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Why Concurrent Creditors Must Support Business Rescue

May 30, 2024

In many cases, concurrent creditors do not receive any dividend payments when a company is liquidated. This outcome is due to the ranking order of creditors, which influences the distribution of dividends.

Creditors are classified into two categories: secured and unsecured. Secured creditors, such as banks or landlords, hold security for their claims. Unsecured creditors, who lack such security, include entities like SARS (South African Revenue Service) and suppliers. Unsecured creditors are further divided into preferential and concurrent creditors.

During liquidation, secured creditors are paid first from the proceeds of the assets they hold as security. They are followed by preferential creditors, and only then by concurrent creditors. The Insolvency Act grants SARS a statutory preference, ranking it above concurrent creditors. Consequently, once SARS is paid, there is typically nothing left for concurrent creditors.

However, in business rescue scenarios, SARS does not hold the status of a preferential creditor. This was affirmed by Judge Fourie in the case of SARS v Beginsel NO & Others. Judge Fourie ruled that the Companies Act does not grant SARS statutory preferences as the Insolvency Act does. If the legislature had intended to prioritize SARS in business rescue proceedings, it would have clearly stated so. Therefore, in business rescue, SARS is treated like any other concurrent creditor.

This judgment ensures that concurrent creditors are on equal footing with secured creditors, giving them the opportunity to vote on the approval or rejection of the business rescue plan. Consequently, all creditors in a business rescue scenario have an equal say in determining the company’s future.
Creditors are thus encouraged to support business rescue proceedings when dealing with a financially distressed company.


Concurrent creditors often receive nothing in liquidation due to their lower ranking in the payout hierarchy. In contrast, business rescue proceedings treat SARS, typically a preferential creditor, as a concurrent creditor, giving all creditors an equal vote on the company’s future. This equitable treatment in business rescue makes it advantageous for concurrent creditors to support these proceedings when a company faces financial distress.

Disclaimer: The information provided here is generalized and should not be construed as legal advice.