies. See responses under the heading "Compromise" for more detail.

Compromise (creditors' scheme of arrangement)

Yes. Each class of creditors affected by the proposal will need to vote on and approve the proposed scheme of arrangement. Thus, groups of creditors having similar rights would be formed, including secured creditors and different classes of unsecured creditors.

Business rescue

Yes.

• Payment of the business rescue practitioners' remuneration and all other costs of the business rescue proceedings.
• Pre-commencement secured creditors.
• Any employees' claims for compensation or remuneration, where such claims arise during the business rescue proceedings.
• Post-commencement finance (PCF) creditors (PCF being any finance provided to the company after the start of Business Rescue proceedings). These creditors will be ranked in the order in which they were incurred, irrespective of whether they are secured or not. 
• Unsecured creditors

For purposes of creditors' voting rights on a business rescue plan, section 145 (4) of the 2008 Companies Act classifies creditors as secured, unsecured and concurrent creditors. A secured or unsecured creditor has a voting interest equal to the value of the amount owed to that creditor by the company. Meanwhile, a concurrent creditor who would be subordinated in liquidation has a voting interest, as independently and expertly appraised and valued at the request of the practitioner, equal to the amount, if any, that the creditor could reasonably expect to receive in a liquidation of the company.

There is a further classification of creditors as "independent creditors," as follows: 

• A creditor of the company: This may include an employee of the company who is owed any remuneration, reimbursement for expenses or other amount of money relating to employment and which became due and payable before the Business Rescue proceedings.
• Is not related to the company, a director, or the business rescue practitioner. 

Liquidation

Yes, in general terms: 

• Secured creditors - who are entitled to be paid first from the proceeds of a sale of the secured property in their order of preference, subject to payment of the costs of maintaining and realizing the secured property and a proportionate share of the liquidator's fees and costs.
• Preferent creditors - unsecured preferent claims rank for payment out of the free residue of the estate before the claims of concurrent creditors in the following order of priority:

• Costs of the liquidation process, salaries and wages owed to employees, taxes and certain statutory obligations
• Claims secured by a general notarial bond

• Concurrent creditors - which have claims that are neither secured nor preferent.
• Distributions to shareholders generally rank behind that of creditors.

Compromise (creditors' scheme of arrangement)

Yes. For the purpose of assessing the merits of a proposed scheme, the ranking of creditors and shareholders for distributions from an insolvent estate is taken into account. In this scenario, distributions to shareholders generally rank behind creditors' claims. The priority of claims are (in very general terms) as follows: 

• Secured creditors - who are entitled to be paid first from the proceeds of a sale of the secured property in their order of preference, subject to payment of the costs of maintaining and realizing the secured property and a proportionate share of the liquidator's fees and costs.
• Preferent creditors - unsecured preferent claims rank for payment out of the free residue of the estate before the claims of concurrent creditors in the following order of priority:
  • Costs of the liquidation process, salaries and wages owed to employees, taxes and certain statutory obligations
  • Claims secured by a general notarial bond

• Concurrent creditors - which have claims that are neither secured nor preferent.
• Shareholders

Business rescue

No

Liquidation

This depends on the type of liquidation process being followed. For voluntary liquidation proceedings, a special resolution by shareholders must be passed in order to place the company in liquidation. However, no resolution is required where the company is placed in compulsory liquidation.

Compromise (creditors' scheme of arrangement)

Generally, no (except to the extent that shareholders have a claim as creditors of the company).

Business rescue

Yes, especially in circumstances where the business rescue plan would alter the rights associated with the class of securities the shareholder falls within.

Business rescue

No plan in a liquidation needs to be voted on, and as such, only shareholders that are creditors will be afforded an opportunity to prove their claim in the liquidation.

Business rescue

Yes. Shareholders would be required to approve a proposed compromise if the proposal would also affect the rights of shareholders (for example, by diluting their shareholding or amending the rights attaching to existing shares).

Business rescue

Yes. A business rescue plan will be approved preliminarily if it was supported by the holders of more than 75% of the creditors' voting interests that were voted, and the votes in support of the proposed plan included at least 50% of the independent creditor's voting interests, if any, that were voted. 

A business rescue plan that has been adopted is binding on the company as well as on each of its creditors and every holder of the company's securities, regardless of whether the person was present at the meeting, voted in favor of the plan or, in the case of creditors, has proved its claim. 

If the business rescue plan was rejected, a creditor may make a binding offer to purchase the voting interests of one or more persons who opposed the adoption of the business rescue plan, at a value independently and expertly determined to be the fair and reasonable estimate of the return that such person or persons would receive if the company were to be placed in liquidation.  

Yes. Any court order to wind up the company will be final and binding on all creditors. In liquidating and distributing the company's assets, the liquidator may also enter into a scheme of arrangement/compromise with creditors in accordance with section 155 of the 2008 Companies Act - see further "Compromise."

Compromise (creditors' scheme of arrangement)

Yes. The creditors of a company will adopt a proposal, or a class of creditors, if a majority approves it (in number) of creditors present and voting at a meeting of those creditors called for that purpose and the claims of the creditors approving the proposal represent at least 75% in value of all creditors' claims or claims of that class of creditors, present and voting at a meeting of those creditors called for that purpose.
If the proposal is approved by the creditors voting at the creditors' meeting(s), then the company must (in order to make the compromise final and binding on all creditors) apply to a competent court in order for the compromise to be sanctioned. 
A dissenting creditor can oppose this application to a competent court, but in order to be successful with such opposition, a creditor must show that it would be just and equitable for the court to reject the scheme.