Short answer
Directors who receive a Section 345 demand often underestimate what they are looking at. It arrives on company letterhead from an attorney, references a specific section of the Companies Act, and gives the company 21 days to pay or secure a debt. Many directors file it with routine correspondence. This is a serious mistake. A Section 345 demand is the most commonly used shortcut to a liquidation application in South African company law — and ignoring it hands the creditor a significant legal advantage.
What is a Section 345 demand?
Section 345 of the Companies Act 61 of 1973 — which continues to apply to winding-up proceedings — provides that a company is deemed unable to pay its debts if a creditor to whom the company owes more than R100 serves a formal demand at the company's registered office and the company fails to pay, secure, or compound the debt within 21 days.
The significance of this "deemed unable to pay" status is profound. Once established, the creditor does not need to separately prove that the company is insolvent when applying for liquidation. The presumption does the work for them.
Why creditors use Section 345 demands
Proving commercial insolvency — that a company cannot pay its debts as they fall due — can be contested and expensive in court. A Section 345 demand bypasses this difficulty. If the company does not respond within 21 days, the creditor walks into court with a statutory presumption of insolvency already established. This makes liquidation applications significantly easier to obtain.
What happens if you ignore a Section 345 demand?
If the company does not pay, secure, or compound the debt within 21 days, the creditor can immediately file a liquidation application. In court, they rely on the statutory presumption created by the unanswered demand — which shifts the burden to the company to rebut the presumption of insolvency.
This is a difficult position to be in. The company must now argue that it is able to pay its debts, despite having failed to respond to a formal legal demand. Courts take a dim view of this, and liquidation orders are frequently granted in these circumstances.
How to respond to a Section 345 demand
The 21-day window is not a negotiating period — it is a legal deadline. The correct responses within that window are: pay the full amount demanded, provide acceptable security for the debt, enter into a written composition arrangement the creditor accepts, or commence business rescue proceedings.
Each of these responses has different implications and requirements. The right choice depends on the company's financial position, the validity of the underlying debt, and the relationship with the creditor.
What if you dispute the debt?
If the company has a genuine dispute about the debt itself — the amount, whether it is owed, or whether a set-off applies — this must be raised immediately and correctly. A bona fide dispute about the underlying debt can be a defence to a liquidation application, but it must be properly presented to the court with supporting evidence.
Simply ignoring the demand because you think you do not owe the money is not sufficient. The dispute must be formally raised and supported.
Business rescue as a response
If the company is genuinely financially distressed but has a reasonable prospect of rescue, commencing business rescue proceedings within the 21-day window is a powerful response. Business rescue creates a moratorium that suspends all legal proceedings against the company — including any liquidation application the creditor subsequently files.
Timing is critical: the business rescue resolution must be adopted before the creditor files the liquidation application for the moratorium to be most effective.
Have you received a Section 345 demand?
The 21-day window moves fast. KLS assesses your position and advises on the correct response — including whether business rescue is the right protective step.
Can a liquidation application be opposed after the 21 days?
Yes — but from a weaker position. The company can still oppose the liquidation application on grounds including: the debt is genuinely disputed, the company is able to pay its debts, the Section 345 demand was not properly served, or business rescue proceedings have commenced.
Opposition is more difficult and more expensive than responding within the 21-day window. Early action is always preferable.
The role of the registered address
A Section 345 demand only needs to be served at the company's registered office — not on a director personally and not at the trading address. If your company's registered address is at your accountant's office or a registered agent, the demand may have arrived there without reaching the directors promptly.
This is one reason directors sometimes discover Section 345 demands late. Make sure your registered office address is monitored and that correspondence reaches you immediately.
A Section 345 demand is a serious legal document that requires an immediate, informed response. The 21-day window is short and the consequences of inaction are severe. KLS advises on the correct response for your specific situation.