Companies Act insolvency rules a concern - lawyer

According to a Business Day report, Kyle said the prohibition was extremely wide and could apply to any company that was technically insolvent regardless of whether the entity was under any financial strain. 'At a time when the government is trying to project a business-friendly face and to foster job creation, it is hoped an appropriate amendment will be forthcoming which creates the type of certainty business requires to flourish,' he said. Kyle said a company might be liquid and able to pay its debts when they fell due for payment. However, because of the way in which the company had been capitalised by its shareholders - through the provision of shareholder loans - it might be technically insolvent. Hugh Bisset, a director at Deneys Reitz, said under the current Companies Act there was a punitive sanction against individuals who were party to carrying on a company's business recklessly or fraudulently. However, there was no prohibition on a company carrying on with business when it was actually insolvent. 'There is a good reason for this, namely that shareholders very often choose to fund their companies by shareholders' loans.' But under the new Companies Act, Kyle pointed out, it would be unlawful for a company that is technically insolvent to continue operating. Full Business Day report