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all of its debts as they become due and payable within the immediately
ensuing six months or it appears reasonably likely that the company
will become insolvent in the immediately ensuing six months. Once it
has been established that a company is in financial distress, it must
then be considered whether to file for liquidation or undergo business
rescue.

To make this decision, the objective of each option must be considered
as well as the process to be followed by a company.
Commercial With liquidation the objective is to dispose of the assets of the company

and apply the proceeds thereof to pay the creditors of the company
in terms of a legal order of preference. The purpose of business rescue
on the other hand is to rehabilitate the financially distressed company
and to rescue it by means of a plan that will help the company to turn
its financial distressed position around and trade on a solvent basis
again. Liquidation and business rescue proceedings can be launched
either voluntarily or by way of an application to court by creditors and
affected parties.

To initiate the voluntary liquidation process a company must decide on
a date for the institution of liquidation proceedings. As from this date the
company will not be allowed to incur any further debt but can continue
trading. Any income then derived will go into the insolvent estate, and
may not be used by the company. Once the date has been selected
the shareholders of the company must resolve, by special resolution, to
place the company under liquidation and an accompanying court
application has to be submitted to the High Court.
The court will first issue a provisional liquidation order before issuing
the final order and notice must be given to all creditors before the final
liquidation order is granted. Once the provisional liquidation order is
granted no creditor may institute any legal action against the company
and any legal action instituted will be suspended. The Master of the
High court will appoint a liquidator who will determine the assets of the
company, hold meetings with creditors, collect outstanding debt, sell
assets, pay creditors and finalise the estate, after which the matter will
be closed.

To initiate business rescue proceedings voluntarily the board of the
company may resolve to place the company under business rescue
if the company is financially distressed and there appears to be a
reasonable prospect of rescuing the company. The resolution may
not be adopted by the board if liquidation proceedings have been
initiated by or against the company and will have no force or effect
until it has been filed with the Companies and Intellectual Property
Commission (“CIPC”). The company must notify all its creditors and
appoint a business rescue practitioner (“BRP”) within five days after

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