A snapshot of the insolvency and business rescue provisions as they relate to co-operatives in South Africa

The provisions governing the winding-up of co-operatives are reflected in the Co-operatives Act No. 14 of 2005 and its regulations.

How are co-operatives wound up?

Voluntarily, by special resolution of at least 75% of its members
By way of a court order or by order of the Co-operatives Tribunal, on application by any interested person
The Co-operatives Tribunal may order that a Co-operative be wound up under certain circumstances

A few notable differences between the winding up of co-operatives to that of companies:

The winding-up of a co-operative will be deemed to commence:
- In the case of a voluntary winding-up: at the time when the special resolution is registered with CIPC
- If wound up by an order of court or the Co-operatives Tribunal: at the time when a final winding-up order is granted
The Master’s office does not play a supervisory role over the liquidators and the winding-up of a co-operative:
- The court or Tribunal that grants the provisional liquidation order appoints the relevant liquidator. The registrar (i.e. the Commissioner of CIPC) appoints one or more final liquidator/s
- The liquidator must perform his or her functions subject to the control and directions of the registrar
- Creditors of the co-operative, upon its winding up, lodge proof of claim affidavits with the appointed liquidator directly. Such a claim must be lodged within 90 days of the publication of the notice of appointment of the liquidator. The liquidator may admit or refuse to admit the co-operative’s liability for such claim. If dissatisfied with the liquidator’s decision, a creditor may inter alia prove its claim in court
- Liquidation, distribution or contribution accounts prepared by the liquidator must be lodged with, and confirmed by, the registrar
The application of proceeds in the winding-up of a co-operative:
- In relation to the application of the proceeds of assets which served as security, the payment waterfall is as follows:
  - Firstly, payment of the liquidator’s expenses and pro rata portion of the costs of liquidation as determined by the liquidator
  - Secondly, payment of the creditor’s claim. If there is more than one claim, the claim must be paid in order of their preference. Where the proceeds are less than the claim amount, the balance is treated as a concurrent claim
The application of proceeds after secured claims:
- Liquidator’s expenses in connection with the winding-up
- Any amounts due by the co-operative for matters referred to in section 98(1)(b) and 99(1)(a) – (e) of the Insolvency Act (for example, pension, provident, medical aid etc.)
- Outstanding salaries and wages of full-time employees, not exceeding two months prior to the commencement of the winding-up.
- Income tax for which the co-operative is liable
- All other claims admitted or proved, including any unpaid portions of secured claims and any credit amounts in the members’ fund (or pro rata if there are insufficient funds available)
- Any residue must be applied in accordance with the distribution account
It is important to note that no preference is accorded to general notarial bonds registered over the movable assets of a co-operative. The preference in respect or general notarial bonds registered over movable assets is a specific preference under the Insolvency Act but is not specifically included as a preference under the Co-operatives Act. As such, general notarial bonds being held as security would have to be perfected prior to the winding up in order for the claim to be secured over the movable assets of a co-operative.

The provisions of chapter 6 of the Companies Act, 71 of 2008, which relate to business rescue proceedings, do not apply to co-operatives. Co-operatives do not fall within the definition of a “company” in terms of the aforesaid Act. The Co-Operatives Act does provide for (i) a compromise between a co-operative and creditors and (ii) judicial management.

For expert guidance on the legal intricacies of winding up co-operatives or navigating related processes, reach out to ENS’ Sustainability and Impact team. We can assist with ensuring compliance, protecting stakeholder interests, and managing the complexities of co-operative governance.

Ntlhane Makena

Head of Department| Insolvency

nmakena@ENSafrica.com

Lauren Davids

Senior Associate | Insolvency

ldavids@ENSafrica.com