n South African Law Journal - The insolvency conundrum in the Companies Act : notes

Volume 132, Issue 3
  • ISSN : 0258-2503
  • E-ISSN: 1996-2177



This note explores certain features of the Companies Act 71 of 2008 ('the Act'), which indicate that it is unacceptable for a company to continue to trade whilst factually insolvent, even though there is no express prohibition against the practice in the Act. It also deals with the importance placed on factual solvency and contrasts the position to the approach in Australian company law. Certain curious and unnecessary provisions in the Act are identified, and necessary amendments are suggested. Apparent different intended meanings for the words 'solvent' and 'insolvent' in the Act are beyond the scope of the discussion. (See for example s 4 of the Act, where the word 'solvency' is clearly a reference to factual solvency (assets exceeding liabilities), compared with the use of the word 'insolvent' in ss 13(7)()(i), 79(3) and 163(2)(), which, in all of their respective contexts, seem to refer to commercial insolvency (inability to pay debts when due), compared with s 69(8)()(i), which uses the word 'insolvent' in the sense of a debtor whose estate is under sequestration as contemplated by the Insolvency Act 24 of 1936. See also 2014 (2) SA 518 (SCA), which dealt with the meaning of solvent and insolvent for the purposes of ss 79-81 of the Act, and [2013] 2 All SA 295 (KZD), which traversed the meaning of 'solvent' in item 9(2) of Schedule 5 to the Act and s 81 of the Act.) The winding-up and liquidation of companies under the Act is also beyond the ambit of this note, as is the meaning of 'solvent' and 'insolvent' for the purposes of the Insolvency Act 24 of 1936.

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