What is debt compromise?

A debt compromise can be defined as an arrangement to pay less, on different terms which is made an order of court, which means the arrangement is cast in stone.

What is the difference between debt compromise vs business rescue vs debt consolidation?

  • A debt compromise, as mentioned above, is an agreement to pay less, on different term.
  • Business rescue entails the rehabilitation of a company that is financially distressed.
    • A company is deemed to be financially distressed if it is reasonably unlikely that:
    • the company will be able to pay all of its debts as they become due and payable within the immediately ensuing six months; or the company will become insolvent within the immediately ensuing six months.
    • Management of the business is vested in the business rescue practitioner
    • Once liquidation procedures have commenced, you can no longer enter into business rescue
  • Debt consolidation is a form of debt refinancing that entails taking out one loan to pay off many others.

What are the pros and cons of debt compromise?


  • The management of the business remains vested in the board of the company
  • The business does not need to be in financial distress to enter into debt compromise
  • Even if the business has already entered liquidation, it can be taken out of liquidation and a debt compromise can be entered into
  • There are less formalities and shorter timelines involved in debt compromise negotiations
  • It is generally faster process
  • SARS is permitted to enter into a debt compromise provided the company has not entered into a debt compromise with SARS in the preceding 3 years and that all taxes are up to date


  • There is no moratorium on legal action until the court sanctions the order. This however can lead to speeding up the process and having parties agree to a compromise much quicker.
  • Cost associated to compromise – legal, receiver. These costs would however be far outweighed if the business was liquidated or forced to enter into business rescue.

How do you start the process?

If you feel that your business could benefit from a debt compromise it is imperative that you enlist the services of a professional that understands the legal and tax consequences of debt compromise

The steps in a debt compromise are:

  • The drafting of the Proposal which comprises of 3 parts: the background, the proposal and the assumption & conditions
  • Meeting with creditors
  • The Offer to Compromise is made an order of Court
  • A receiver is appointed
  • Business as usual

Does entering into a debt compromise affect your credit record?

A copy of the offer to compromise is lodged with CIPC, but not with the credit bureau.



Published On: September 15th, 2020 / Categories: Debt / Tags: , , , /

Subscribe To Receive The Latest News