, PLEASE USE THIS ASSIGNMENT AS A GUIDE TO ANSWER YOUR QUESTIONS
MCL5903 ASSIGNMENT 1 2026
ANSWERS
DUE DATE: 15 MAY 2026
QUESTION 1(a)
The concepts of solvency and insolvency are central to South African company liquidation law and
are interpreted through both statutory provisions and judicial authority under the Companies Act 71
of 2008, read with relevant provisions of the Companies Act 61 of 1973 still applicable to winding-
up proceedings.
A company is considered factually solvent where its total assets exceed its total liabilities. This is a
balance-sheet test focusing purely on the value comparison between assets and liabilities (Cassim et
al, Contemporary Company Law, 2023). On the facts, Gumdrops (Pty) Ltd is factually solvent
because its assets exceed its liabilities.
However, South African law does not rely exclusively on factual solvency when determining
liquidation. The courts have consistently adopted the concept of commercial insolvency, which is
the decisive test in liquidation matters. A company is commercially insolvent when it is unable to
pay its debts as they fall due in the ordinary course of business, even if its assets exceed its
liabilities (Boschpoort Ondernemings (Pty) Ltd v Absa Bank Ltd 2014 (2) SA 518 (SCA)).
This principle reflects the reality that liquidity, not asset value, determines a company’s ability to
function. In Rosenbach & Co (Pty) Ltd v Singh’s Bazaar (Pty) Ltd 1962 (4) SA 593 (D), the court
confirmed that inability to meet current obligations constitutes insolvency for liquidation purposes,
even where the balance sheet appears positive. The focus is therefore on cash flow and practical
ability to pay debts.
The statutory framework reinforces this approach. Section 345 of the Companies Act 61 of 1973
provides that a company is deemed unable to pay its debts if it fails to satisfy a creditor’s demand
within three weeks of service, while section 344(f) allows liquidation where a company is unable to
MCL5903 ASSIGNMENT 1 2026
ANSWERS
DUE DATE: 15 MAY 2026
QUESTION 1(a)
The concepts of solvency and insolvency are central to South African company liquidation law and
are interpreted through both statutory provisions and judicial authority under the Companies Act 71
of 2008, read with relevant provisions of the Companies Act 61 of 1973 still applicable to winding-
up proceedings.
A company is considered factually solvent where its total assets exceed its total liabilities. This is a
balance-sheet test focusing purely on the value comparison between assets and liabilities (Cassim et
al, Contemporary Company Law, 2023). On the facts, Gumdrops (Pty) Ltd is factually solvent
because its assets exceed its liabilities.
However, South African law does not rely exclusively on factual solvency when determining
liquidation. The courts have consistently adopted the concept of commercial insolvency, which is
the decisive test in liquidation matters. A company is commercially insolvent when it is unable to
pay its debts as they fall due in the ordinary course of business, even if its assets exceed its
liabilities (Boschpoort Ondernemings (Pty) Ltd v Absa Bank Ltd 2014 (2) SA 518 (SCA)).
This principle reflects the reality that liquidity, not asset value, determines a company’s ability to
function. In Rosenbach & Co (Pty) Ltd v Singh’s Bazaar (Pty) Ltd 1962 (4) SA 593 (D), the court
confirmed that inability to meet current obligations constitutes insolvency for liquidation purposes,
even where the balance sheet appears positive. The focus is therefore on cash flow and practical
ability to pay debts.
The statutory framework reinforces this approach. Section 345 of the Companies Act 61 of 1973
provides that a company is deemed unable to pay its debts if it fails to satisfy a creditor’s demand
within three weeks of service, while section 344(f) allows liquidation where a company is unable to
