Liquidation / Likwidasie : caput 7

• Date: 01 January 2010
• Pages: 173-184
• Published date: 01 January 2010
• DOI: 10.10520/EJC74113

173

CAPUT 7

LIQUIDATION / LIKWIDASIE

7.1 Composition, compromise and arrangement / akkoord,

skikking en reëling

7.1.1 Introduction

In addition to those that may be created contractually, various proce-

dures to effect an arrangement with creditors are available to a com-

pany incorporated under the Companies Act 1973. A diff‌icult ques-

tion that arises in this regard is whether these arrangements are also

available to a close corporation in liquidation. Although this question

was canvassed in a decision in 1985, it has received relatively little

attention in handbooks on close corporation law.

7.1.2 Arrangements under section 389

7.1.2.1 Introduction

Section 389 of the Companies Act authorises a company, which is

unable to pay its debts and is or is about to be wound up, to enter

into an arrangement with its creditors. The arrangement is binding

on the company if sanctioned by a special resolution of its members,

and on its creditors as well if acceded to by three-fourths in number

and value of the creditors.

Only arrangements, and not compromises, can be effected. There

is no machinery for calling meetings and thus the assent of creditors

must be solicited individually.

An arrangement under section 389 cannot be used to effect any

transaction which cannot be dealt with under section 311, but as it

is not necessary to approach the court in this instance, it may be a

less costly procedure.

7.1.2.2 Inapplicability to close corporations

Section 66 of the Close Corporations Act expressly provides that

section 389 of the Companies Act is not applicable to the winding up

of a close corporation.

7.1.3 Section 72 compositions and section 311 compromises and

arrangements

7.1.3.1 Compositions under section 72

Although section 66 of the Close Corporations Act provides for the ap-

plication of numerous winding-up provisions of the Companies Act to

the liquidation of a close corporation, a procedure similar to composi-

tion proceedings under sections 119 to 124 of the Insolvency Act of

1936 is available in terms of section 72 of the Close Corporations Act,

in the event of the winding up of a corporation unable to pay its debts.