As a small business owner, you might not think about insolvency law.
But in today’s economy, even a small South African business is often connected to customers, suppliers, platforms, and payment systems outside the country. That means the rules that govern what happens when money is owed, or when a business fails, are no longer purely local. They are cross-border, and that changes everything.
When a business operates across countries, even in small ways, operations become complex. What happens when something goes wrong, and money or debt exists in more than one country at the same time?
The answer depends on how well a country’s legal system can coordinate across borders. And that is where South Africa’s insolvency framework and courts come into the picture.
A recent Supreme Court of Appeal decision, Scheer v Wagner N.O. and Others, highlighted how South African courts are applying these principles in real cases involving international creditors and assets. The judgment reflects how the judiciary is increasingly dealing with global financial realities rather than purely local ones, as reflected in South Africa’s broader legal system, the South African Judiciary.
SMEs Are Already Operating In a Global System
Even small South African businesses are increasingly exposed to international activity:
- Buying stock from overseas suppliers
- Selling online to customers in other countries
- Paying for digital tools and global platforms
- Hiring remote freelancers or contractors abroad
- Seeking funding from foreign investors
Once that happens, your business is no longer operating in a purely local environment. It becomes part of a system where multiple countries’ rules can apply simultaneously. When money is involved, especially when things go wrong, those rules matter.
At the Heart of the Recent Court Decision Is a Simple Principle
At the heart of the recent court decision is a simple principle. When a business or individual has assets, debts, or financial interests in more than one country, those obligations cannot be treated as separate, isolated problems. They form part of one connected financial reality.
In the Scheer v Wagner N.O. and Others case, the court had a situation where money remained in South Africa after local creditors had been paid. The remaining funds were disputed over. The question was whether it had to be returned to the debtor or transferred to creditors in another country who were still owed money.
The court made it clear that insolvency cannot be viewed through a narrow local lens when the wider estate is still in deficit elsewhere. Doing so would create an unfair outcome where one group is fully satisfied while others are left unpaid simply because of geography.
Instead, the court reinforced that fairness must extend across borders, not stop at them. For SMEs, if your business operates across borders, even in a small way, your financial risk and protection are also cross-border.
Why this Matters for SMEs in Practice
This might sound like a large corporate issue, but it has real implications for small and growing businesses.
1. Access to Funding Depends on Legal Trust
Investors and lenders look for one thing before committing capital. Can they trust that the legal system will treat risk and repayment fairly?
When courts demonstrate consistency and fairness in complex financial situations, it strengthens confidence in the entire market. That confidence directly affects how easily SMEs can raise funding.
When systems feel stable and predictable, that’s when money flows.
2. Cross-Border Trade Comes With Hidden Legal Exposure
Many SMEs do not realise how global they already are. Even without physical expansion, businesses may:
- Sell products through international platforms
- Use foreign suppliers or service providers
- Accept payments from other countries
- Operate with overseas partners or contractors
When relationships span multiple jurisdictions, legal outcomes in one country can affect financial outcomes in another. Clear cross-border rules reduce uncertainty and help businesses grow with more confidence.
South Africa’s system is built on core legislation such as the Insolvency Act of 1936 and the Companies Act of 2008, which form the foundation of how financial distress is handled locally.
3. Business Failure Is No Longer Purely Local
When a business fails, the impact is no longer confined to one country if that business has cross-border exposure.
Questions arise, such as:
- Which creditors get paid first?
- Where are assets located?
- Which legal system takes priority?
- How should funds be distributed fairly?
Clear legal frameworks in cross-border business help prevent confusion and ensure predictable outcomes rather than chaos. That stability is important for the entire economy, not just large corporations.
What Legal Experts Say About the System
Bridget Letsholo, Head of Business Restructuring and Insolvency at CMS South Africa, explained that South Africa’s legal framework is strong enough to deal with modern global financial complexity, even though some of its core legislation is decades old.
“The Act does not contemplate a ‘surplus’ in a vacuum where a foreign domicile estate remains in deficit,” she says.
In simple terms, this means the law does not ignore what is happening in other countries when dealing with unpaid debts.
She further explains the fairness principle behind the court’s approach. “Once local priorities are respected, the remaining funds address the broader shortfall rather than creating an ‘orphan pot’ for the debtor’s benefit.”
For SMEs, this reinforces a key idea that financial fairness is not limited to one jurisdiction when business activity spans multiple countries.
She also highlights the broader investment implication that foreign investors can take comfort that our courts prioritise fairness over rigid protectionism.
This matters because investor confidence is one of the key drivers of SME funding and economic growth.
This Is About Trust, Not Law
It is easy to view insolvency and cross-border rules as technical legal concepts. But at their core, they are about trust. Here are the trust factors that must be considered:
- Can investors trust the system?
- Can businesses rely on fair outcomes?
- Can cross-border trade operate without uncertainty?
When the answer is yes, economic activity increases. Funding becomes more accessible. Trade becomes easier. Growth becomes more achievable. SMEs sit at the centre of that ecosystem. They are the most sensitive to changes in confidence, capital flow, and risk perception.
As a small business owner, you might not think about insolvency law. But in today’s economy, even a small South African business is often connected… Read More
