Muhammed Bin Hassim Mohamed and others v The President of the Republic of South Africa and others
May 22, 2020
Mahlangu and another v Minister of Police (1393/2018) [2020] ZASCA 44 (21 April 2020)
May 28, 2020


Considering the state of South Africa’s pre-pandemic economy, COVID-19 and the concomitant lock-down could arguably not have come at a worse time for businesses and individuals alike.

It is widely anticipated that we will soon see a slew of businesses and individuals who find themselves in very precarious financial positions – despite the South African Government instituting measures designed to assist through this time.

It is therefore crucial that businesses attempt to anticipate and ultimately weather the storm that they are facing and that they timeously adopt all measures and precautions available to them in order to prevail. 

One of the potential options that should be considered is the application for government support including funding made available through:

  • The Temporary Relief Scheme, which aims to stave off retrenchments by assisting employers to pay employees who are temporarily laid off due to the Covid-19 crisis.
  • The Debt Relief Finance Scheme through the Department of Small Business Development (DSBD) which provides loans on favourable terms to businesses.
  • The Business Growth and Resilience Facility, which offers finance to businesses that manufacture or supply hygiene and medical products that are in demand in the fight against the COVID-19 virus.
  • The Industrial Development Corporation and the Department of Trade and Industry – this is however also designed mainly to assist businesses that are involved in the supply of critical goods and products required to combat the virus.
  • The COVID-19 Black Business Funding Solution funded by the National Empowerment Fund designed to aid black empowered manufacturers involved in the production of COVID-19 -related products

Businesses should also investigate private sector support (as is available) for SMEs including the initiatives of:

  • The South Africa Future Trust,
  • The Motsepe Foundation Fund
  • The Rupert Family Fund
  • The Solidarity Fund

It is also recommended that businesses approach their credit providers (banks/financiers) to negotiate any possible payment holidays or other indulgences and to determine whether they have credit insurance linked to finance arrangements.

In operating, businesses should always be cautions not to trade recklessly – meaning that they should be weary of carrying on business and continuing to incur debts when they have little chance of repaying creditors, as the consequence of doing so may lead to potential liability of directors/owners. In this vein, should it become necessary, companies should approach creditors and suppliers and ask for forbearance. It is however recommended that legal advice be sought before making any such appeals, in order to ensure that they are carefully phrased and do not lead to serious unintended consequences.

If appropriate and if the above general measures have not yielded sufficient results, a company may consider initiating Business Rescue by way of a resolution of the board of directors (in the case of being financially distressed and there being a reasonable prospect of recovery) of the company.

Business Rescue can assist a company as it will provide:

  • Interim relief from creditors who will not be able to pursue claims against the company while in business rescue
  • At the discretion of the business rescue practitioner, the suspension of the company’s contractual obligations to third parties (excluding those to employees)
  • The formulation of a plan to restructure the business optimally

Further consequences of Business Rescue are that:

  • The company will be subject to temporary supervision and management in order to facilitate its financial recovery
  • An opportunity will be created to allow for the company’s recovery and restoration to solvency or if this is not achievable, its restructuring in such a way so as to ensure a better return for creditors or shareholders than would otherwise result from the immediate liquidation of the company. 

It is however important to note that should the resolution not be passed to initiate business rescue and the company continues to trade  in circumstances that may put creditors at risk, it should make interested parties aware of its financial predicament – failing which the directors may possibly be held liable for creditor’s losses incurred as a result of the omission.

One must be mindful however that such notice may well lead to difficulties with suppliers and creditors who may themselves apply to court for the company to be placed under business rescue or apply for the company’s liquidation on the grounds that it is unable to pay its debts as they fall due. Should this occur, legal counsel should be sought without delay as the application may well be subject to challenge.

In circumstances where other measures are unable to assist the company, it could also consider voluntary  liquidation but it is recommended that companies in distress take advantage of every mechanism available to them before facing financial disaster – such being briefly dealt with above.

For more information or advice, please contact:

Jason Clemens

Campbell Attorneys

031 5646494