Collecting in South Africa

• Duetofinancialconstraints,mostcompaniespayupto90dayscomparedwiththeaverage30and60daytermsandconditionswhichareindustrydriven.Insomecases,smalltomediumenterprisesaretakingaslongas120to180daystosettledebts.

• SouthAfricahasacourtsystemplaguedbyinadequatesystems,backlogsandgeneralinertiabytheclerksthatservewithinit.Thismakesthewholeprocesstediousandfrustratingforthecreditorandtheirattorney.Unfortunately,thisisveryoftenusedtothedefaulter’sadvantagetodragmattersoutforaslongaspossible.

• AllinsolventestatesareadministeredunderthecontroloftheMasteroftheHighCourt.TheliquidationproceduresinSouthAfricaareprotractedandtediousandtheyrarelyyieldanyworthwhiledividends.Thecost,ontheotherhand,isrelativelylowunlessanattorneyhasbeeninvolvedinthecollectionpriortotheliquidation.

Collection complexity

Complexity relating to

Notable High VeryHigh Severe

Payments

Court proceedings

Insolvency proceedings

Notable Severe

Euler Hermes

CollectionProfileSouth Africa

ContentsGeneral Information........................................................................................................................................3

Availabilityoffinancialinformation................................................................................................................3Maincorporatestructures...............................................................................................................................3Regulatoryenvironment..................................................................................................................................3

Getting Paid........................................................................................................................................................4

DaysSalesOutstanding(DSO).......................................................................................................................4Latepaymentinterest.......................................................................................................................................4Debtcollectioncosts.........................................................................................................................................4Ownershipprotection......................................................................................................................................4Payments.............................................................................................................................................................4

Collecting Overdues........................................................................................................................................5

Amicableaction................................................................................................................................................. 5Legalaction......................................................................................................................................................... 5Alternativestolegalaction.............................................................................................................................. 7

Handling Insolvent Debtors..........................................................................................................................8

Insolvencyproceedings...................................................................................................................................8

Days Sales Outstanding (DSO): TheaveragetermsandconditionsinSouthAfricaarebetween30and60daysandareindustrydriven.

General information

Availability of financial informationCompanieshaveanobligationtokeepallfinancialstatementsorrelatedinformationandrecordssecure.TheCompaniesAct,Act71of2008,clearlysetsoutwhocanaccessthisfinancialinformation.OnealsohastokeepthePAIAAct(thePromotionofAccesstoInformationAct,Act2of2000)inmind.Legally,theyarenotobligedtosharethisinformationunlessorderedtodosobythecourts.Forexample,whereaCompanycannotpaythedebtandajudgmentisobtainedleadingtotheissuanceofaWarrantforExecutiontoattachanyproperty(assets)andiftheassetsarenotsufficienttocoverthedebt,thecreditorisentitledtodemandacopyofthemostrecentannualfinancialstatement.Thiswillneedtobemadeavailabletothecreditorwithin5businessdaysfromreceiptoftherequest.Alistedcompany,however,publishesfinancialsyearly.

Main corporate structures

• SoleTrader/Proprietor:Onepersonownsthebusinessandthelawmakesnodistinctionbetweenthatpersonandthebusinessthattheyareoperating.Theassetsanddebtsofthepersonarealsoassetsanddebtsofthebusiness.Soletradersmustrefertotheirbusinessas‘Namet/a(tradingas)businessname’.

• Partnership:Abusinessthatisownedbybetweentwoand20partners.Aswithasoletrader,therearenodistinctionsbetweentheassetsanddebtsoftheindividualsandthoseofthebusiness.Itisadvisabletohavelegalagreementsinplacethatestablishprofitsharing,assetmanagementandactionsintheeventofapartnerwishingtoleave.

• CloseCorporation/23:Abusinessmodelallowinguptotenindividualstostartabusinesswithlimitedliability.TheassetsanddebtsofthebusinessbelongtotheCloseCorporationratherthantotheMembers.Thesuffix‘CC’mustbewrittenafterthebusiness

nameonofficialdocumentation.Ifthisisomitted,thelawdoesnotseetheassetsanddebtsofthebusinessasseparatefromthoseoftheMembers.

• Company:Abusinessmodelconsistingofovertenpeople,constrainedbythelawsoftheCompaniesAct.Itcomprisestheowners(orshareholders)andthedirectors(managersoftheorganization)anditsassetsanddebtbelongsolelytothecompany.Thenameofthecompanymustalwaysbefollowedbythesuffix‘Pty(Ltd)’andthenamesofthedirectorsandtheregistrationnumbermustalwaysbeincludedonthecompanyletterhead.Thelasttwodigits(/00)oftheregistrationnumberdenotesthe‘type/form’thecompanytakes.Companiescantakemanyformsincluding:• Stateownedcompany/30• Privatecompany/07• Publiccompany/06• Personalliabilitycompany/08• Non-profitcompany/21• Externalprofitcompany/10• Externalnon-profitcompany/21

Regulatory environmentSouthAfricahasacourtsystemplaguedbyinadequatesystems,backlogsandgeneralinertiabytheclerksthatservewithinit.Thismakesthewholeprocesstediousandfrustratingforthecreditorandtheirattorney.Unfortunatelythisisveryoftenusedtothedefaulter’sadvantagetodragmattersoutforaslongaspossible.• Legalpractitioners:Advocatescanappearinanycourt,while

attorneys/lawyersmaybeheardinallofthecountry’slowercourtsandcanapplyfortherightofappearanceinthesuperiorcourts.

• SupremeCourtofAppeal:Hasjurisdictiontohearanddetermineanappealagainstanydecisionofahighcourt.

• HighCourts:Thesecourtshearmattersthatareofsuchaseriousnaturethatthelowercourtswouldnotbecompetenttomakeanappropriatejudgmentortoimposeapenalty.

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-legalpersonoracompany)settingoutanychangesbeingmadetointerestcharges.

Debt collection costsTheActspecifiesthatthecollectioncoststhecreditproviderincurswhenattemptingtocollectanoverduedebtfromtheconsumercannotexceedthecourttariff.Insomecases,thecourtwillruleagainstthecreditor(+/-70%),allowingthedebtorleniency,statingthatcostsandinterestwillbecarriedbyeachparty.Furthermore,ifnocontractualagreementexists,collectioncostscanonlybeappliedifdonethroughanattorney.

Ownership protectionAlthoughtitleretentionclausesareconceptuallyverysimple,theyhavebecomeincreasinglywidelydrafted,whichhasresultedinthecourtsstrikingdowntheclauses.Problemsarisewherethegoodssoldaremixedwithothergoodsofasimilarnature,sothattheyarenolongeridentifiable.Inmanyjurisdictionssuchanonwardsalepassesgoodstitletothesubsequentpurchaser,andtheoriginalsellerlosestitle.ThemainpurposeofRoTclausesaretoensurethatwheregoodsaresuppliedoncredit,ifthebuyergoesintobankruptcy,thesellercanrepossessthegoodsaslongastheyhavenotbeensoldorreworkedintootherproducts.

PaymentsElectronicFundsTransfer,orEFT,allowsthesendingofpaymentselectronicallyandareespeciallyadvantageousbecausethepayeereceivespaymentfasterthanwithapapercheck,andthereisnoriskofacheckgettinglostinthemail.ChecksarerarelyusedifeverinSouthAfricaasmostcreditorsrefusetoacceptthem.Checkscanhaveastoppaymentissuedagainstthemandtheonlyrecoursewouldbealonglegalprocessofobtainingdefaultjudgement(approximately1year).

Late payment interest: Onceaconsumerisindefault,debtinterestmayneverexceedtheoutstandingcapitalbalanceowedatthetimeofdefault.

• Circuitlocaldivisions:PeriodicallyconducthearingsatremoteareasoutsidetheseatoftheHighCourt.

• RegionalCourts:Theregionalcourtsadjudicatecivildisputes.• Magistrate’sCourts:Thesecourtsformanimportantpartofthe

judicialsystemasitiswhereordinary“consumers”(thepartytowhomthecreditfacilitywasgrantedto-alegalpersonoracompany)comeintocontactwiththejusticesystemdaily.ThisiswithaviewtowidenaccesstojusticeasmorepeoplewillbeabletoaccesstheMagistrate’sCourts,whereitischeaperandfastertoobtainlegalrecoursecomparedtotheHighCourts.Theaimistostrengthentheindependenceofthejudiciary

Getting Paid

Days Sales Outstanding (DSO)Withthestateoftheeconomyatpresent,domesticdebtorsarebattlingwithcashavailability.Thismakesitdifficultevenforlargecompaniestomeetthepaymenttermsagreedtoontheiroriginalcreditapplicationforms.TheaveragetermsandconditionsinSouthAfricaarebetween30and60daysandareindustrydriven.However,duetothefinancialconstraints,thetrendinthelastfewyearshasmostpayingupto90days.Insomecases,thesmalltomediumenterprisesaretakingaslongas120to180daystosettledebts.

Late payment interestDespiteacreditagreementtothecontrary,theinduplumrulestatesonceaconsumerisindefault,debtinterestmayneverexceedtheoutstandingcapitalbalanceowedatthetimeofdefault.Theinterestrateapplicablecanbedebitedatanytimeafterthedaytowhichitapplies.Atleastfivebusinessdayswrittennoticemustbegiventothe“consumer”(thepartytowhomthecreditfacilitywasgrantedto

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Collecting overdues

Amicable actionNegotiatingNegotiationsinSouthAfricahavetobecarriedoutwithintheparametersoftheNationalCreditAct(NCA)Section34(2005)whichareto:• promoteresponsiblecreditgranting,• prohibitrecklesscreditgranting,• providefordebtre-organizationincasesofover-indebtedness,• regulatecreditinformation,• provideforregistrationofcreditbureau,creditprovidersanddebt

counsellingservices,• establishnationalnormsandstandardsrelatingtoconsumer

credit,and• promoteaconsistentenforcementframeworkrelatingto

consumercredit.Oncethecollectorhasreceivedaclaim,theyareobligedtostaywithintheframeworkassetoutintheNCA.Thefirstletterofdemand(LOD)getssent,quotingsection129givingthedebtortheoptiontocontactalawyer/attorney/debtcouncilororthecreditorwithina10businessdayperiodtoarrangepayment.Thislettermustbesentviaregisteredmail.Ifthedebtorpersistentlydefaultsordoesnotrespondduringtheamicablephase,afinaldemandletterissent(thiscanbedoneelectronically)statingtheaccountwillbehandedovertoanattorneywithinfivedays

Legal action

Ordinary proceedingsThesummonsisthedocumentthatofficiallystartsalawsuit.Thedefendantmustbegivennoticeoftheclaimbyhavingacopyofthesummonsornoticeofmotionservedonitbythesheriff(astatutoryofficerempoweredbylegislationtoaffectserviceofcourtprocesses).Afterserviceofthesummons,thedefendantcanservenoticetodefend.Ifanoticetodefendisnotservedwithinthetimelimitof10businessdays,theclaimantcanimmediatelyapplytotheregistraroftheHighCourt(registrar)fordefaultjudgment.Ifanoticetodefendisservedbutthedefendantfailstodeliveraplea,theclaimantcanapplyfordefaultjudgment.Ifapleaisdelivered,thedefendantcanincludeacounterclaimwithit(alsoknownasaclaiminreconvention).Itmustbeaclaimagainsttheclaimantbutdoesnotneedtobelimitedtothesubjectmatteroftheclaimant’sclaim.Ifthedefendantraisesnewissuesintheplea,theclaimantisallowedtoreplythroughareplication.Eachpartyisentitledtofurtherpleadingsorreplicationsbutareplyisonlynecessarywheretheotherpartyraisesnewissuesnotpreviouslydealtwith.

Collection @ Euler HermesItisalwaysadvisedtoattemptcollectionpriortoanylegalactioninordertomaximizechancesofsuccessfulrecoveryandavoidlegalcostsanddelays.Ourkeyprincipleistocollectincloseproximitytothedebtor,usingaseriesofletters,emailsandphonecallsinthelocaldebtorlanguage.OurWorldCollectionNetworkofEulerHermesofficesandexternalprovidersareexpertsinprofessionaltradedebtcollectionandnegotiation,ensuringpositiveoutcomeswhileretainingimportantclientrelationships.EulerHermescanhandlethecompletecollectionsprocessfromamicable,pre-legalactionthroughtojudgmentandenforcement.

Aftercloseofpleadings,eitherpartycanapplyforatrialdatetobeallocatedbytheregistrar.Priortothetrialthepartiesexchangerepliestoandrequestsforfurtherparticulars.Thisisintendedtoassistthepartiestounderstandeachother’spleadedissuesandtoshortenthehearing.Beforethehearing,thepartiesmustalsocompleteanumberofpre-trialprocedures,themostimportantofwhichistheexchangeofrelevantdocumentsbetweentheparties(discovery).Additionally,thepartiesmustholdapre-trialconferenceatleastsixweeksbeforethehearingofthematter,atwhichtheymustdiscusscertainissueswiththeaimofshorteningthehearing.Minutesofthepre-trialconferencemustbefiledwiththeregistraratleastfiveweeksbeforethehearing.If,atanystage,apartydoesnotcomplywiththeHighCourtRules,thatparty’sclaimordefensemaybedismissed.

Necessary documentsAsinallcases,whetherhandingoveraclaimtoEulerHermes,anattorneyoraliquidator,themoredocumentationsuppliedthebetter.However,mandatorydocumentsare:statementofaccount,invoices,deliverynotes/shippingdocuments,andcreditapplication/orderforms.Otherdocumentationwouldincludeanycorrespondencebetweenotherthirdparties,thedebtor,thecreditorandEulerHermes.

Time limitationsTheStatuteofLimitationisthreeyearsinSouthAfrica.Oncethistimeperiodhaselapsedthedebtorcanrefusetopaytheoutstandingaccount,unlesssummonshasbeenissuedbythecourtspriortotheexpirationdate.TheHighCourtRulesprovidetimelimitsforthecompletionofeachstageoftheproceedings.Thepartiesdonotalwaysadheretothesetimelimitsastheycommonlygranteachothertimeextensionswithinwhichtofulfiltheirobligations.Thesetimeperiodscanbefurtherextendedbyinterimapplicationsbroughtbytheparties.

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Provisional measuresCreditorsmayapplytothecourtsforprovisionalmeasurestobeputinplacewhilewaitingforjudgment.Therearetwokindsofinterdicts,namelyinterimandfinal.Thetestiswhetherornotaclearrightexists.Interiminterdictsaregrantedforspecificperiodsoftimebutmaybeextendedtoprotectcertainrightsuntilactionhasbeenfinalized.Arulenisiisaninterimordergrantedbyacourt,oftenexparteagainstwhomthereliefisbeingsought,callinguponthepersontogivereasonson(orbefore)adatespecifiedtostatewhyafinalordershouldnotbegranted.Rulenisiareoftenusedinurgentapplications.Ifaclearrightisproved,afinalinterdictmaybegranted.

Lodging an appealLeavetoappealmustbesoughtwithin15courtdaysafterthedateofdeliveryofthejudgmentororderinquestion.Theapplicationforleavetoappealwillthenbesetdownandheardbythesamejudgewhopresidedovertheproceedingsinquestion.WhereleavetoappealisgranteditwilleitherbetotheSupremeCourtofAppeal(“SCA”)ortoafullbench(usuallythreejudges)oftheHighCourtconcerned.AfurtherappealmayliefromafullbenchtotheSCA.Asageneralrule,leavetoappealwillbegrantedwherethereisareasonableprospectofanothercourtcomingtoadifferentdecision.

Enforcing court decisionsObtainingjudgmentinone’sfavorisnotnecessarilythefinalstepinthelitigationprocess.Inmanycasesthepartyagainstwhomthejudgmentisgranted(the“ judgmentdebtor”)willwillinglycomplywiththejudgment.Itmayhappen,however,thatthedebtorisunwillingtocomplywithajudgment.Insuchacase,itwillbenecessarytodistinguishbetweenajudgmentinwhichthecourtordersthejudgmentdebtortoperformsomeact,knownasajudgmentadfactumpraestandum,andajudgmentwhichordersthejudgmentdebtortopayasumofmoney,knownasajudgmentadpecuniamsolvendam(likeanordertopaydamagesarisingoutofadelict).Theremedyofthecreditoristofollowaprocessknownas“execution,”whichissetoutinthespecificrulesoftheHighCourtandMagistrate’sCourt.Suchproceduresprovideamechanismbywhichcourtordersmaybeenforced,andensuretheeffectivenessandintegrityoftheprocessofjudicialdecision-making.Ingeneralterms,theprocessofexecutionentailstheattachmentandsalebypublicauction,bythesheriffofthecourt,ofthepropertyofthejudgmentdebtorinordertorealizemoneyandtherebysatisfyamoneyjudgment.Thepropertymaybemoveable,immovableorincorporeal.Thisprocedureamountstoanindividualdebt-collecting(execution)procedure,sinceitcanoperateeffectivelyonlywherethedebtorhassufficientassetstomeettheamountofthejudgmentdebt.Ifthedebtorcannotpaythedebtandhasnoexecutableassets,thedebtoristechnicallyinsolvent.Insuchaninstance,creditorswillhavetoreverttootherdebt-collectingdevices,suchasanapplicationfortheliquidationorwinding-upofthejudgmentdebtor(asprovidedbytheCompaniesActortheCloseCorporationAct).

How long could legal action take?Thelengthoftheactionwillvarydependinguponthecomplexityofthecase.Eachstepwithinthelegalactionframeworkhasspecificitiesattachedtoit.Whathasnotbeentakenintoaccountisthetimefactoroftheattorneysworkingonthematters,drawingupofthesaiddocumentsandthesheriffservingthesummons,judgmentsand/ortheWarrantofExecutions.Thesheriffshavea45businessdayperiodinwhichtheycanservethesaiddocumentsbeforetheyexpire,makingtheprocessquitelengthy.Thecreditorsandattorneysaredependentonthesheriffstoexpeditetheserviceofthedocumentsinatimelymanner.However,certainregionsareslowerthanothers.

How much could this cost?Legalcostsarepayablebyaclienttohisattorneyforanyexpensesincurredforsuchitemsastelephonecalls,faxes,photocopiesorpaymentstothesheriffofthecourtforserviceofadocumentetc.TheSouthAfricanAttorneysAssociation(SAAA)wasformedtounderscoretheindependenceoftheprofession.Theyissuefeeguidelinestotheindustry.Therequirementthatlegalpractitionersmustprovidetheclientwithclearexplanations,adviceonthelikelysuccessofthematter,anexplanationofthecostimplicationsandhowthecostsarelikelytobecalculated.Thisgoesalongwaytoavoidoverreachinganddisputesaboutfees.Itisimpossibletodetermineallthelikelyfinancialimplicationsofanymatterupfront.Thewords“tothebestofhis/herability,inthelightofthethenavailableinformation”isnormallyinsertedwhenquotingorestimatingacost.Verbalexplanationofeveryaspectofthecostestimatenoticecannotbearequirementinallcases.Itwouldbetime-consumingandunnecessaryincaseswherethereisanestablishedrelationshipbetweenthepractitionerandtheclient.Clientsshouldbeallowedtowaivethisrequirementinwriting.

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Alternatives to legal action

Alternative Dispute Resolution methods (ADR)ADRdoesnotformpartofcourtproceduresandonlyappliesifthepartiesagreetoit.Inarbitrationproceedings,evidenceisusuallygivenorally.Duringthearbitrationprocess,partiesdomakedisclosuresandsuchdisclosuresarenotprivilegedunlesstheyareprivilegedbythelawofgeneralapplication.Thepartiesusuallyagreethatthearbitratorcanruleonthemannerinwhichevidencecanbeplacedbeforethearbitrator.Thisenablesevidencetobegivenbywitnessstatementsincertaincircumstances.Inmediationproceedings,noevidenceisusuallygiven,astheprocedureisdesignedtohelpthepartiesreachanagreementbetweenthemselves.Documentsproducedoradmissionsmadeduringmediationproceedingsareusuallyprivileged,sincetheyformpartofasettlementprocessandmediationproceedingsareusuallyconfidential.Wherepartiesappointanarbitratororapanelofarbitratorstomakearuling,itisfinalandbinding.Onaccountofthetimethatittakestogettotrial,aswellastheappealproceduresinvolved,arbitrationisregardedasaspeedyandeffectivemeansofresolvingdisputes.

Foreign forumsForeignjudgmentsarecapableofbeingexecutedinSouthAfrica,providedthatcertaincriteriaaremet.TheprocedureistobringanapplicationtocourtsettingoutreasonswhythejudgmentiscapableofbeingexecutedintheRepublic.Therehastobejustifiablegroundsfordoingsoaswellasaconsentoralinkbetweenthedebtorandthejurisdictionofthatforeigncountry.ItisunlikelythatthecourtsinSouthAfricawillallowajudgmentgrantedagainstalocalcompanybyaforeigncourttobeexecutedonthebasisofefficiencyorlackthereofofthelocalcourtsystem.Inrespecttoobtainingjudgmentagainstaforeignentitylocallyand

Litigation @ Euler HermesShouldlegalactionbenecessary,EulerHermescanprovidesupportthroughoutthelegalprocessfromjudgmenttoenforcementviaourWorldCollectionNetworkofEulerHermesofficesandexternalproviders.Legalactioncanoftenbecomplicatedandexpensive,soyouwillbeinformedofallcostspriortoanyactionandadvisedonwhichrouteisbesttotake.

thenexecutingthesameinaforeignterritory,thesameispossibleprovidedthatthecountryinquestionhasaprocedurethatwillallowit.Enforcing foreign awardsItispossibletoenforceforeignciviljudgmentsinSouthAfricabyregisteringthejudgmentwithalocalcourtundertheEnforcementofForeignCivilJudgmentsActNo.321998.However,thescopeofthisActisextremelynarrow.AforeignjudgmentisnotdirectlyenforceableinSouthAfricabutconstitutesacauseofactionthatwillbeenforcedbySouthAfricancourtsifthefollowingrequirementsaremet:• Foreigncourtmusthavehadinternationalcompetenceas

determinedbySouthAfricanlaw;• Judgmentmustbefinalandconclusiveandmustnothavebecome

superannuated;• TheenforcementofthejudgmentmustnotbecontrarytoSouth

Africanpublicpolicy(whichincludestherulesofnaturaljustice);• Judgmentmustnothavebeenobtainedbyfraudulentmeans;• Judgementmustnotinvolvetheenforcementofapenalor

revenuelawoftheforeignstate;and• EnforcementmustnotbeprecludedbytheProtectionof

BusinessesAct99of1978.InSouthAfricanlaw,prescriptionisregardedassubstantive;therefore,aSouthAfricancourtseizedwiththequestionofwhetheraclaimtotheenforcementofaforeignjudgmenthasprescribedwillapplytherelevantforeignlaw.

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Handling insolvent debtors

Judicialmanagementisstillalimitedoptionandthethreatofliquidationproceedingsisoftenacatalysttobringthepartiestothetabletoimplementasettlement.Liquidationplacesacompanyinfinancialdifficultyunderjudicialprotection.Atthedateoftheliquidationtherightsofcreditorsarefrozentopreventcertaincreditorsfrombeingpreferredand/orenhancingtheirpositionattheexpenseofothers.Additionally,aliquidatorisappointedtorealizeanddistributetheassetstocreditors.AllinsolventestatesareadministeredunderthecontroloftheMasteroftheHighCourt.InsolvencyinSouthAfricaisprimarilygovernedbytheInsolvencyAct24of1936(theInsolvencyAct),whichgovernsthesequestrationsoftheestatesofindividuals,trustsandpartnershipsthatareinsolvent.Thewinding-upandreorganizationofcompaniesisgovernedbytheCompaniesAct61of1973(theCompaniesAct),whichincorporatesbyreferenceportionsoftheInsolvencyActindealingwithcompaniesthatcannotpaytheirdebts.ClosecorporationsareinturngovernedbytheCloseCorporationsAct68of1984.Enquiriesorinterrogationsbytrusteesorliquidatorsareconvenedeitherinthemagistrates’courtorundertheauspicesofacommissionerappointedbythemaster.

Insolvency proceedingsOut-of-Court proceedingsAllliquidationshavetobeappliedforandapprovedbythecourts.TheLiquidationandDistributionaccountisdrawnupbytheexecutor/trusteeorliquidatorandsubmittedtotheMasteroftheHighCourtforapproval.

Restructuring the debtBusinessRescueaimstodoexactlywhatthenamesays,torescueorrehabilitateacompanywhichisunderfinancialdistress.A“BusinessRescuePlan”mustbedrawnupbyaprovisionallylicensedbusinessrescuepractitionerwhopossessesthenecessaryindustryknowledge,hasthecapacitytotakeonthespecificbusinessrescueandhasnoconflictsofinterestwiththebusiness.This“BusinessRescuePlan”willthenbeputtoavotebythecreditorsandoncesuccessfullyvotedin,thebusinessrescuepractitionermustimplementandoverseethebusinessrescueplaninanattempttosavethecompany.Thisgivesthecompanytheopportunityitneedstoreorganizeandrestructureitsaffairsandtostructureapaymentschemewithitscreditorswhilecontinuingtotradeasnormal.

Insolvency @ Euler HermesEulerHermesworkscloselywithdebtors,creditorsandlawyerstoprovidesupportduringinsolvencyandrestructuringprocesses.Withmanyoptionsavailablewhenitcomestoinsolvencyaction,wecanofferadviceonwhichoptionismostsuitable.

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Winding up proceedingsOncealiquidationorderisgrantedbythecourt,directorsaredivestedoftheirpowersandsubsequentunauthorizeddispositionsofpropertyarevoid.Creditorscannotinitiateproceedingsagainstthecompanyandallproceedingsbyoragainstthecompanyarestayeduntilaliquidatorisappointed.Liquidatorsmustrealizetheassetsofthecompanyanddistributetheproceedstothecreditors.Creditorsaredependentontheliquidatortomaximizetheirdividendsbyensuringthatassetsaresoldforthehighestpossiblepurchasepriceandbypursuingclaimsagainstdelinquentdirectorsandotherpartieswhomaybeliabletothecompany.Liquidatorsactonthedirectionofcreditors,whicharegivenatformalmeetings.Urgentdirectionscanbeobtainedfromthecourt.

Priority rulesSecuredcreditorsrankfirstoninsolvencyandarepaidfromtheproceedsofthesaleofthesecuredasset.Whereasecuredcreditor’sclaimisnotsatisfiedinfull,theunpaidbalanceisconsideredaconcurrentclaim(seebelow,Concurrentcreditors).Preferredcreditorsarecreditorswhodonotholdsecurityfortheirclaims,butrankaboveconcurrentcreditors.Theyarepaidfromtheproceedsofunencumberedassetsinapre-determinedorderassetoutintheInsolvencyAct1936.Preferentcreditorsincludeemployees’remuneration(uptoaprescribedamount)andtheSouthAfricanRevenueService.Theholderofageneralnotarialbondisthelowestrankedpreferentcreditor.Concurrentcreditorsarepaidfromanyproceedsofunencumberedassetsthatremainafterpreferredcreditorshavebeenpaidinfull.Theyarepaidinproportiontotheamountsowedtothem.

Cancellation of suspect transactions (clawback)TheSouthAfricanlawallowsforasixmonthperiod,whereinanypaymentmadetoacreditormaybeconstruedasthatcreditorhavingreceivedpreferentialtreatment.Theliquidatorisentitledtorequestthesumbereturnedintotheestatefordistributiontoallcreditors.

How long could insolvency proceedings take?Acourtapplicationcanbemadeandgrantedurgently,oftenonthesamedayifnecessary.Innormalcircumstances,aprovisionalordercanbegrantedwithinaweekoftheissueofthecourtapplication,ifunopposed.Iftheapplicationisopposed,itcantakemonthstoobtainahearingdate.Theexactlengthoftimedependsonavailablecourtdates.Thelengthoftheentirewinding-upprocessdependsonthenatureofthematter.Dividendstocreditorscangenerallyonlybepaidafterconfirmationofliquidationanddistributionaccount,whichisonlypreparedonceassetsarerealizedandcashisavailablefordistribution.Afirstliquidationanddistributionaccountcanbepreparedwithinsixmonthsoftheliquidationorder.Beforethisstage,acreditorthatholdssecuritycanasktheliquidatortopayanadvancedividendsubjecttoconfirmationoftheliquidationaccount.Subsequentaccountsareprepareduntilalltheproceedsoftheassetrealizationshavebeendistributed.

Necessary documentsThemandatorydocumentsareasfollows,andalsoappearontheclaimsformsenttoallcreditors:• Statementsofaccount,• Invoices,• Deliverynotes/shippingdocuments,• Creditapplicationand• Orderform(s).Howevertheliquidator/trusteecouldrequestspecificorotherrelateddocumentationdependentonthematter.

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ThisCollectionProfileispublishedbyEulerHermes,acompanyofAllianz,forinformationpurposesonly.Theinformationprovidedthereinshallnotberegardedasprovidinganylegaladviceoradviceofanykind.Readersshouldmaketheirownindependentevaluationofthisinformationandundernocircumstancesshallanyactionbeundertakensolelyrelyingonit,whilelegaladviceshouldbesoughtwithlegalpractitionersatalltimes.Whilethisinformationhasbeencollectedanddraftedbyrecognizedexpertsintheirfieldanditisbelievedtobecorrectandreliable,EulerHermesmakesnowarranty(expressofimplied)ofanykind,inregardstotheaccuracyorcompletenessofthisinformation,nordoesitacceptanyresponsibility or liability for any loss or damage arising in any way from any use made of, or reliance placed on, thisinformation.Thismaterialshouldnotbereproducedordisclosedwithoutourconsent.ItisnotintendedfordistributioninanyjurisdictioninwhichthiswouldbeprohibitedandCollectionProfilesaresubjecttochangewithoutnotice.

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