, LML4806 ASSIGNMENT 2 SEMESTER 2 2026
DUE DATE: 10 SEPTEMBER 2026
1.1 Financial Distress and Voluntary Business Rescue
Section 128(1)(f) of the Companies Act 71 of 2008 provides two alternative criteria for
determining whether a company is financially distressed. A company is financially
distressed where it appears to be reasonably unlikely that it will be able to pay all its debts
as they become due and payable within the immediately ensuing six months, or where it
appears reasonably likely that the company will become insolvent within the immediately
ensuing six months.1
Viljoen Blankets Ltd is experiencing serious cash-flow difficulties and has debts of R100
million owed to various financial institutions. In addition, Touws Bank Ltd is already taking
legal action to recover a secured debt of R75 million. These circumstances strongly indicate
that Viljoen may be unable to meet its debts as they fall due and may therefore satisfy the
definition of a financially distressed company. The fact that two retail companies are
prepared to invest R120 million to restructure the company's debts and provide working
capital further supports the possibility that the company can be rescued rather than
liquidated.
Section 129(1) permits the board to adopt a resolution placing the company voluntarily
under business rescue if it has reasonable grounds to believe that the company is
financially distressed and that there is a reasonable prospect of rescuing the
company.2 The proposed R120 million investment, together with the board's view that
restructuring the debt and improving working capital will enable the company to return to
profitability, provides a strong basis for concluding that there is a reasonable prospect of
rescue. Accordingly, the board may voluntarily place Viljoen Blankets Ltd under business
rescue, provided that no liquidation proceedings have already been initiated against the
1
Companies Act 71 of 2008 s 128(1)(f).
2
Companies Act 71 of 2008 s 129(1).
DUE DATE: 10 SEPTEMBER 2026
1.1 Financial Distress and Voluntary Business Rescue
Section 128(1)(f) of the Companies Act 71 of 2008 provides two alternative criteria for
determining whether a company is financially distressed. A company is financially
distressed where it appears to be reasonably unlikely that it will be able to pay all its debts
as they become due and payable within the immediately ensuing six months, or where it
appears reasonably likely that the company will become insolvent within the immediately
ensuing six months.1
Viljoen Blankets Ltd is experiencing serious cash-flow difficulties and has debts of R100
million owed to various financial institutions. In addition, Touws Bank Ltd is already taking
legal action to recover a secured debt of R75 million. These circumstances strongly indicate
that Viljoen may be unable to meet its debts as they fall due and may therefore satisfy the
definition of a financially distressed company. The fact that two retail companies are
prepared to invest R120 million to restructure the company's debts and provide working
capital further supports the possibility that the company can be rescued rather than
liquidated.
Section 129(1) permits the board to adopt a resolution placing the company voluntarily
under business rescue if it has reasonable grounds to believe that the company is
financially distressed and that there is a reasonable prospect of rescuing the
company.2 The proposed R120 million investment, together with the board's view that
restructuring the debt and improving working capital will enable the company to return to
profitability, provides a strong basis for concluding that there is a reasonable prospect of
rescue. Accordingly, the board may voluntarily place Viljoen Blankets Ltd under business
rescue, provided that no liquidation proceedings have already been initiated against the
1
Companies Act 71 of 2008 s 128(1)(f).
2
Companies Act 71 of 2008 s 129(1).
