Company Liquidation Laws Unfair

Public Protector orders liquidation law reforms – thanks to a dispute between some pretty shady characters.

- Jonathan Erasmus

ON 19 DECEMBER 2018 PUBLIC Protector, advocate Busisiwe Mkhwebane released a report which requires changes to the regulations that determine how liquidators of insolvent companies are chosen and appointed, the time frames for this to happen and, importantly, the methods by which they can be removed from office.

Mkhwebane came to her ruling thanks to (1) a BEE junior coal miner, (2) a convicted child pornographer and a disbarred solicitor-turned-thieving banker-turned-unscrupulous-miner; and (3) a liquidator best known for saying “I looove money”.

Notably, she put an end to the “48-hour notice rule” as she found it “unfair, unjust to creditors and susceptible to abuse by (drum roll) …unscrupulous lawyers and liquidators”.

The rule, as explained to Noseweek by CEO of the South African Restructuring and Insolvency Practitioners’ Association René Bekker, gives creditors just two days or 48 hours, to file their claims against a company being placed under provisional liquidation – that’s assuming the creditors all knew about the pending liquidation. If you are an ordinary run-of-the-mill creditor, it is most unlikely that you would have known in time to file your claim and attend that vital meeting of creditors where the provisional liquidators are nominated and elected.

The creditor with the biggest claim gets pro-rata the most votes. Unless you are in on a privately arranged prior deal between a group of creditors in the know, the creditor that swings it is almost invariably a bank – which is as likely the liquidating creditor in control of events. The fact is, in the majority of cases a bank gets to nominate and elect its favoured liquidator who is likely to prefer the bank’s interests (and the bank’s lawyers’ interests), with little regard for those of lesser creditors.