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In this guide
By Onah Attorneys Inc • Updated July 2026 • Legal information, not a substitute for advice on your specific matter.
A company that cannot pay its debts has two legal roads: business rescue — a court-sanctioned turnaround under a practitioner with creditors frozen — or liquidation, the orderly funeral. Choosing correctly (and early) is the difference between a saved business or clean closure and directors facing personal liability for trading recklessly past the exit. Here is how each works and how to choose.
Business rescue: the turnaround machine
Chapter 6 of the Companies Act: the board resolves (or a court orders) rescue when the company is financially distressed but has a reasonable prospect of rescue. A business rescue practitioner (BRP) takes management oversight, a moratorium freezes legal proceedings and executions, and a rescue plan — restructuring debt, selling divisions, injecting funding — is put to creditors for a 75% vote. Employees keep jobs on existing terms unless the plan says otherwise.
When rescue works — and when it’s theatre
Rescue works with early filing, a viable core business, post-commencement funding, and a real plan. It fails as theatre when filed at the sheriff’s knock to buy time: no funding, no plan, just moratorium surfing — courts and creditors have grown expert at converting these to liquidation. The honest test: is there a business inside the balance sheet worth saving, and who funds it while the plan builds?
Liquidation: the orderly end
Voluntary (members’ or creditors’) or compulsory (court order on inability to pay): a liquidator takes control, realises assets, and distributes by legal ranking — secured creditors, preferent claims (employees, SARS within limits), then concurrent creditors. The company dies; directors’ exposure crystallises around what happened BEFORE: reckless trading, voidable preferences (payments favouring some creditors in the six months before), and dispositions without value up to two years back.
Director liability: the clock that matters
Section 22 outlaws trading recklessly or in insolvent circumstances; Section 77 makes directors personally liable for losses. The danger window is the months of ‘trading through it’ on hope — taking deposits you may not deliver on, preferring friendly creditors, PAYE/VAT collected and not paid (personal liability risks with SARS). The earlier the formal step — rescue or liquidation — the cleaner the directors walk.
The decision matrix
Viable core + fundable plan + early → rescue. No viable core, or distress discovered late → liquidation, cleanly, before liability accrues. Solvent but strangled by one dispute → compromise offers (s155) beat both. Small owner-managed companies with personal sureties everywhere: model the group outcome, not the entity’s alone — rescue that saves the company but bleeds the sureties may still be the wrong answer.
Creditors’ side of the table
Owed money by a distressed company? Rescue: file your claim, vote the plan, watch for plans that pay cents while insiders keep the business — vote and litigate accordingly. Liquidation: prove claims timeously, consider funding the liquidator’s recovery of voidable preferences, and pursue sureties immediately (the moratorium protects the company, not its guarantors).
Frequently asked questions
What does business rescue cost?
BRP fees (regulated tariff, often negotiated), legal and plan costs — meaningful, which is why rescue without funding rarely flies. Liquidation costs come off the estate top.
Do directors lose everything in liquidation?
Not from liquidation itself — limited liability holds unless sureties were signed (usually the real exposure) or misconduct claims (reckless trading, preferences) attach personally.
Can SARS debt be rescued?
SARS votes as a creditor in rescue and often supports plans paying better than liquidation would. But PAYE/VAT collected-not-paid carries personal liability angles no plan erases — treat fiscal debt first.
How fast does the moratorium protect us?
Immediately on filing the rescue resolution with CIPC — executions freeze, proceedings need consent or court leave. That speed is rescue’s tactical power; using it honestly is what keeps it.
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