Restructuring and insolvency in South Africa: overview

A Q&A guide to restructuring and insolvency law in South Africa.

The Q&A gives a high level overview of the most common forms of security granted over immovable and movable property; creditors' and shareholders' ranking on a company's insolvency; mechanisms to secure unpaid debts; mandatory set-off of mutual debts on insolvency; state support for distressed businesses; rescue and insolvency procedures; stakeholders' roles; liability for an insolvent company's debts; setting aside an insolvent company's pre-insolvency transactions; carrying on business during insolvency; additional finance; multinational cases; and proposals for reform.

To compare answers across multiple jurisdictions, visit the Restructuring and insolvency Country Q&A tool.

This Q&A is part of the global guide to restructuring and insolvency law. For a full list of jurisdictional Q&As visit


Forms of security

1. What are the most common forms of security granted over immovable and movable property? What formalities must the security documents, the secured creditor or the debtor comply with? What is the effect of non-compliance with these formalities?

Immovable property

Common forms of security and formalities. Immovable property includes land with all things attached to it by natural or artificial means, and is rights based. This includes sectional titles and long-term leases exceeding ten years.

Security over land can only be created by a mortgage bond (Deeds Registries Act, 1937) (Deeds Act). A mortgage bond is perfected by registering it at the same deeds registry where the land over which the bond is granted is registered. Registration occurs when the deeds registrar affixes his signature to a document.

Effects of non-compliance. Non-compliance with the registration requirements means that the lender does not have an enforceable real right and cannot use the mortgage bond to prove a secured claim.

Formal defects in registration do not make the mortgage bond invalid, unless a substantial injustice results, which a court decides cannot be remedied by an order. The Deeds Act does not define a formal defect, but courts interpret it to mean a defect that does not affect registration.

Movable property

Common forms of security and formalities. Movable property is property that can be moved without losing its identity. The most common forms of security over movable property are the following:

  • Pledge. This creates a real right over property that is placed in the possession of the pledge holder. However, the pledge holder does not have any entitlement to use or enjoy any fruits of the property.

  • Notarial bond. This creates a personal right over certain movable property. A real right can be created over specifically identified tangible movable property by registering the bond as a special notarial bond with the deeds registrar, under the Security by Means of Movable Property Act 1993. A special notarial bond is held over specific movable property, whereas a general notarial bond is held over all of the borrower's movable property. General notarial bonds do not create real rights of security. Also:

    • a notarial bond must be registered in the deeds registry for the area in which the debtor has its registered address within three months after the date of its execution by a notary or within a court-extended period; and

    • the bond must disclose the places where the executing notary practises and where the debtor resides or conducts business.

  • Cession in security. Security over intangible movable property is obtained through a cession in security of the property. This transfers possession of an intangible right to a pledgee or cessionary. However, rights transferred this way remain part of the transferor's estate. There are no specific formalities for a cession in security, which is validly created once the agreement to grant security has been reached.

  • Effects of non-compliance. If a notarial bond is not executed by a notary then it is not a notarial bond. Notarial bonds registered out of the prescribed time period are invalid. A pledge without possession of the asset is unenforceable. If notice of a cession is not given to the debtor in respect of the right ceded, that debtor cannot perform his obligation to the cessionary.


Creditor and contributory ranking

2. Where do creditors and contributories rank on a debtor's insolvency?

On liquidation of a company, creditors are paid according to the following rank.

Secured creditors

Secured creditors are paid from the sale of the particular asset over which they hold security. In particular:

  • Before they are paid, the sale proceeds are used to pay for expenses incurred to maintain and dispose of the asset.

  • Interest due on a secured claim for up to two years is also secured as part of the capital amount.

  • Mortgages registered over immovable property are satisfied in the order in which they are registered.

  • General notarial bonds are not ranked as secured claims for the purposes of distribution.

  • Special notarial bonds registered over movable property are satisfied in the order in which they are registered.

  • A pledge is satisfied before a special notarial bond.

  • Any secured creditor whose claim is not satisfied will rank as a concurrent creditor.

Preferred creditors

Preferred creditors are paid in the following order:

  • Funeral and deathbed expenses.

  • Costs of sequestration or liquidation.

  • Costs of execution over property.

  • Employee salaries and remuneration.

  • Statutory obligations, including customs duties.

  • Income tax.

  • Claims secured by unperfected general notarial bonds.

Concurrent creditors

Concurrent creditors are paid from the remainder of the free residue. There are no special rights in ranking for contributories.


Unpaid debts and recovery

3. Can trade creditors use any mechanisms to secure unpaid debts? Are there any legal or practical limits on the operation of these mechanisms?

Trade creditors can use mechanisms available for both movable and immovable property to secure their debt. This includes mortgage bonds, notarial bonds, pledges and cessions.

They can also use personal security such as suretyship, guarantees and indemnities.

  • Suretyship is an accessory personal obligation undertaken to act as security for a principal debt.

  • Guarantees and indemnities are primary personal obligations that, depending on their wording, can exist independently of the principal debt.

These forms of security are enforceable only between persons and are not attached to a particular property.

The legal limits of these forms of security are the conditions necessary for enforcement (see Question 1 ( ). Further:

  • Suretyships must be in writing, whereas guarantees and indemnities do not have to be.

  • General notarial bonds do not grant a secured ranking claim if the debtor becomes insolvent (see Question 2). These bonds require a court order to be perfected and to obtain possession of the bonded items. Bondholders then become a secured creditor in respect of those assets. Without perfection the bondholder only enjoys a preferred claim above concurrent creditors. This makes these bonds cumbersome and largely ineffective at protecting creditors in the event of insolvency or default.

4. Can creditors invoke any procedures (other than the formal rescue or insolvency procedures described in Questions 6 and 7) to recover their debt? Is there a mandatory set-off of mutual debts on insolvency?

A creditor can sue by summons and obtain a civil judgment, have a warrant of execution issued by the courts, or obtain an emolument or garnishee attachment order.

A summons is a formal document issued by the registrar or clerk of the magistrate's court. It directs the sheriff to tell a respondent debtor that a claim has been brought against him for payment of an outstanding debt, and that the claim can be disputed and defended.

A garnishee order allows for attachment of money owed to the debtor by a third party. An emolument attachment order allows part of the debtor's salary to be paid directly from a third party employer to the creditor, bypassing the debtor entirely.

Other than in respect of derivative agreements, there is no mandatory statutory set-off of mutual debts required by the insolvency legislation. When both debts in respect of which set-off is claimed come into existence after liquidation, there is nothing to prevent set-off.

For the legal position of foreign creditors in relation to South Africa debtors, see Question 13.


State support

5. Is state support for distressed businesses available?

There are no statutory state-derived support funds or monetary solutions available for distressed businesses in South Africa. However, the South African Reserve Bank has broad powers to perform functions that a central bank may customarily perform.


Rescue and insolvency procedures

6. What are the main rescue/reorganisation procedures in your jurisdiction?

Business rescue

Objective. Business rescue is the only formal rescue proceeding in South Africa (Chapter 6, Companies Act 2008). The objective of business rescue is to allow financially distressed companies to restructure and reorganise, to avoid insolvency and allow the company to continue on a solvent basis, and/or to maximise returns to creditors or shareholders.

Initiation. Business rescue is initiated by a resolution of the company's board if:

  • It has reasonable grounds to believe the company is financially distressed.

  • An affected person applies to court to place a company under business rescue.

  • The court orders business rescue proceedings at any time in a liquidation or in any proceeding to enforce security.

Substantive tests. The substantive legal test to initiate the procedure is if:

  • The company is financially distressed.

  • The company has failed to pay any amount in terms of an obligation under a public regulation, contract or employment-related matters.

  • It is just and equitable to do so for financial reasons.

Consent and approvals. A resolution of the board is adopted by a simple majority unless the company's constitutional documents provide for a higher threshold.

Supervision and control. Supervision and control is conducted by a business rescue practitioner, who is appointed by the company undergoing rescue and licensed by the Companies and Intellectual Property Commission (CIPC).

Protection from creditors. A moratorium on legal proceedings applies, which gives debtors full statutory protection against creditors. The business rescue practitioner can (without creditors' consent) partially, wholly or conditionally suspend any obligation of the company, and apply to court to cancel any contractual terms.

Length of procedure. The statutory length allowed for business rescue is three months, although in practice this period is often extended.

Conclusion. The process concludes when one of the following occurs:

  • The court sets aside the resolution or order that began the proceedings.

  • The court converts the proceedings to liquidation proceedings.

  • The practitioner files a notice of termination of business rescue proceedings.

  • The business rescue plan is rejected.

  • The business rescue plan is adopted and a notice of substantial implementation is filed.

Creditor compromise procedure

Objective. The Companies Act 2008 provides for a creditor compromise procedure.

Initiation. A creditor compromise is initiated by resolution of the board of directors, or by direction of a liquidator. The board/liquidator can propose a compromise to all or a specific class of creditors and must notify the CIPC about the proposal.

Substantive tests. A creditor compromise can only be used if a company is not under business rescue proceedings.

Consent and approvals. The proposal must be approved by a majority in number representing at least 75% in value of the relevant creditors/proxies present at the meeting.

If the proposal is accepted, the company can apply to court to have it confirmed. Once confirmed by the court, the order must be filed by the company with the CIPC within five days. It must also be attached to every copy of the company's memorandum of incorporation kept at the company's registered office.

A court-sanctioned compromise is binding on all creditors, or all creditors of the affected class, as appropriate.

Supervision and control. A receiver is appointed to supervise the process.

Protection from creditors. There is no protection from creditors while the process is underway unless, in the proposal, a debt moratorium has been made and accepted by the creditors.

Length of procedure. The Companies Act 2008 does not stipulate a timeframe for conclusion of this process.

Conclusion. A court-approved compromise is binding on all creditors, or all creditors of the affected class.

7. What are the main insolvency procedures in your jurisdiction?

Liquidation and winding up

Objective. These are the following liquidation and winding up procedures for companies:

  • Liquidation or winding up of a solvent company, voluntarily or by court order (sections 80 and 81, Chapter 2 Part G, Companies Act 2008).

  • Liquidation or winding up of an insolvent company (chapter 14, Companies Act 1973).

Initiation. Proceedings are started as follows:

  • Winding up a solvent company by court order: the court can order that a solvent company be wound up, on the request of any persons and on the grounds set out in section 81 of the Companies Act 2008.

  • Voluntary winding up of a solvent company: voluntary winding up by the creditors of a commercially solvent company is possible (section 80, Companies Act, 2008).

  • Winding up of an insolvent company is initiated by application to court by either the shareholders, the creditors, or the company (section 346, Companies Act, 1973).

There is no obligation on directors or shareholders of a company to commence insolvency proceedings.

Substantive tests. A court can order a solvent company to be wound up on any of the following grounds:

  • The company has resolved by special resolution that it be wound up.

  • The company has applied to court to have its voluntary winding up continued.

  • The practitioner appointed during business rescue proceedings has applied for liquidation on the grounds that there is no reasonable prospect of rescuing the company.

  • One or more of the company's creditors has applied to the court for an order to wind up the company, because the company's business rescue proceeding has ended and it appears just and equitable in the circumstances.

  • The company or one or more of its directors or shareholders are deadlocked in the management of the company, and the shareholders are unable to break the deadlock.

  • The shareholders are deadlocked in voting power, and have failed for a period of at least two consecutive annual general meeting dates to elect successors to directors whose terms have expired.

  • A shareholder has applied with leave of the court for an order to wind up the company, on the grounds that the directors, prescribed officers or other persons in control of the company are acting in a manner that is fraudulent or otherwise illegal, or the company's assets are being misapplied or wasted.

An insolvent company can be wound up by the court on any of the following grounds:

  • The company has resolved by special resolution that the company commenced business before the registrar certified that it was entitled to.

  • The company has not commenced business within a year of its incorporation, or has suspended business for a year.

  • In a public company, the number of members has decreased below seven.

  • The company is unable to pay its debts.

  • In relation to 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. An external company is a foreign company carrying on business or non-profit activities within South Africa under the Companies Act 2008.

  • If it is just and equitable to do so.

Consent and approvals. The following consents and approvals are required:

  • Voluntary winding up of a solvent company: by a special resolution of the company.

  • Winding up a solvent company by court order: application to court, on any of the grounds set out above (see above, Substantive tests).

  • Winding up an insolvent company: by a special resolution of the company.

Supervision and control. A liquidator is appointed who winds up the company.

Protection from creditors. The effect of liquidation is to stay civil proceedings and execution of any judgment against the insolvent. If the insolvent received goods under a sale agreement but did not pay for them in full at the time of its liquidation, the seller can on notice claim the goods within ten days after they were delivered.

Liquidation does not automatically terminate a lease, but the landlord can give notice to terminate the lease in accordance with its terms. Employees' service contracts are suspended from the date of liquidation of the employer.

Length of procedure. The length of liquidation varies, depending on the circumstances.

Conclusion. The liquidator files its final liquidation and distribution account, makes any payments under it, and then advises the Master of the High Court that the administration of the estate is complete.


Stakeholders' roles

8. Which stakeholders have the most significant role in the outcome of a restructuring or insolvency procedure? Can stakeholders or commercial/policy issues influence the outcome of the procedure?


Creditors, employees, shareholders, liquidators, business rescue practitioners, the Master of the High Court and the court itself each have significant roles.

Creditors generally are the most significant. The creditors can initiate proceedings and are consulted at meetings of creditors. They are entitled to vote on various courses of action and suggest steps to be taken. It is in their interest that proceedings (liquidation or business rescue) are taken.

Influence on outcome of procedure

In liquidation, creditors are entitled to appoint the liquidator. They are also periodically entitled to convene or attend general meetings of creditors, to give directions to the liquidator on any matter relating to administration of the estate.

In business rescue, creditors are entitled to participate in all procedures. They can make proposals for the business rescue plan and can vote on them.

Employees are also creditors and they have similar rights. Any amounts due to employees after the start of business rescue receive preferential ranking as post-commencement finance. Employment contracts are protected from the practitioner's right to suspend or apply for cancellation of contracts.



9. Can a director, partner, parent entity (domestic or foreign) or other party be held liable for an insolvent debtor's debts?


Any person who is knowingly a party to the company carrying on its business in a reckless or fraudulent manner can be declared liable by the court for all or some of its debts or liabilities. Directors who are trading in insolvent circumstances (recklessly or fraudulently) who fail to resign or commence steps to place the company in liquidation may be personally liable for some or all of the company's debts.


A partnership has no separate legal personality and partners (individuals or companies) are personally liable for the insolvent partnership debts. If the court sequestrates a partnership, it will simultaneously sequestrate the estate of every partner, other than:

  • An en commandite partner, who provides a particular fund or capital, receives a certain share of the profit and is then only liable for losses to the extent of the funds or capital contributed.

  • A partner who has undertaken to pay the partnership's debts.

Parent entity (domestic or foreign)

A parent entity is liable for its insolvent subsidiary if the parent entity used the insolvent subsidiary to conduct its own affairs. The parent entity's corporate veil will be pierced. Liability is not limited to the parent entity and can extend to its shareholders.

Other party

Not applicable.


Setting aside transactions

10. Can an insolvent debtor's pre-insolvency transactions be set aside? If so, who can challenge these transactions, when and in what circumstances? Are third parties' rights affected?


If made by the insolvent, the following dispositions of property can be set aside:

  • If not made for value, if made either:

    • more than two years before the liquidation, and immediately after the disposition its liabilities exceeded its assets; or

    • within two years of liquidation (and the person benefiting from the disposition is unable to prove that) immediately after the disposition, the insolvent's assets exceeded his liabilities.

  • If made with the effect of preferring one creditor above another, if made within six months before the liquidation and, immediately after the disposition, the liabilities of the debtor exceeded its assets (unless a person in whose favour the disposition was made can prove that it was made in the ordinary course of business, without the intention to prefer).

  • The intention to prefer one creditor above another, if made when the insolvent's liabilities exceeded his assets.

  • Before liquidation and in collusion with another person, with the effect of prejudicing creditors or preferring one above another.

The liquidator can take proceedings to set aside any of the above transactions. Failing that, a creditor can (in the name of the liquidator) apply to the court to set aside the transaction.

If a company disposes of any business or goodwill belonging to it and the sale is not properly advertised to creditors under the Insolvency Act 1936, the sale is void against creditors for six months after disposition and void if the company is liquidated in that period.

If a third party acquired property from an insolvent under a transaction that can be set aside, it is not obliged to restore any property if it acted in good faith and for value when acquiring that property.


Carrying on business during insolvency

11. In what circumstances can a debtor continue to carry on business during rescue or insolvency proceedings? In particular, who has the authority to supervise or carry on the debtor's business during the process and what restrictions apply?


Liquidation. A company in liquidation can continue to trade if it obtains consent from the court.

Business rescue. A company in business rescue will continue to trade. While a company is in business rescue, it can only dispose of or agree to dispose of property in the normal course of business:

  • If the transaction is in good faith, is at arm's length and for fair value.

  • Is approved in advance by the business rescue practitioner in writing.

  • In a transaction contemplated in and undertaken as part of the implementation of a business rescue plan that has been approved.


Liquidation. If the court consents to the company trading, the liquidator will supervise the continued trading, subject to the restrictions imposed by the court or creditors.

Business rescue. The practitioner supervises and has the authority to carry on the company's business.


Additional finance

12. Can a debtor that is subject to insolvency proceedings obtain additional finance both as a legal and as a practical matter (for example, debtor-in-possession financing or equivalent)? Is special priority given to the repayment of this finance?

Business rescue

Post-commencement finance (PCF) refers to funding made available to a company after the start of business rescue proceedings. PCF can be secured using any asset of the company that is not encumbered.

PCF claims (including those secured) are paid after the remuneration and expenses of the business rescue practitioner, employee claims and claims of secured creditors.


A company in liquidation can either borrow money on the security of its assets, or not. If it wants to borrow on the security of its assets, then the court alone has the power to authorise the liquidator of the company to do so. The court has discretion to grant the application after considering whether the borrowing is necessary for the winding up.

If the borrowing is not secured by company property, a company in liquidation can borrow money without leave of the court if the authority to do so is granted by a meeting of creditors and members or contributories or on the directions of the Master of the High Court.


Multinational cases

13. What are the rules that govern a local court's recognition of concurrent foreign restructuring or insolvency procedures for a local debtor? Are there any international treaties or EU legislation governing this situation? What are the procedures for foreign creditors to submit claims in a local restructuring or insolvency process?


In relation to the legal position of foreign creditors of South Africa debtors, the law of cross-border insolvency is governed by the Cross Border Insolvency Act (CBIA):

  • The foreign creditor must provide security for costs to be incurred in the invocation and conduct of local proceedings.

  • The CBIA allows foreign creditors the right of direct access to South African courts, while limiting the court's jurisdiction over the creditor to the specific application.

  • Foreign creditors have the same rights to bring and take part in South African insolvency proceedings, and are subject to the same creditor rankings, except that foreign creditors cannot be ranked below non-preferential claims.

  • A creditor who has received part payment of its claim under foreign proceedings is not entitled to payment resulting from local proceedings, as long as local creditors of the same class have received proportionally less.

  • Foreign proceedings can be recognised by local courts, either as main or non-main proceedings. The purpose of recognition in South African courts is to allow the effect of any foreign court order to be implemented in South Africa, through the assistance of local courts.

  • A foreign creditor must be granted an order in the jurisdiction where an immovable is situated.

  • The effect of a local court recognising proceedings is akin to a local court granting a sequestration order.

  • If foreign proceedings are recognised by South African courts, foreign representatives (trustee or liquidator) are allowed to participate in the local proceedings. If foreign proceedings are recognised as main proceedings, the fact can be used as proof of insolvency to bring South African proceedings, without proof to the contrary.

Concurrent proceedings

The CBIA encourages local courts to co-operate to the maximum extent possible with foreign courts.

International treaties

South Africa does not have a cross-border treaty with another jurisdiction and is not a party to any convention in this regard. However, South Africa has adopted the United Nations Commission on International Trade Law Model Law in the CBIA.

Procedures for foreign creditors

No special procedures apply to foreign creditors, except that they may be required to give security before starting legal proceedings (see above, Recognition).



14. Are there any proposals for reform?

There are discussions in relation to reform of business rescue and insolvency procedures in South Africa. These discussions are ongoing and any reform proposals are not expected to come into force in the near future.


Online resources

Official Government of the Republic of South Africa


Description. The South African government website offers access to legislation and regulations promulgated after 1990.

Contributor profiles

Riza Moosa, Director

Norton Rose Fulbright

T +27 11 685 8675
F +27 11 301 3200

Professional qualifications. Bachelor of Laws and Master of Laws, South Africa

Areas of practice. Banking and finance law; restructuring and insolvency.

Recent transactions

  • Advising Nedbank as senior term and working capital facility lender in respect of refinancing facilities provided to The New Reclamation Group (TNRG) as part of the ZAR1.3 billion (Nedbank facilities ZAR512 million) refinancing of Euro denominated notes issued by TNRG.
  • Advising GoldenTree Asset Management and its various funds together with Avenue Europe Investments, LP in relation to the debt and capital restructuring of Primedia Holdings Proprietary Limited.
  • Advising IDC in its capacity as a lender (amongst a consortium of commercial banking and development finance institutions) and a shareholder in a project finance transaction to develop a manganese mine, and related smelter and sinter plants.
  • Advising a major South African asset manager in its capacity as preference shareholder, payment-in-kind lender and shareholder in relation to the initial subscription for ordinary and preference shares; the subsequent debt and capital restructure of the cement manufacturer.

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