, LML4806 Assignment 2 (COMPLETE ANSWERS)
Semester 2 2026 (257188) - DUE 10 September 2026; 100%
Correct solutions and explanations.
QUESTION 1
1.1 Financially Distressed and the Grounds for Voluntary Business Rescue
The Companies Act 71 of 2008 provides a legal framework for business rescue to
assist financially distressed companies in rehabilitating their operations while
protecting the interests of creditors, shareholders, employees, and other affected
persons. Before placing a company under business rescue, the board of directors
must determine whether the company is financially distressed and whether the
statutory requirements for commencing business rescue have been met.
Financially Distressed
Section 128(1)(f) of the Companies Act defines a company as financially
distressed if it appears to be reasonably unlikely that the company will be able to
pay all of its debts as they become due and payable within the immediately ensuing
six months. This is known as the commercial insolvency test, which focuses on
the company's ability to meet its financial obligations when they fall due rather
than the total value of its assets.
A company is also financially distressed if it appears reasonably likely that the
company will become insolvent within the immediately ensuing six months. This
is known as the factual insolvency test, where the company's liabilities are
expected to exceed the value of its assets.
In determining whether a company is financially distressed, the board should
consider factors such as:
• The company's ability to pay creditors as debts become due.
• The extent of its current and projected cash flow problems.
• The amount of outstanding liabilities compared with available assets.
• Existing legal proceedings or enforcement action by creditors.
• The company's financial forecasts and future liquidity.
• The likelihood of obtaining additional funding or investment to restore
financial stability.
Semester 2 2026 (257188) - DUE 10 September 2026; 100%
Correct solutions and explanations.
QUESTION 1
1.1 Financially Distressed and the Grounds for Voluntary Business Rescue
The Companies Act 71 of 2008 provides a legal framework for business rescue to
assist financially distressed companies in rehabilitating their operations while
protecting the interests of creditors, shareholders, employees, and other affected
persons. Before placing a company under business rescue, the board of directors
must determine whether the company is financially distressed and whether the
statutory requirements for commencing business rescue have been met.
Financially Distressed
Section 128(1)(f) of the Companies Act defines a company as financially
distressed if it appears to be reasonably unlikely that the company will be able to
pay all of its debts as they become due and payable within the immediately ensuing
six months. This is known as the commercial insolvency test, which focuses on
the company's ability to meet its financial obligations when they fall due rather
than the total value of its assets.
A company is also financially distressed if it appears reasonably likely that the
company will become insolvent within the immediately ensuing six months. This
is known as the factual insolvency test, where the company's liabilities are
expected to exceed the value of its assets.
In determining whether a company is financially distressed, the board should
consider factors such as:
• The company's ability to pay creditors as debts become due.
• The extent of its current and projected cash flow problems.
• The amount of outstanding liabilities compared with available assets.
• Existing legal proceedings or enforcement action by creditors.
• The company's financial forecasts and future liquidity.
• The likelihood of obtaining additional funding or investment to restore
financial stability.
