South Africa is experiencing a marked rise in cyber‑enabled and economic offences. Sophisticated payments fraud, internal defalcations, business email compromise and investment scams can drain liquidity overnight while wrongdoers move value quickly and exploit delay.
By Gareth Cremen, partner: business rescue, insolvency and insurance at Cox Yeats
In appropriate cases, liquidation (winding‑up) provides a court‑supervised mechanism to freeze the position, investigate misconduct, protect creditors interests and maximise recoveries.
Courts are rightly wary of using liquidation as a debt‑collection cudgel, but where crime has driven factual or commercial insolvency and there is a real risk of dissipation, liquidation is often the principled and proportionate remedy.
Enforcement and risk
White‑collar and cyber offences are commonly addressed through a blend of key statutes, including: the Prevention and Combating of Corrupt Activities Act, the Prevention of Organised Crime Act, the Financial Intelligence Centre Act, the Financial Markets Act, the Cybercrimes Act; and the Electronic Communications and Transactions Act.
Enforcement is led by the Hawks and the National Prosecuting Authority (NPA) (including the Asset Forfeiture Unit), with sector regulators and reporting duties reinforcing prevention and response. The trend is clear though, cyber‑enabled fraud and complex commercial crime are increasing, and authorities are making greater use of preservation and forfeiture remedies to neutralise criminal proceeds. For victims and counterparties, remedies that prioritise speed, transparency, credible investigation and equitable distribution are critical features embedded in insolvency law.
Why liquidation fits crime‑linked collapses
Liquidation is not a shortcut to compel payment of a disputed debt. It is, however, the correct remedy where a company cannot pay debts as they fall due or is commercially insolvent, including where cyber or financial crime has crippled liquidity or balance‑sheet solvency. In those circumstances, winding‑up offers distinct advantages over piecemeal civil litigation.
First, liquidation establishes a concursus creditorum. Once a winding‑up order is granted, the collective process displaces the “race to court” that rewards speed or litigation spend. Creditors similarly affected by a cyber incident or fraud are protected against unequal outcomes, dissipation risk is curbed, and distributions can be made pari passu in line with statutory priorities.
Second, liquidators wield investigatory and clawback powers that ordinary plaintiffs lack or can only access slowly. Using compulsory examinations (including section 417/418 enquiries under the Companies Act 1973), liquidators can obtain records and testimony, trace asset flows, and identify insiders and third‑party recipients. Under the Insolvency Act, they may set aside impeachable dispositions (for example, dispositions without value, voidable or undue preferences, and collusive dealings) and recover assets from transferees. They can also work with the Asset Forfeiture Unit, the Financial Intelligence Centre and foreign counterparts to preserve and repatriate value, aligning civil recoveries with criminal restraint and forfeiture where appropriate.
Third, liquidation centralises multi‑party complexity. Crime‑linked failures often involve numerous counterparties, layered structures, mixed on‑ and off‑balance‑sheet exposures and cross‑border elements. A liquidator can rationalise claims, coordinate litigation and settlement strategies, and where warranted, pursue directors and officers for reckless or fraudulent trading, avoiding the duplication, cost and inconsistency that follow from parallel civil suits.
Fourth, liquidation can deliver swift front‑end relief. An entitled applicant can obtain a provisional order based on inability to pay, stabilising the estate, preserving the status quo and bringing the matter under judicial supervision pending final winding‑up. In cyber‑loss scenarios where value migrates quickly, this speed is often decisive.
Finally, liquidation restores transparency and accountability. Liquidators’ statutory duties, reporting to the Master, creditors’ meetings and audited distributions create the oversight architecture that complex fraud estates require.
Liquidation is not debt collection
South African courts are vigilant about abusing of winding‑up proceedings as a debt collection tactic. Under the Badenhorst principle, a company will not be wound up where the alleged indebtedness is bona fide disputed on reasonable grounds.
Applicants must show creditor standing and at least a prima facie inability to pay or commercial insolvency. Attempts to weaponise liquidation to pressure payment of a genuinely disputed claim will fail and can attract adverse costs orders against litigating parties. That caution co-exists with the imperative to grant liquidation where crime has rendered a company insolvent, where dissipation is a real risk, or where a collective process is necessary to protect a dispersed victim pool. Similar considerations inform the court’s discretion when business rescue is raised, the interests of justice, grounded in facts, prevail over attempts to secure leverage.
When winding‑up is especially appropriate
The case for liquidation is strongest when the facts show one or more of the following: the entity is a vehicle for fraud or cybercrime; assets are being dissipated or concealed; the company is factually or commercially insolvent; the creditor base is large or dispersed; insiders and third‑party recipients are implicated.
Typical patterns include internal embezzlement that drains liquidity; payment‑diversion and social‑engineering frauds that leave cascades of unpaid creditors; Ponzi or illicit deposit‑taking schemes dressed up as investment businesses; and kickback schemes masked by manipulated records.
In such matters, provisional liquidation stabilises the estate; section 417/418 enquiries map flows and identify recoveries; impeachable transactions can be unwound; and the claims‑proof process enables participation by victims.
Where criminal cases or restraint orders exist, coordination with the Asset Forfeiture Unit can preserve value and, where appropriate, steer forfeited proceeds towards compensation mechanisms.
Why ordinary civil proceedings often underdeliver
Contract and delict claims against specific actors may still be necessary, but in complex crime estates they suffer structural limits. They are plaintiff‑specific, can entrench inequity among similarly placed creditors, are slow and expensive, and are vulnerable to procedural gamesmanship while assets continue to vanish. They confer no automatic statutory clawback powers or collective enquiry tools, do not corral all creditors into a single supervised process, and can generate res judicata and priority conflicts as multiple courts move at different speeds. Insolvency’s collective ethos is built for the multi‑party, multi‑asset and multi‑jurisdictional reality of cyber and white‑collar crime collapses.
What to expect in the process
On an application to wind up for inability to pay, courts frequently grant a provisional order with a return date. The Master appoints provisional liquidators; creditors meet to prove claims and nominate final liquidators; investigations commence; liquidators realise assets, pursue clawbacks and claims (including those against insiders), and distribute assets according to the statutory waterfall. Throughout, the court retains oversight, and liquidators liaise as needed with law enforcement and regulators.
Practical guidance for CFOs, CISOs, boards and counsel
Where cyber or white‑collar misconduct has materially impaired solvency or threatens creditor recoveries, assess early whether a liquidation application, provisional relief followed by a disciplined investigation and recovery plan, will outperform fragmented civil proceedings. Build a record that demonstrates insolvency and dissipation risk; anticipate Badenhorst objections by confirming creditor standing, the liquidated nature of the debt (if applicable) and the absence of a bona fide dispute on reasonable grounds; and plan for evidence preservation, asset tracing, clawback litigation, liaison with the Financial Intelligence Centre and the Asset Forfeiture Unit, and clear stakeholder communications across different victim cohorts.
Liquidation is not a cure‑all and must never be misused for collection. Used for its intended purpose in South Africa’s current cyber and financial‑crime environment, it is often the most efficient, equitable and forensic pathway to stabilise a compromised estate, recover value and deliver proportionate outcomes for victims.