13 Jul Presentation at the Stellenbosch University’s Colloquiem “Green(Ing) Finance and Economic Development in Pursuance of Global Climate Change Law Imperatives”
Financial regulation is a vast concept. Generally, in a sustainability discussion, it turns on tools such banking, finance, taxation and administrative penalties for non-compliance.[1] An oft neglected, but critically important debate, is the nature of the State as “creditor” in insolvency and “affected party” in business rescue proceedings, in terms of the Insolvency and Companies legislation.
The saying goes *if you have sick companies, you have a sick society*. There are systemic failures for financial recovery when the State is involved.
This can be highlighted in the following cases: –
INSOLVENCY
In the case of Mintails mine, an approximate rehabilitation value was outstanding to the State in the amount of R460 million.[2] The majority of this debt was incurred during business rescue, which preceded liquidation. Corporate governance questions arise, such as the responsibility of both rescue practitioner and DMRE. The environmental liability is referred to in Mintails South Africa (Pty) Ltd v Mintails Mining SA (Pty) Ltd and Others (2021/39004) [2021] ZAGPJHC 794; 2022 (4) SA 238 (GJ) (10 December 2021) and at paragraph 10. What is noteworthy about this judgement, is the lack of participation by the DMRE as a main creditor, in the application before Court. Likewise, the lack of any involvement of environmental NGO’s overseeing the environmental liability. There are no records of the DMRE’s attempts to recover the amount either in the preceding business rescue or in the subsequent liquidation. It is further noteworthy that the R460M was pursuant to directives issued after civil society activism by the Federation for Sustainable Environment (FSE), who would be excluded from the formal liquidation process, in terms of the applicable insolvency legislation.
BUSINESS RESCUE
Another example is that of National Council of the Society for the Prevention of Cruelty to Animals v Daybreak Foods Pty Ltd and Another (2025-066073) [2025] ZAGPJHC 386 (23 May 2025). Daybreak operates four chicken farms and since January 2025, several warnings were provided by the NSPCA and in terms of the Animal Protection Act 71 of 1962 of chronic neglect, leading to the exceptional suffering of one million according to the NSPCA website, placing food security and the environment at immediate risk. In this matter the Public Investment Corporation (PIC), a State-owned entity using taxpayer’s money had recently invested some R170 million into Daybreak prior to the collapse of the entity, which is now also, under business rescue – it was placed under rescue one week after the NSPCA obtained a final Order.
The final Order by Judge Reid is formulated to only to oversee welfare issue of the animals. There was no discussion about the responsibility of the shareholder regarding public funds used to prop up, a defunct company. Noteworthy too, was that there was also, no intervention from Provincial environmental authorities. Companies like Daybreak would no doubt have to obtain environmental authorisations.
INSOLVENCY LEGISLATION
The Insolvency Act 24 of 1936 was promulgated before the Constitutional dispensation. Insolvency processes are restricted in terms of the Act and at Section 8, to acts of insolvency perpetrated by a “debtor”. Winding-up proceedings by the Court are governed by the general rules pertaining to motion court procedure, subject to the provisions of Chapter 14 of the Companies Act 61 of 1973 and certain provisions of the Insolvency Act 24 of 1936, and Part G of Chapter 2 of the Companies Act 71 of 2008.
While the winding-up of solvent companies is regulated by the provisions of the Companies Act 71 of 2008, until the date determined in terms of Item 9(4) of Schedule 5 to the Companies Act 71 of 2008, the Companies Act 61 of 1973 continues to apply with respect to the winding-up and liquidation of insolvent companies.
These pieces of legislation have a confined pool of persons who have locus standi to bring a liquidation, but also, to participate in insolvency inquiries. This closed pool to bring an application includes the company itself, one or more creditors, one of more members/ shareholders, the Master, the provisional or final judicial manager of a Company or the minister of Trade and Industry.
Likewise, just and equitable grounds in terms of Section 344(h) of Act 61 of 1973 does not provide any opportunity for, example, a civil society organization that has overseen environmental liability to intervene and to participate in this process.
BUSINESS RESCUE LEGISLATION
Business rescue is likewise, a process limited to defined role-players. Business rescue proceedings may be commenced voluntarily by way of resolution of the board of directors of the company in terms of section 129 of the Companies Act, or by way of an application to Court by an affected person in terms of s 131. An “affected person” in these provisions are also limited to mean a shareholder, a creditor, a registered trade union representing employees or the employees themselves. Again, there is no legislated scope for civil society to intervene and to participate.
In both Daybreak and Mintails, the State would be an overwhelming creditor in the process, with intimate issues relating to environmental governance being at the fore. Given that the Republic of South Africa subscribes to the public trust doctrine, when it comes to natural resources, the State is generally the party required to act to protect its interests in a rescue or insolvency setting. And, yet the cases indicate, at least on the face of it, that the State is failing.
The above pieces of legislation raise important questions as against the provisions of Section 24 of the Constitution and the NEMA:
- Section 2 of the NEMA provides for the lifecycle concept, and it seems anomalous that Affected Persons can register for an EIA, make inquiries about Audits and lodge formal complaints leading to compliance under Section 31 of the NEMA, but the same citizenry are excluded from formally interrogating a business rescue or liquidation as they fall outside the legislated definition of “creditor” and “affected party”.
- Section 28 of the NEMA provides for a duty of care. From a judicial precedent perspective, failures in this regard are once again, largely communicated by Affected parties, who would again, be excluded from a business rescue or liquidation.
- Section 34(7) of the NEMA provides for director liability. It seems like an overt omission that interrogation of former directors in an insolvency inquiry will exclude enquiries by Affected parties who may have other factors in terms of “just and equitable” that are not per se, relevant to a creditor.
[1] Enriques, Luca. Principles of Financial Regulation. 2016.
[2] https://www.businesslive.co.za/bd/companies/mining/2018-09-25-mintails-leaves-r460m-environmental-liability/