The Liquidation Risk of an Unchecked or Forgotten Section 345 Letter of Demand (South Africa)

In South Africa, one of the fastest ways a creditor escalates a debt dispute into a winding-up (liquidation) threat is by serving a section 345 notice.

A section 345 notice is not “just another demand”. It is a formal statutory mechanism that can be used to help establish that a company is deemed unable to pay its debts, a central requirement in many liquidation applications. If the notice is overlooked, ignored or mishandled, the consequences can be severe: urgent litigation, reputational damage, frozen relationships with banks and suppliers and the real risk of a court-based winding-up process.

At Barter McKellar, we assist businesses to respond quickly and strategically to section 345 notices and to defend against liquidation pressure tactics.

What Is a Section 345 Notice?

A section 345 notice is a written demand served by a creditor in terms of section 345 of the Companies Act 61 of 1973 (which continues to apply in the liquidation context). It is commonly used as a precursor to a liquidation (winding-up) application.

In practical terms, it is a formal demand requiring the company to pay a debt (typically a liquidated amount) within a prescribed period. If the company fails to comply, the creditor may rely on that failure as evidence that the company is unable to pay its debts.

The notice is often part of a creditor’s strategy to position a liquidation application, not merely to “ask for payment”.

Why a Section 345 Notice Creates Serious Liquidation Risk

Businesses often make the mistake of treating a section 345 notice as an administrative annoyance or something that can be dealt with “later”. That is exactly where the danger lies.

A section 345 notice matters because it can:

• create a statutory platform for a creditor to allege insolvency or inability to pay; and

• allow the creditor to escalate quickly to court once the notice period expires.

Even where the company has defences, a poor response (or no response) can weaken the company’s position and increase costs.

How an Unchecked or Forgotten Section 345 Notice Escalates

1) It Builds a Creditor’s Case for “Deemed Inability to Pay”

If the company does not pay, secure, or properly respond within the statutory period, the creditor may argue the company is deemed unable to pay its debts. That can become a core plank in a liquidation application.

Silence is often interpreted (fairly or unfairly) as either:

• inability to pay; or

• unwillingness to pay.

Either narrative can be damaging in later proceedings.

2) It Shifts the Matter into Urgent, High-Stakes Terrain

Once a creditor moves from ordinary collection to a liquidation pathway, everything becomes more serious, more time-sensitive and more disruptive.

Liquidation threats can quickly affect:

• banking relationships and funding negotiations

• supplier credit terms

• client confidence and pipeline deals

• employee stability and retention

• your negotiation leverage in the underlying dispute

The earlier the risk is managed, the easier it is to prevent escalation and reputational fallout.

It Can Be Used as Commercial Pressure (Even Where Liquidation Is Not the “Real Goal”)

In practice, liquidation proceedings are sometimes threatened as a pressure tactic to force payment or settlement. A section 345 notice is commonly used as the “formal step” that signals the creditor is prepared to escalate.

Even if a company can ultimately defend the matter, the costs and disruption of fighting a winding-up application are significant—especially if the notice was ignored and the company is forced into reactive crisis management.

4) It Creates Risk for Directors and Management Decision-Making

A winding-up threat often triggers board-level urgency. Directors may face pressure to act quickly, which can lead to mistakes—particularly where responses are made informally or without legal control.

Common pitfalls include emails that:

• admit the debt unintentionally,

• promise payment without conditions, or

• confirm cashflow stress in a way that can later be used against the company.

Common Reasons Section 345 Notices Get Missed (and Why That’s Dangerous)

Section 345 notices are frequently overlooked because:

• they are served at a registered address where mail is not monitored properly,

• they reach a generic inbox and are not escalated,

• staff assume “finance is handling it” without legal review,

• management believes “the debt is disputed so it doesn’t matter”, or

• parties are already in negotiations and the notice is underestimated.

However, the reality is that a disputed debt must be disputed properly. A weak or poorly documented dispute may not protect the company from liquidation threats.

The Big Question: Can a Company Be Liquidated for a Disputed Debt?

South African courts generally treat liquidation proceedings as inappropriate where a debt is bona fide disputed on reasonable grounds. But the dispute must be genuine, properly substantiated, and raised clearly and promptly.

A forgotten section 345 notice increases risk because it creates the impression that:

• the company has no answer, or

• the dispute is not real, or

• the company is avoiding payment.

In other words: even if a company has a defence, silence can make it harder (and more expensive) to vindicate that defence.

What To Do Immediately If Your Business Receives a Section 345 Notice

1) Treat it as urgent and diarise the deadline

Section 345 notices have time periods that matter. Missing them reduces your options.

2) Gather all supporting documents quickly

Your attorneys will typically need:

• the underlying contract(s)

• invoices and statements

• delivery/performance proof

• correspondence showing disputes

• payment history and any acknowledgments

• any settlement proposals or negotiations

3) Decide whether the debt is:

• payable and owed; or

• disputed on bona fide grounds; or

• partially owed, requiring a structured approach.

Each scenario calls for a different legal strategy.

4) Respond strategically in writing (and avoid careless admissions)

A proper response may include:

• confirming payment (where appropriate); or

• recording the basis of a bona fide dispute, with supporting facts; or

• proposing security or structured payment terms (in limited cases); or

• requiring further particulars and disputing the claim formally.

The goal is to prevent escalation and protect the company’s litigation posture.

5) If the company is financially distressed, get advice early

Where the issue is genuine inability to pay, early advice can help the business consider lawful options, before a creditor controls the narrative through liquidation proceedings.

Why Early Legal Intervention Matters

A section 345 notice is often the earliest point at which a business can:

• stop a creditor from gaining momentum;

• reframe the dispute properly;

• negotiate from a position of control; and

• avoid the reputational and operational harm of liquidation proceedings.

Waiting until a winding-up application is issued usually means higher cost, less leverage and greater disruption.

How Barter McKellar Can Help

At Barter McKellar, we assist businesses with:

• assessing section 345 notices and underlying claims

• drafting robust legal responses that protect your position

• negotiating payment arrangements or settlement terms

• defending liquidation (winding-up) applications

• advising directors on risk and appropriate communications

• managing creditor disputes strategically and efficiently

Our approach is commercially practical and focused on protecting business continuity.

Conclusion: Don’t Ignore a Section 345 Notice

A section 345 notice should always be treated as a serious legal risk indicator. When overlooked or ignored, it can become the launch point for a liquidation strategy that threatens the entire business.

If your company has received a section 345 notice or you suspect a creditor is positioning to escalate, early legal advice is essential.

Need assistance responding to a section 345 notice?

Contact Barter McKellar for strategic commercial legal support to protect your business and reduce liquidation risk.