When a main contractor collapses, the first 48 hours decide what you recover. If you are still on site, perfect your builder's lien before you do anything else; then work out whether the company is in business rescue (claims frozen, file with the practitioner) or liquidation (prove your debt and join the queue). Unsecured subbies in a liquidation commonly see 10 to 30 cents in the rand, and often nothing, which is why the lien and any guarantees you hold are worth more than your invoice.
Business rescue versus liquidation
A distressed company under the Companies Act 71 of 2008 goes one of two ways (the Act and process overviews are at the CIPC):
- Business rescue (Chapter 6). Triggered by a board resolution or court order when the company is financially distressed. A business rescue practitioner takes over, a general moratorium freezes legal proceedings and enforcement against the company, and the aim is a rescue plan, nominally within about three months. Plan adopted: the company trades on and you are paid per the plan. Plan rejected: usually liquidation.
- Liquidation. A winding-up: a liquidator realises the assets and distributes them by legal priority. It commonly takes years, and at the end the company is gone.
What it means for you:
- During business rescue you cannot sue or execute against the company. File your claim with the practitioner, attend creditor meetings, and vote on the plan.
- In liquidation you prove your debt formally and wait for the distribution.
The moratorium does not protect guarantors
A key carve-out: the business rescue moratorium shields the company itself, not security given by third parties. If you hold a guarantee from a surety, a parent company or a bond issuer for the main contractor's obligations, you can generally still call on it during business rescue. Check the guarantee wording and act quickly; this is often the only money that arrives at full value.
Where you rank, and what you will really get
Liquidation distributions follow a strict order:
- Secured creditors: bondholders and holders of real security, including perfected liens.
- Preferent creditors: SARS, employees' wages.
- Concurrent creditors: everyone else, which is where an unsecured subbie sits.
Concurrent creditors commonly receive 10 to 30 cents in the rand, and often zero. Treat that as the planning assumption, and put your energy into the security you can still create or call: the lien, guarantees, and cessions arranged before the collapse (see Securing Payment Before You Start Work).
The lien: your one move that changes the ranking
If you are still in possession of the site when insolvency hits, perfect your lien immediately: keep people on site, secure it, signage, photographs (the full drill is in The Builder's Lien). Then put the liquidator on written notice of your lien.
Under section 47 of the Insolvency Act 24 of 1936 (text on SAFLII), if the liquidator requires you to vacate, you can notify the liquidator of your lien and have your rights preserved even after you leave. An enrichment lien (where your work increased the property's value) is a real right and is generally treated as ranking ahead of mortgage bonds, but be aware that academic commentary disputes the full scope of that priority. Where a bank bond is in play, take specialist insolvency advice before banking on outranking it.
Cessions: useful, but unsettled in rescue
If you obtained a cession of the main contractor's book debts before the collapse (the contractor ceded you its right to be paid by the employer), you stand in its shoes for that debt. In business rescue, however, the interaction between a cession and section 134 of the Companies Act (which restricts the practitioner from disposing of property subject to others' security interests) is legally unsettled: commentators disagree on whether ceded book debts fall inside or outside the restriction. A cession is real leverage, but do not treat it as bulletproof in rescue. Legal advice first.
How to prove a claim in liquidation
- Watch for the liquidation notice in the Government Gazette.
- Get a proof-of-debt form from the liquidator or the Master of the High Court.
- Complete it and attach your contract, invoices, payment certificates and key correspondence.
- File before the claims deadline in the liquidator's notices.
- Attend the creditors' meeting.
- Accept the distribution declared, or challenge a liquidator's error through the Master.
Worked example
Sibongile is owed R280,000 when the main contractor is placed in provisional liquidation. She is still on site. The same day she stations a worker at the gate, locks it, and puts up "Builder's lien: Sibongile Plasters CC" signage with photos. She writes to the liquidator asserting her lien under section 47, then files her proof of debt with the contract and certificates attached. Because her plastering measurably increased the building's value, she asserts an enrichment lien and claims priority ahead of the bondholder. Her attorney warns that the lien-over-bond priority is contested in the literature, so she also calls the small payment guarantee she negotiated at contract stage. Between the secured slice and the guarantee she recovers most of the debt; the concurrent creditors around her receive 15 cents in the rand.
Common mistakes
- Leaving site when the rumours start. Walking off destroys the lien at exactly the moment it becomes most valuable.
- Suing a company in business rescue. The moratorium stops you; the practitioner's claims process is the route.
- Forgetting guarantees are outside the moratorium. Call third-party security early.
- Missing the proof-of-debt deadline. No proof, no distribution.
- Assuming the lien guarantees full payment. Priority against bonds is contested; get advice before relying on it.
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