C&A Friedlander Attorneys

A letter in terms of section 345 of the Companies Act 61 of 1973 (“the Act”) demands payment from a juristic debtor and reserves the right to launch a liquidation application against the company if it fails to repay the debt within 3 weeks after it has been served on its registered address.

If the company fails to repay the debt or put up a reasonable and bona fide defense to the alleged indebtedness timeously, it is deemed that the debtor is unable to pay its debts as they fall due. This is known as ‘commercial insolvency’ and is a ground for a court to wind-up the company in terms of sections 344(f) and 345 of the Act.

If a creditor intends to wind-up a debtor company in terms of section 344(f) of the Act, a letter in terms of section 345 of the Act is a prerequisite.

Section 345 of the Act has proven to be an effective tool against recalcitrant corporate debtors, who are failing to pay their debts, by virtue of the threat of the liquidation application. However, the circumstances to launch such an application must be ripe.

In terms of the established “Badenhorst Rule”, it is trite law that winding-up (liquidation) proceedings are not to be used to enforce payments of a debt where the existence of such debt is disputed on bone fide and reasonable grounds. An application in such circumstances could amount to an abuse of process and the court may dismiss your case and hold you liable for a punitive costs order.

It is essential that your letter in terms of section 345 of the Act is correctly drafted and served. On the other hand, if you are served with a letter in terms of section 345 of the Act, it is important that you obtain legal advice immediately in order to consider your defense in respect thereto. Failure to seek proper legal advice could lead to unfortunate circumstances.

Should you find yourself in need of advice regarding a section 345 letter, please do not hesitate to contact me on (021) 674 2083 or via email: michaelo@caf.co.za.

Written by Michael Owen

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE).