, PLEASE USE THIS DOCUMENT AS A GUIDE TO ANSWER YOUR ASSIGNMENT
LML4806 ASSIGNMENT 2 SEMESTER 2 2026
MEMO
DUE DATE: 10 SEPTEMBER 2026
QUESTION 1
1.1 Criteria for determining whether a company is financially distressed and the grounds
for voluntarily placing Viljoen Blankets Ltd under business rescue (5)
The Companies Act 71 of 2008 introduced business rescue proceedings as a modern corporate
rehabilitation mechanism designed to provide financially distressed companies with an
opportunity to reorganise their affairs instead of proceeding directly to liquidation. The
underlying objective is to maximise the likelihood that a financially troubled company can
continue operating as a solvent entity while simultaneously protecting the interests of creditors,
employees, shareholders and other affected persons. The Act therefore encourages early
intervention where there remains a realistic possibility of rescuing the company before complete
financial collapse occurs.1
Section 128(1)(f) of the Companies Act defines a company as financially distressed where it
appears 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. The definition also includes
circumstances where it appears reasonably likely that the company will become insolvent within
the following six months because its liabilities are expected to exceed the value of its assets. The
assessment is therefore prospective rather than historical and focuses on the company's
foreseeable financial position instead of merely examining whether it is presently unable to pay
creditors.2
Applying these statutory criteria to Viljoen Blankets Ltd, the company clearly demonstrates
characteristics associated with financial distress. The company owes approximately R100
million to several financial institutions, while one creditor, Touws Bank Ltd, has already
instituted legal proceedings to recover a secured debt of R75 million. These facts indicate that
the company's indebtedness has become sufficiently serious to impair its liquidity and working
capital, thereby creating significant doubt regarding its ability to satisfy its financial obligations
as they fall due within the statutory six-month period. Such circumstances strongly suggest that
the company satisfies the definition of financial distress contemplated by section 128 of the
Act.3
1
Companies Act 71 of 2008 s 7(k).
2
Companies Act 71 of 2008 s 128(1)(f).
3
Companies Act 71 of 2008 s 128(1)(f).
LML4806 ASSIGNMENT 2 SEMESTER 2 2026
MEMO
DUE DATE: 10 SEPTEMBER 2026
QUESTION 1
1.1 Criteria for determining whether a company is financially distressed and the grounds
for voluntarily placing Viljoen Blankets Ltd under business rescue (5)
The Companies Act 71 of 2008 introduced business rescue proceedings as a modern corporate
rehabilitation mechanism designed to provide financially distressed companies with an
opportunity to reorganise their affairs instead of proceeding directly to liquidation. The
underlying objective is to maximise the likelihood that a financially troubled company can
continue operating as a solvent entity while simultaneously protecting the interests of creditors,
employees, shareholders and other affected persons. The Act therefore encourages early
intervention where there remains a realistic possibility of rescuing the company before complete
financial collapse occurs.1
Section 128(1)(f) of the Companies Act defines a company as financially distressed where it
appears 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. The definition also includes
circumstances where it appears reasonably likely that the company will become insolvent within
the following six months because its liabilities are expected to exceed the value of its assets. The
assessment is therefore prospective rather than historical and focuses on the company's
foreseeable financial position instead of merely examining whether it is presently unable to pay
creditors.2
Applying these statutory criteria to Viljoen Blankets Ltd, the company clearly demonstrates
characteristics associated with financial distress. The company owes approximately R100
million to several financial institutions, while one creditor, Touws Bank Ltd, has already
instituted legal proceedings to recover a secured debt of R75 million. These facts indicate that
the company's indebtedness has become sufficiently serious to impair its liquidity and working
capital, thereby creating significant doubt regarding its ability to satisfy its financial obligations
as they fall due within the statutory six-month period. Such circumstances strongly suggest that
the company satisfies the definition of financial distress contemplated by section 128 of the
Act.3
1
Companies Act 71 of 2008 s 7(k).
2
Companies Act 71 of 2008 s 128(1)(f).
3
Companies Act 71 of 2008 s 128(1)(f).
