Final liquidation order - not so final?

• South Africa

• Litigation and dispute management

03-05-2021

 In Richter v Absa Bank Limited 2015 (5) SA 57 (SCA), the Supreme Court of Appeal (“SCA”) considered whether it was competent to apply for business rescue in terms of section 131 of the Companies Act, 71 of 2008 (“the Act”), after a final liquidation order had been granted against a company.

In answering this question, the SCA considered the meaning of “liquidation proceedings” within the context of section 131(6) of the Act and whether the term only referred to a pending application for a liquidation order or whether it included the process of the winding up of a company after a final liquidation order had been granted.

In reaching its decision, the SCA stated that it is evident that section 131(1) allows affected persons to apply to court “at any time” for an order placing the company under business rescue. The SCA further considered section 131(7) which permits a court, when considering an application for business rescue, to grant an order provided for in subsections 131 (4) and (5) “at any time” during the course of “any liquidation proceedings”.

In considering the meaning of “liquidation” the SCA stated that “[g]enerally, in law and in business, liquidation is the exhaustive process by which a company is brought to an end, and the assets thereof, if any, are redistributed”. The SCA went further to state that even though a final liquidation order was granted, the company still exists – the control of the company’s affairs is simply placed in the hands of the liquidator. Only once the company’s affairs have been finally wound up by the liquidator and a certificate is issued by the master’s office to this effect, is the company dissolved. Thus, the SCA held that it is competent to apply for business rescue in terms of section 131 of the Act, after a final liquidation order has been granted against a company.

The judgment of Richter has very real practical implications for companies in liquidation. It has also created a level of uncertainty in the finality of those companies in liquidation. Be that as it may, it is the judiciary’s role to interpret the legislation and apply it. The rules and practicalities that will follow such an interpretation by the SCA, will fall into place over time.

Written by: Kristy Bassingthwaighte, Trainee Associate