LML4806
ASSIGNMENT 2
DUE DATE: 18 AUGUST 2026
, LML4806 ASSIGNMENT 2 2026
DUE 18 AUGUST 2026
QUESTION 1
1.1 Criteria for determining financial distress and grounds for voluntary business
rescue
Criteria for financial distress
Section 128(1)(f) of the Companies Act 71 of 2008 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;
or
it appears to be reasonably likely that the company will become insolvent within the
immediately ensuing six months.¹
The test is forward-looking and requires an assessment of the company's ability to meet
its obligations in the near future.² In Viljoen Blankets Ltd's case, the company owes
R100 million, has cash flow problems, and a creditor has instituted legal proceedings to
recover R75 million. These facts suggest that the company may be unable to pay its
debts as they fall due within the next six months, thus satisfying the first leg of the
financial distress test.
¹ Section 128(1)(f) of the Companies Act 71 of 2008.
² LML4806 Study Guide, p. 124-126.
ASSIGNMENT 2
DUE DATE: 18 AUGUST 2026
, LML4806 ASSIGNMENT 2 2026
DUE 18 AUGUST 2026
QUESTION 1
1.1 Criteria for determining financial distress and grounds for voluntary business
rescue
Criteria for financial distress
Section 128(1)(f) of the Companies Act 71 of 2008 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;
or
it appears to be reasonably likely that the company will become insolvent within the
immediately ensuing six months.¹
The test is forward-looking and requires an assessment of the company's ability to meet
its obligations in the near future.² In Viljoen Blankets Ltd's case, the company owes
R100 million, has cash flow problems, and a creditor has instituted legal proceedings to
recover R75 million. These facts suggest that the company may be unable to pay its
debts as they fall due within the next six months, thus satisfying the first leg of the
financial distress test.
¹ Section 128(1)(f) of the Companies Act 71 of 2008.
² LML4806 Study Guide, p. 124-126.
