Abstract
This paper assesses the insolvency regimes of South Africa, Australia, and Germany, with a particular emphasis on the amendments introduced in each country to deal with director liability for insolvent trading in order to counteract the negative impact of the COVID-19 pandemic on their respective economies. South Africa did not implement legislative amendments in relation to directors’ liability for insolvent trading. Instead, the Companies and Intellectual Property Commission (CIPC) issued a Practice Note in which it undertook not to take action against companies that contravene the reckless trading provisions during the pandemic, provided the insolvency was caused by COVID-19. Conversely, both the Australian and German legislatures brought about legislative amendments to address directors’ liability for insolvent trading by inter alia introducing a temporary safe harbour provision, and temporarily suspending the obligation to file for insolvency, respectively. Informed by the legislative responses by the German and Australian legislatures, it is proposed that the South African legislature should provide for a relaxation of directors’ liability rules by introducing an exemption in terms of section 77(3)(b) of the Companies Act 71 of 2008. Since Chapter 14 of the 1973 Act remains applicable by virtue of Item 9(1) of Schedule 5 to the Act; this Item should be amended to state that an exemption in terms of section 77(3)(b) will apply mutatis mutandis to section 424(1) of the 1973 Act. The envisaged exemption would only apply to trading during times of crisis and will provide directors with an opportunity to implement a turnaround strategy (if it is indeed viable to do so). The proposed amendment will ensure that South African directors will be better equipped to navigate future crises.
LL.M. (Corporate Law)