The 2008 Companies Act requires that a company must not carry on business recklessly, with gross negligence or with the intent to defraud any person.

Under South African law, directors of a company have a general duty to act in good faith, for a proper purpose and in the best interest of the company. These fiduciary duties of directors require them to act honestly and in good faith and exercise care, skill, and diligence to promote the interests of the company and have a rational basis for decisions made in their role as a director. The 2008 Companies Act imposes personal liability for directors who fail to uphold their duties for loss suffered or incurred by the company or by other affected persons to whom the relevant duty was owed. 

Business rescue

• Payment of the business rescue practitioner's 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 no
• Unsecured creditors 

• 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:

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

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

Compromise (creditors' scheme of arrangement)

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, being (in very general terms) the following: 

• 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:

1. Costs of the liquidation process, salaries and wages owed to employees, taxes and certain statutory obligations
2. Claims are 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.

Business rescue

In a business rescue scenario, the company's obligations in respect of any retirement fund to which it contributes on behalf of employees continue and the company continues to bear liability for noncompliance with its obligations.In particular, the obligations under the rules of the retirement fund and section 13A of the Pension Funds Act, 1956 to contribute to the fund on behalf of employees continue.

Liquidation

Creditors of the company have no claim on employees' pension fund assets since these are assets of the pension fund, which is a separate legal person from the employer. 

The insolvent company's liability to any retirement funds in which it participates is usually limited to any contributions that were unpaid by it at the date of liquidation. Any such liability would constitute a preferent claim against the company and would therefore have priority over concurrent unsecured claims.

In the (relatively unlikely) event that the insolvent company sponsors a defined benefit pension fund, the company's insolvency would trigger a termination of the fund. 

• If the fund were in deficit at liquidation, the company would become liable for a debt equal to the value of the active members' statutory minimum benefits and the cost of buying out deferred pensioners' and pensioners' benefits with annuities less the value of the assets of the plan at termination date (section 30(3) of the Pension Funds Act, 1956).This amount would constitute a non-preferent claim.
• If the fund were in surplus at liquidation, the surplus may be used to meet unpaid contributions by the employer but would otherwise be used to benefit fund members.

Compromise (creditors' scheme of arrangement)

Creditors of the company have no claim on employees' pension fund assets since these are assets of the pension fund, which is a separate legal person from the employer. 

The insolvent company's liability to any retirement funds in which it participates is usually limited to any contributions that were unpaid by it at the date of liquidation. Any such liability would constitute a preferent claim against the company and would therefore have priority over concurrent unsecured claims.

In the (relatively unlikely) event that the insolvent company sponsors a defined benefit pension fund, the company's insolvency would trigger a termination of the fund. 

• If the fund were in deficit at liquidation, the company would become liable for a debt equal to the value of the active members' statutory minimum benefits and the cost of buying out deferred pensioners' and pensioners' benefits with annuities less the value of the assets of the plan at termination date (section 30(3) of the Pension Funds Act, 1956).This amount would constitute a non-preferent claim.
• If the fund were in surplus at liquidation, the surplus may be used to meet unpaid contributions by the employer but would otherwise be used to benefit fund members.

Business rescue

If at any time during the business rescue proceedings, the business rescue practitioner concludes that there is evidence in the dealings of the company before the business rescue proceedings began of inter alia "voidable transactions," the business rescue practitioner must take any necessary steps to rectify the matter and direct management of the company to take appropriate steps. 

The 2008 Companies Act does not define what constitutes a voidable transaction. Therefore, the Insolvency Act has been said to apply in this instance with respect to "impeachable transactions," including the following:

• Disposition without value 
• Voidable preference 
• Undue preference
• Conclusive dealings

Liquidation

Yes. The liquidator has the means of recovering certain property alienated by the company before its winding-up and the liquidator may apply to the court to set aside certain dispositions made by the company before winding-up. These are referred to as "impeachable transactions" and include the following:

• Dispositions without value
• Voidable preference
• Undue preferences
• Collusive dealings

Compromise (creditors' scheme of arrangement)

No. Prior transactions are more likely to be challenged in the context of liquidation or business rescue proceedings. Please see further detail in response to this question under "Liquidation."