The Minister of Justice and Constitutional Development, Mr Jeff Radebe, recently confirmed, in response to questions raised in the National Assembly, that Government is in the process of regulating the insolvency industry in South Africa.

The focus appears to be on determining Government policy for the appointment of liquidators (Insolvency Practitioners) and the effective management of the realization of assets which would eventuate subsequent to a company going into liquidation.  The Minister stated that the intention was to "promote consistency, fairness, transparency and the achievement of equality for persons previously disadvantaged by unfair discrimination".  It has been suggested that a new "Unified Insolvency Bill" is up for discussion and which will result in a new act focused on all aspects of insolvency involving individuals, partnerships, trusts and companies.  Additionally, new regulations will deal with admission and accreditation requirements for the licensing of liquidators and the establishment of a formal code of conduct for the insolvency industry.

Liquidators are appointed subsequent to an application brought for the winding up of a company, generally on the basis that such company is unable to pay its debts.  The High Court would, in these circumstances, place a company under the administration of a liquidator.  Liquidators, once appointed, consult with creditors, hold meetings of such creditors, receipt claims from creditors for proof and realize assets with the intention of maximising benefit for all stakeholders, including creditors and shareholders. 

The appointment of liquidators has always been in the hands of the Master of the High Court run through various regional offices situate throughout South Africa.  What generally would happen is that shortly prior to the liquidation of a company, requisitions would be sent by competing liquidators for their appointment to the company post the liquidation order.  Such requisitions would be distributed to creditors, in the hope that such creditors would support the relevant liquidator chasing the appointment.

Over the years, the appointments of liquidators have been criticised in the sense that from time to time claims that are circumspect might be put before the Master in support of the appointment of a liquidator, when in fact such claims do not exist.  What would transpire is that the liquidators might be appointed on the back of invalid claims.

The recent comments made by the Minister, have been long anticipated by the Insolvency industry and will be welcomed, particularly by the banking fraternity in South Africa.  Regulation of appointments and specifically licensing liquidators to practise under stringent admission requirements, will no doubt boost the image of the industry within South Africa and would be beneficial for the efficient regulation of the liquidation process.

The new Companies Act provides specifically for the appointment of licensed Business Rescue Practitioners for companies who find themselves in financial distress, well prior to the prospect of liquidation.  The Companies Amendment Bill, 2010 (19 July 2010) caters for the prospect of licensed Business Rescue Practitioners being appointed from the legal, accounting or business management professions that will be subject to regulation, in due course.  It is intended that the Minister will make regulations (still to be published) prescribing the standards and procedures to be followed in the carrying out of the licensing of these Practitioners and the prescription of minimum qualifications for Business Rescue Practitioners.

There is no doubt that the Minister is considering similar provisions (as have already been provided in the new Companies Act) for liquidators as well.  The skill set of liquidators is very different to that of a Business Rescue Practitioner.  The former are tasked with realizing assets at best possible value, but in a forced/fire-sale situation, as opposed to the latter, who will seek to maintain value in the company by filing a Business Rescue plan enabling the company to trade its way out of its financial difficulties.

All in all, it appears that Government are steadfast in their intention to ensure that both liquidators and Business Rescue Practitioners are enabled to provide the best possible returns for all stakeholders by ensuring that distressed companies are properly managed in both the liquidation and business rescue scenarios.  No doubt, good for the economy and for creditors!

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