South Africa's tough economic climate is once again pushing businesses toward rescue or liquidation. Yet one of their most valuable assets – intellectual property (IP) – is routinely overlooked in both processes.

This is a theme we first explored in a 2020 article, "Business rescue and liquidation have consequences for intellectual property." Six years on, the question is more pressing than ever. The rapid adoption of artificial intelligence is seeing an increase in IP development, making it all the more important that businesses, practitioners and liquidators turn their minds to IP before it is too late.

First, the basics. Every business owns IP. The term is an umbrella covering two broad categories: registered and unregistered rights.

Registered IP may include patents for chemical compounds in medicines, trademark registrations for valuable brands, registered designs for packaging or containers, and plant breeders' rights protecting new plant varieties. Unregistered IP, such as copyright, trade secrets, know-how, can be harder to pin down, but the exercise of identifying it is essential.

Whether registered or unregistered, these rights give businesses a monopoly and a portfolio of assets that can be commercialised in several ways.

Business rescue

A business rescue practitioner should start by auditing the company's IP to determine whether it can be restructured to boost revenue or cut liabilities. Under section 136(2)(a) of the Companies Act 71 of 2008, a practitioner may suspend, entirely, partially or conditionally, any obligation of the company under an agreement – including an IP licence – that would otherwise fall due during rescue proceedings. Cancelling such an obligation requires an urgent court application under section 136(2)(b), on just and reasonable terms.

If IP is lying dormant and there is no plan to use it, the practitioner can license it to a third party to generate revenue, or have it valued and sold. If the IP is already licensed, any restrictions on further exploitation must be checked. Where the business is paying licence fees for IP it no longer uses, termination of the licence should be considered, subject to the statutory powers outlined above.

Consider, for example, a struggling retailer holding a dormant trademark for a discontinued store brand. Licensing or selling that mark to a competitor entering the same market segment could turn a dead asset into working capital for the rescue plan, rather than letting it lapse.

IP portfolios can be large and maintaining them is not free. Trademarks must be renewed every 10 years; patents and registered designs attract annual renewal fees from the third anniversary of filing. If IP is not being used, these registrations should be considered for abandonment to reduce the company's liabilities.

There is a further option: collaborating with third parties to revive dormant IP. A refreshed IP portfolio can give lenders the confidence they need to extend capital to the business.

Liquidation

A common misconception is that IP loses its value the moment a company goes into liquidation. The opposite is often true: IP can be critical to a business's continued operation, particularly in technology-driven companies that depend heavily on software or proprietary systems.

On liquidation, all property – including IP – is sold and the proceeds distributed among secured, preferred and concurrent creditors. The liquidator must therefore identify and value the company's IP before any sale takes place.

IP is too often overlooked in liquidation, which is unfortunate because it can significantly increase creditor returns. We regularly find valuable, registered IP still sitting in the name of a liquidated company at the Companies and Intellectual Property Commission. This matters because once a liquidation is finalised, it is no longer possible to secure ownership of that IP. Whatever IP the business holds must be investigated and dealt with before the process closes. If the IP can still be commercialised, the liquidator should have it valued and sold.

A question we are often asked is what happens to an IP licence when the licensor is liquidated. The answer turns on the underlying contract and the obligations it imposes. A licensor's obligations might include maintaining or developing the IP, or continuing to pay registration fees to preserve its value. In general, contracts that have not been fully performed by the insolvent licensor are not automatically terminated or suspended. The liquidator can choose to abide by them or repudiate them, but must act on the instruction of the creditors, since the liquidator’s actions must serve the interests of the joint creditors.

If the liquidator repudiates, the licensee cannot claim specific performance but retains all other breach remedies. A licensee who refuses to accept the repudiation will continue to perform under the agreement and become a concurrent creditor with a claim for damages. A licensee who accepts the repudiation can recover any performance already rendered (provided no forfeiture clause applies) and claim concurrently for any additional damages. The Supreme Court of Appeal's recent decision in Pick n Pay Retailers (Pty) Ltd v Ramalho NO [2025] ZASCA 97 is a useful reminder. The court held that a mandate authorising a third party to pay out the proceeds of a completed sale terminates on the liquidation of the party who gave the mandate even where the underlying sale had already been performed, as payment would prejudice the company's other creditors. The practical takeaway for IP practitioners is this: where royalties, licence fees or sale proceeds are to be paid under a mandate or payment instruction rather than under an ongoing, unperformed obligation, that authority to pay lapses on liquidation. Any party relying on such an instruction to receive funds after the liquidation date risks having to return them.

If the liquidator elects to abide by the contract, the liquidator steps into the licensor's shoes. The licensee receives full performance and must render it in return; the liquidator takes over the whole agreement and may not amend its terms. The costs come out of the estate. If the estate lacks funds, creditors with proven claims may be required to make up the shortfall.

IP is one of the most valuable assets a business can hold, and no business is immune to economic downturns. Directors, business rescue practitioners and liquidators would do well to understand, long before a crisis hits, how a company's IP assets and licences may be affected. Treating IP as an afterthought risk leaving real value on the table: value that could rescue a struggling business or significantly improve returns to creditors. The time to act is long before the process begins, not after.

Written by Bernadette Versfeld, partner, Webber Wentzel