Void Payments in Liquidation: What the Van den Heever Judgment Means for Creditors and Business Rescue Practitioners

A recent judgment by the Western Cape High Court has significant implications for creditors, business rescue practitioners, and companies undergoing financial distress. The case, Van den Heever N.O. and Bennighoff N.O. v Merchant Commercial Finance 1 (Pty) Ltd, clarified the application of key provisions from the old Companies Act of 1973 and the new Companies Act of 2008, particularly in situations where a company is placed under business rescue and subsequently liquidated.

Background of the Case

JP Kruger Rand Deals (Pty) Ltd (“JPK”) was placed under business rescue in early 2017. During this time, it made over R23 million in payments to Merchant Commercial Finance (“Merchant”), a creditor who had granted it a loan facility before the business rescue began. These payments were made despite the fact that ABSA Bank had already applied to court to set aside the business rescue and place JPK under liquidation.

The court eventually granted the liquidation order in April 2022, and the joint liquidators brought an application to have all payments made by JPK to Merchant after the application was lodged declared void under sections 341(2) and 348 of the 1973 Companies Act.

The Legal Debate: When Does Liquidation Really Start?

Merchant’s argument: “Hey, the liquidation only really started in 2022 when the order was granted — not back in 2017 when ABSA filed.”

The liquidators’ response: “Nope. Section 348 clearly says the winding-up is deemed to start on the day the application is lodged. So every cent paid out after that is void, unless a court says otherwise.”

And the court agreed with…

The liquidators.

Why This Judgment Matters

This ruling reaffirms that once a liquidation application is submitted , even if it takes years to be finalised, the company is under a kind of legal freeze. Payments made after that filing can be declared void. It doesn’t matter if you acted in good faith. It doesn’t matter if you had an agreement with the business rescue practitioner. The law is designed to protect the collective rights of all creditors, not just one lucky lender.

5 Practical Lessons for Creditors and BRPs

1. Once a liquidation application is filed, hit pause.

If a company is under business rescue and you are receiving payments during or after the launch of a liquidation application, you may be at risk of having to repay those funds if liquidation is ultimately ordered. This applies even if you acted in good faith.

2. You don’t need a court order to “start” liquidation.

Section 348 says the clock starts ticking the moment the application is submitted to court, not when it’s granted.  This can catch creditors off guard if they continue trading with or receiving money from the company during this “limbo period.”

3. Post-commencement finance isn’t automatic.

To qualify for post-commencement finance protection under section 135 of the 2008 Act, the funding must be new money advanced after the business rescue begins. Pre-existing loans, even if restructured, do not qualify. Merchant tried to argue this, but the court wasn’t convinced.

4. BRPs must act transparently.

The BRP in this case extended a loan arrangement without informing other creditors. That contributed to a finding that Merchant had gained an unfair advantage, which is exactly what the law seeks to prevent.

5. You can’t rely on good faith alone.

Even if you “meant well,” the court won’t automatically validate void payments. You must show that validating the transaction benefits the broader body of creditors — not just you.

Conclusion

This judgment reinforces the importance of caution and clarity during the transition from business rescue to liquidation. Creditors, BRPs, and company directors should understand that once a liquidation application is lodged, the rules of engagement change. Payments made in this period can be declared void, and creditors may have to repay large sums—even years later.

Legal advice and a solid understanding of both Acts are crucial when navigating the business rescue or winding-up of a financially distressed company.