Overview Analysis of the Voluntary Winding up of Solvent Companies under the Companies Act 71 of 2008

• Author: Howard Chitimira
• Position: Professor, Faculty of Law, North-West University
• Pages: 54-72

ACTA UNIVERSITATIS DANUBIUS Vol. 15, no. 3/2019

54

Overview Analysis of the Voluntary

Winding up of Solvent Companies under the Companies Act 71 of 2008

Howard Chitimira

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Abstract: Winding up enables affected companies to be administered by the courts for the benefit of

their members, creditors an d other relevant persons. The available assets are divided amongst

members, other relevant persons and creditors in accordance with their rights. The Companies Act 71

of 2008 (Companies Act 2008) regulates the winding up of solvent companies in South Africa while

the winding up of insolvent companies is still regulated b y sections 343, 344, 346 and 348–353 of the

repealed Companies Act 61 of 1973 (Companies Act 1973). A solvent company may be dissolved

through a voluntary winding up application in itiated by the company members or shareholders and/or

creditors in terms of the Companies Act 2008. Consequently, this article discusses the voluntary

winding-up of solvent companies by its shareholders or creditors under the Companies Act 2008.

Procedures, formalities and requirements that need to be followed to effect such voluntary winding up

are also discussed.

Keywords: solvent companies; creditors; shareholders; voluntary winding up

1. Introductory Remarks

Winding up enables affected companies to be administered by the courts for the

benefit of their members, creditors and other relevant persons (Mongalo, 2010, p.

478). Moreover, voluntary winding up of solvent companies legally terminates the

life of such companies through a winding up application of either their

shareholders and/or creditors. A winding up application is usually granted by the

courts when it is just, equitable and/or beneficial to the company itself or its

creditors and/or other relevant stakeholders. Notably, a liquidator is appointed to

take control of the company and to, inter alia, collect its assets and realise them in

order to pay its debts. Any surplus in respect thereof is divided among all the

relevant persons in accordance with their rights. The Companies Act 71 of 2008

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Professor, Faculty of Law, North-West University, Address: Private Bag X2046, Mmabatho, 2735,

South Africa, Corresponding author: Howard.Chitimira@nwu.ac.za.

AUDJ, Vol. 15, No. 3/2019, pp. 54-72

JURIDICA

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(Companies Act 2008) regulates the winding up of solvent companies in South

Africa while the winding up of insolvent companies is still regulated by sections

343, 344, 346 and 348–353 of the repealed Companies Act 61 of 1973 (Companies

Act 1973). As stated above, a solvent company may be dissolved through a

voluntary winding up application initiated by company members or its shareholders

and/or creditors in accordance with the company’s special resolution (s 79 read

with s 80 of the Companies Act 2008).

The voluntary winding up of solvent companies is conducted for various purposes

such as restructuring of the company, redundancy of the company due to deadlock

of directors or shareholders, mergers and/or takeovers and completion of the initial

objects of the company. Applications for voluntary winding up of solvent

companies could also be granted by the courts when the applicant proves that it is

just and equitable for the company (ss 79 & 80 read with s 81 of the Companies

Act 2008). However, notwithstanding the fact that voluntary winding up of solvent

companies is a practical useful tool for companies that want to lawfully terminate

their businesses after achieving their intended outcomes (Brown, 1880, p. 575;

Hannigan, 2018, p. 677; Saharay, 2008, pp. 596-602), it has been sometimes

confusingly enforced by the courts in South Africa (Standard Bank of South Africa

Ltd v R-Bay Logistics CC 2013 2 SA 295 (KZD); First Rand Bank Ltd v Lodhi 5

Properties Investment CC 2013 3 SA 212 (GNP) (First Rand case); HBT

Construction and Plant Hire CC v Uniplant Hire CC 2012 5 SA 197 (FB) (HBT

Construction case); Herman v Set-Mak Civils CC 2013 1 SA 386 (FB) (Herman

case). For instance, HBT Construction case held, inter alia, that the applicant needs

to prove factual insolvency before the winding up order is granted in terms of

section 345 of the Companies Act 1973 (HBT Construction paras 6-7; see further

Locke, 2015, pp. 153-154). This approach was also followed in Herman case

(paras 28-29). On the other hand, First Rand case held that the term “solvent

company” Companies Act 2008 (item 9(2) of Schedule 5 & ss 79–81), applies to

both factually and commercially solvent companies (First Rand case 22–35.

Likewise, the First Rand case held that sections 343-346 and 348–353 of the

Companies Act 1973 were enacted to regulate factually or commercially insolvent

companies (para 35). This approach was endorsed in Scania Finance Southern

Africa (Pty) Ltd v Thomi-Gee Road Carriers CC 2013 2 SA 439 (FB), which held

that sections 344 and 345 of the Companies Act 1973 do not expressly oblige the

applicant to prove factual insolvency before a winding up order is granted (paras

12-21). Boschpoort Ondernemings (Pty) Ltd v ABSA Bank Ltd 2014 2 SA 518

(SCA) (Boschpoort case), held further that a company must be commercially