LML4806
ASSIGNMENT 2
SEMESTER 2 2026
UNIQUE NO. 257188
DUE DATE: 10 SEPTEMBER 2026
, Company Law - LML4806
ASSIGNMENT 2 SEMSTER 2 2026
Question 1
1.1 The criteria used to determine whether a company is financially distressed
and the grounds on which the board may voluntarily place Viljoen Blankets Ltd
under business rescue
Section 128(1)(f) of the Companies Act 71 of 2008 defines a company as financially
distressed if either of the following circumstances exists:
Commercial insolvency (Liquidity Test): 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.
Factual insolvency (Balance Sheet Test): It appears reasonably likely that the
company will become insolvent within the immediately ensuing six months,
meaning that its liabilities are likely to exceed its assets.
Under section 129(1) of the Companies Act, the board of directors may voluntarily
resolve to place the company under business rescue if two requirements are satisfied:
1. The company is financially distressed.
2. There appears to be a reasonable prospect of rescuing the company.
A reasonable prospect of rescue exists where there is credible evidence that the
company can be rehabilitated through restructuring its affairs, business, property, debt
or liabilities. The objective is either to restore the company to solvency or, if that is not
possible, to provide creditors with a better return than they would receive through
immediate liquidation.
Applying these principles to Viljoen Blankets Ltd, the company owes R100 million,
has serious cash flow problems, and is already facing legal action by a creditor. These
ASSIGNMENT 2
SEMESTER 2 2026
UNIQUE NO. 257188
DUE DATE: 10 SEPTEMBER 2026
, Company Law - LML4806
ASSIGNMENT 2 SEMSTER 2 2026
Question 1
1.1 The criteria used to determine whether a company is financially distressed
and the grounds on which the board may voluntarily place Viljoen Blankets Ltd
under business rescue
Section 128(1)(f) of the Companies Act 71 of 2008 defines a company as financially
distressed if either of the following circumstances exists:
Commercial insolvency (Liquidity Test): 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.
Factual insolvency (Balance Sheet Test): It appears reasonably likely that the
company will become insolvent within the immediately ensuing six months,
meaning that its liabilities are likely to exceed its assets.
Under section 129(1) of the Companies Act, the board of directors may voluntarily
resolve to place the company under business rescue if two requirements are satisfied:
1. The company is financially distressed.
2. There appears to be a reasonable prospect of rescuing the company.
A reasonable prospect of rescue exists where there is credible evidence that the
company can be rehabilitated through restructuring its affairs, business, property, debt
or liabilities. The objective is either to restore the company to solvency or, if that is not
possible, to provide creditors with a better return than they would receive through
immediate liquidation.
Applying these principles to Viljoen Blankets Ltd, the company owes R100 million,
has serious cash flow problems, and is already facing legal action by a creditor. These
