When an insolvent company is placed into liquidation a concursus creditorum is established. This means that the interests of the company’s creditors as a collective take precedence over the creditors’ individual interests. Its effect is that creditors may only be proportionately paid from the company’s proceeds in accordance with the ranking of their claims i.e. secured, preferent, or concurrent. This process of distribution to the company’s creditors is undertaken by liquidators who take control of the company’s affairs. This is intended to balance creditors’ interests and to ensure a fair distribution of the company’s assets.
Section 341(2) of the 1973 Companies Act confirms that any dispositions (payments) made to creditors by an insolvent company after winding up proceedings have commenced are void unless otherwise ordered by the Court. However, where an insolvent company is subsequently placed under business rescue, liquidation proceedings will be suspended in terms of section 131(6)(b) of the 2008 Companies Act. In such circumstances, hopeful creditors may wonder whether a disposition voidable under section 341(2), may be validated by the suspension.
In the case of Macneil Plastics (Pty) Ltd v Van den Heever N O and Others (906/2023) [2024] ZASCA 181, a company, bound by a final liquidation order, made payments to one of its creditors. Following these payments, the company was placed under business rescue and the liquidation proceedings were thus suspended. The liquidators launched an application to declare these preferential payments void, to which the creditor responded that the voidness of the payments had been nullified because the business rescue proceedings superseded and terminated the liquidation proceedings and thus “extinguished the concursus creditorum”.
The Court rejected the creditor’s argument and found that business rescue proceedings did not terminate the company’s liquidation and the consequent establishment of the concursus creditorum. The Court held that the business rescue proceedings only suspended the process of liquidation and could not suppress the legal consequences thereof. The Court further stated that to validate such payments would undermine the concursus creditorum and would thus be prejudicial to the general body of creditors.
The decision in Macneil Plastics highlights the seriousness of the concursus creditorum and the due consideration given thereto by the Companies Acts and the Courts. It serves as a reminder to insolvent companies not to show any creditors preferential treatment. Creditors of insolvent companies in liquidation should not expect full payment of their claims, even when such companies are placed under business rescue.
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