Winding up solvent companies on just and equitable grounds
Delivered on 28 August 2025, this recent High Court judgement, secured through our firm’s uncompromising hunger for innovation in advocating for our client’s, shifts the landscape when it comes to internal disputes in South African corporates.
Before delving in, let’s take a step back.
The legal landscape: The introduction of Section 81 of the Companies Act
The Companies Act No. 71 of 2008 introduced a framework for dealing with corporate distress which unmistakably distinguishes solvent companies (i.e. those whose assets exceed their liabilities) from those which are insolvent (i.e. those whose liabilities exceed their assets). The latter typically face liquidation with the view of equitably distributing available assets to creditors, while the approach to dealing with the former is often disproportionately biassed towards preservation.
Not surprising right? Winding up a solvent company has been characterised by scholars as “a drastic and draconian remedy”.
Where company failures stem, not from financial distress, but from the human relationships which once fed their growth, turning into the lead anchor which guarantees their demise, Section 81(1)(d)(iii) of the 2008 Companies Act empowers one or more directors or shareholders to apply to a court for an order winding up a solvent company, by demonstrating that it is “just and equitable” for the court to so order.
Courts are not inclined to lightly interfere in internal company affairs, so few have successfully invoked this remedy in the past, and much less on an urgent basis. Why would you dismantle a profitable company?
The exception: Approaching the Urgent Court
Further complicating matters, urgent court is typically reserved for issues needing immediate intervention. Think stalled operations, hostile take-overs and frozen assets – where a lack of court intervention will surely result in irreparable harm.
In this case, the court was confronted with a solvent company, whose operations while still ongoing, had become crippled by irreconcilable shareholder acrimony, littered with attempts to forcibly remove directors, the misappropriation of company finances, a deep-seated toxic distrust amongst its shareholders and directors and the weaponisation of the criminal justice system, which culminated in a totally dysfunctional board.
In the face of all of this, the court took a swift approach to resolving a situation which the court identified as “complete paralysis” of the company, placing the company under final winding up.
Taking a step forward
This judgement demonstrates that the courts are increasingly willing to act decisively when the circumstances warrant it.
For business leaders, owners and investors, this judgement not only provides much needed clarity, particularly to those feeling trapped in business relationships that have seen their last good days, but it also provides a glimmer of hope in an environment where the stakes are high and the pressure even higher. Indeed, one size does not fit all. Where boldness is a minimum requirement and innovation is a non-negotiable, look no further, contact us today. Read the judgement here.
