A creditor whose loan is subordinated is nonetheless a contingent creditor of the borrower in terms of section 346 of the Companies Act, 1973 (which still applies to the liquidation of companies) and the creditor is accordingly well within its rights to apply for the winding-up of the debtor in default.
The appellant in Absa Bank Limited v Hammerle Group (Pty) Limited lent R10 million to the respondent company in terms of a subscription and shareholders agreement. The loan was subordinated in favour of the company’s other creditors. The company was commercially insolvent and unable to pay its debts but challenged the right of the lender to apply for its winding-up because of the subordination clause. The defence was rejected.