Government plans to make R2-billion available to help stem the flow of companies being liquidated, the chief state law adviser and head of the master's office, Enver Daniels, said yesterday.

Discussing the harmful impact of company liquidations on the country and on a personal level, Daniels said new legislation was currently being drafted. He also said that discussions were underway on how to regulate the industry, which was often open to corruption and fraud.

This move has the full support of Justice Minister Penuell Maduna, who has long expressed his unhappiness with the way the liquidation industry operates.

"Presently liquidations... are costing the country R80-billion a year and this does not take into account the effect it has on the unemployment figures," Daniels said.

He said he was expecting to have a panel consisting of various representatives of the industry to decide on liquidation cases in operation by the end of March.

He also hoped to have a regulating framework ready at the same time.

"I am a communist and wouldn't normally be talking about sound business principles," but admitted in this case it was necessary.

Keeping a keen eye on developments, the Banking Council of South Africa reiterated the need to adhere to sound principles.

Inus du Preez, head of corporate recoveries at First Rand Bank but speaking on behalf of the Banking Council, said it was important to gather all the information before moving forward.

"We have to operate within the political environment but also within the economic reality," he cautioned.

He argued that despite Daniels' good ideas, the whole process had to follow private sector principles. No company would "put money into a losing situation".

Daniels explained that in South Africa there were three types of company liquidations.

"There is what is described as the 'hopeless case' where the company is already in such financial straits there is no point in trying to save it. "Secondly it's the 'engineered liquidation' in which a planned closure of the company is called for, and third situation is where a company just needs breathing space to get back on its feet".

Daniels said government was concerned by the high number of companies in the latter categories who either through fraud or greed were closed down when there was no real need.

This debate was recently highlighted when banks were accused of liquidating Retail Apparel Group (RAG) in such a manner that they were able to reclaim their losses while other creditors were left with nothing.

Daniels said at yesterday's meeting, it has also come out that RAG also owed the South African Revenue Service R350-million. – Sapa.