SOME THOUGHTS ON THE MEANING AND APPLICATION OF COMMERCIAL INSOLVENCY IN WINDING-UP PROCEEDINGS INVOLVING CONTINGENT CREDITORS Absa Bank v Hammerle Group 2015 (5) SA 215 (SCA)

Abstract

The winding up of companies is dually governed by the Companies Act (71 of 2008, hereinafter “the Companies Act 2008”) and the relevant provisions of the repealed Companies Act (61 of 1973, hereinafter “the Companies Act 1973”). Thus, the winding up of solvent companies is dealt with under the Companies Act 2008 while insolvent companies are still wound up under the Companies Act 1973. Accordingly, the Companies Act 2008 does not have specific provisions that deal with the winding up of insolvent companies. Nonetheless, the Companies Act 2008 has made transitional measures that enable chapter 14 of the Companies Act 1973 to continue to govern the winding up of insolvent companies. Despite these transitional measures, most provisions of chapter 14 of the Companies Act 1973 are only applicable to the winding up of solvent companies where it is necessary to give full meaning and/or effect to the provisions that govern the winding up of solvent companies under the Companies Act 2008. This dual approach has at times given rise to the inconsistent application of the relevant provisions that deal with the winding up of both solvent and insolvent companies by the courts. Such inconsistencies are exacerbated by the different approaches that are confusingly employed by the courts, especially, in winding-up proceedings involving contingent creditors of persons that are commercially and/or factually insolvent. To this end, the recent decision in Absa Bank v Hammerle Group (2015 (5) SA 215 (SCA), hereinafter the “Hammerle Group case”) has usefully exposed some of the challenges encountered by the courts when enforcing winding-up proceedings involving contingent creditors and commercially insolvent persons in South Africa. This judgment is crucial because it has satisfactorily addressed the following concerns: (a) whether contingent creditors have locus standi to apply for the winding up of their insolvent debtors; (b) whether mere subordination of a contingent creditor’s owed debt to the debts of other creditors of the same debtor could render it undue and not payable in winding-up proceedings; (c) whether contingent creditors are entitled to institute winding-up proceedings on the basis of the debtor’s commercial insolvency; (d) whether statements made without prejudice during bona fide negotiations for the settlement of disputes are inadmissible in winding-up proceedings; (e) whether the debtor’s unequivocal acknowledgement of its indebtedness to the creditor could interrupt the running of prescription in respect of the debt owed to that creditor; and (f) whether a debtor’s debt restructure could constitute an act of insolvency. Accordingly, the article discusses these concerns in light of the Hammerle Group case judgment. This is done to explore whether contingent creditors’ rights with regard to commercial insolvency winding-up proceedings are consistently recognised by the relevant courts in South Africa. The article also examines whether such rights are adequately protected under chapter 14 of the Companies Act 1973.