The Golden City in Red - Creditor Survival in a Technically (Not) Bankrupt Johannesburg

There’s a particular brand of optimism found only in the hallowed halls of the City of Johannesburg (CoJ) Metropolitan Council. It’s an optimism that defies the standard laws of physics and, more importantly, the Municipal Finance Management Act No 56 of 2003 (MFMA).

While the rest of the world interprets a R25.2 billion debt pile against a R3.9 billion cash balance as a "financial catastrophe", Executive Mayor Dada Morero recently assured the public that there’s "no cause for concern". Really?

Apparently, as long as the lights are flickering and salaries are being paid via what Finance Minister Enoch Godongwana calls "fake budgets," the City is, in his words, "perfectly in the right position".

However, for the executives, CEOs, and senior leadership of companies holding unpaid invoices from the City, the view is somewhat less (read very) rose-tinted. Minister Godongwana’s scathing letter of 23 April 2026 (leaked with the grace of a burst Joburg Water pipe) effectively declared the City bankrupt in all but legal name. With R12.9 billion in unauthorised expenditure in the 2023/24 cycle and National Treasury threatening to invoke Section 216(2) of the Constitution to withhold an R8 billion equitable share grant, the financial centre of South Africa is currently operating on little more than hope and heritage.

Ø  Section 216(2) of the South African Constitution empowers the National Treasury to stop the transfer of funds—specifically the Local Government Equitable Share (LGES)—to municipalities that commit a "serious or persistent material breach" of financial management duties.

As the JSE suspends the City’s bonds and The Agence Française de Développement (AFD) rejected a request from the City of Johannesburg for additional, new financing due to the City failing to meet the conditions, including reporting requirements, of a previous R2.5 billion loan obtained from the AFD in 2024, the question for every supplier is no longer "When will they pay?" but "How can I make them pay?".

The Liquidation Illusion - Why You Can’t Just "Liquidate" Joburg

For the battle-hardened executive used to the brutal efficiency of the Companies Act, the first instinct when a debtor owes R21 billion more than they have in the bank is to move for liquidation.

Unfortunately, the MFMA and the Constitution don’t view a municipality as a private company. A municipality is a constitutional entity with an obligation to provide basic services. And this means that you can’t simply sell off the Ghandi Square bus terminal to the highest bidder to satisfy a stationery invoice.

Chapter 13 of the MFMA, which encompasses Sections 135 to 162, provides the legal framework for handling Financial Problems in South African municipalities. However, it carefully avoids the "L" word. Instead, it offers a Financial Recovery Plan (designed to restore a municipality’s fiscal health). This is essentially a state-sponsored business rescue that prioritises the orderly settlement of obligations while ensuring basic service delivery.

While this sounds noble, for a creditor, it often feels like being invited to a dinner party where the host has already eaten the food and is now asking you to help wash the dishes.

Rude, uncomfortable, and kind of awkward.

The Mandamus - The Court’s "Do Your Job" Order

When the City ignores your 30-day payment deadline - a direct violation of Section 65(2)(e) of the MFMA - the most professional "sledgehammer" in your arsenal is a writ of Mandamus – meaning "we command" in Latin. This is a court order compelling a public official to perform their statutory duty. In the context of the CoJ, you are asking the court to command the City Manager to - "Pay the bill because the law says you must".

The courts have historically been sympathetic to creditors where the debt is undisputed. However, in a bankrupt city, a Mandamus often results in the City Manager shrugging and pointing at an empty vault. The order is legally sound, but if the cash isn't there, you are merely the proud owner of an extremely expensive piece of paper.

Attachment of Assets - Can You Seize a Pothole?

The State Liability Act 20 of 1957 was famously amended after the Constitutional Court’s ruling in Nyathi v MEC for Health, Gauteng, which confirmed that the state’s immunity from the attachment of assets was unconstitutional. In 2008, the Constitutional Court declared Section 3 of the State Liability Act 20 of 1957 unconstitutional because it prohibited the attachment, execution, or similar processes against state assets to satisfy money judgment debts. The court found that this total immunity violated rights of access to courts, dignity, and equality before the law, making it impossible for creditors to enforce court orders against the state. Following the judgment, Parliament passed the State Liability Amendment Act 14 of 2011 (often referred to as the State Liability Amendment Act), which established a new procedure for the satisfaction of such debts.

This opened the door for creditors to attach municipal property.

However, the "Execution of Money Judgments" against a municipality is a bureaucratic labyrinth. You cannot attach assets used for basic municipal services. You can’t seize a fire truck or a water pump. You are therefore left hunting for non-core assets - perhaps the Mayor’s official vehicle or some prime real estate in Sandton that the City forgot it owned.

But given that the City is currently struggling to find "spare parts to fix water leaks", your chances of finding a high-value, non-essential asset are slim.

The Backdoor Relief - Section 139 and Section 216

This is where the game gets interesting for senior leadership. Since the City cannot be liquidated, your best hope for payment often lies in "State Intervention" -

1.         Section 139 of the Constitution (The Provincial Executive Steps In) - if a municipality remains in a "serious or persistent material breach of its obligations to provide basic services or to meet its financial commitments", the Provincial Executive must intervene. This includes imposing a financial recovery plan. For a creditor, this is the best-case scenario - the "adults" (in theory, the Gauteng Provincial Government) take over the chequebook. There are 4 types of intervention - 139(1)(a) Directive - issuing a directive outlining what the municipality must do to fix the issue; 139(1)(b) Assumption of Responsibility - the province steps in to take over the administration (most common); 139(1)(c) Dissolution - dissolving the municipal council and appointing an administrator if exceptional circumstances apply; 139(5) Financial Crisis - specific intervention when a municipality cannot meet its financial obligations.

2.         Section 216(2) of the Constitution (The Treasury Guillotine) - this is the "threat" currently hanging over Mayor Morero’s head. National Treasury can withhold the transfer of funds (the equitable share) to any organ of state that commits a "serious or persistent material breach" of financial management. This provision is a cornerstone of public financial management aimed at ensuring accountability, transparency, and compliance with the Municipal Finance Management Act (MFMA) or the Public Finance Management Act (PFMA).

While Section 216 is a powerful stick for Minister Godongwana to use to force the City to scrap illegal R10.3 billion wage deals, it’s a double-edged sword for creditors. If the Treasury withholds R8 billion, the City has even less money to pay you.

However, you can use the threat of these interventions in your demand letters. Reminding the City that their continued non-payment is prima facie evidence of a Section 139 crisis can sometimes miraculously move your invoice to the top of the "pay now" pile.

The JSE and Moody’s - The Reputation Tax

The suspension of the City’s bonds by the JSE on 27 March 2026 was dismissed by the City as a "technical compliance matter" related to delayed audited financial statements. Moody’s, however, was less amused, placing the City on review for a downgrade, noting that delayed financials point to "weaker governance than previously assessed".

For creditors, this is a vital leverage point. The City desperately needs to return to the capital markets to refinance debt - including the R1.44 billion COJ08 bond due for redemption on 22 June 2026.

They cannot do this while in a state of default or suspension. If you are a large-scale creditor, your non-payment is a "reportable event" that further damages their credit rating.

Use it.

Practical Remedies for the Unpaid Supplier

If you’re sitting on an unpaid invoice, you must move beyond polite emails to the Finance Department (which, let’s be honest, is currently a room full of people trying to make R3.9bn look like R25bn).

·       Audit Your Contract - ensure every T, C, and procurement process was followed perfectly. The City is currently looking for any "illegal signing" excuse to void obligations.

·       Formal Demand under the MFMA - issue a demand specifically citing the City Manager’s personal liability under Section 171 of the MFMA for failing to prevent "unauthorised, irregular, fruitless and wasteful expenditure".

·       Joint Creditor Action - the City relies on the "divide and conquer" strategy. A group of suppliers representing a significant debt block can force a meeting with National Treasury or the Provincial Executive to demand a Section 139 intervention.

The City that Always Sleeps (on its Debts)

Johannesburg is not a private company that will disappear into the night. It’s the economic heart of South Africa, contributing roughly 16% to national GDP and 40% to 44% of the Gauteng province's total economic activity. It’s "too big to fail” but is also currently "too broke to pay".

The real remedy for creditors is not a simple court order, it’s the relentless application of legal and political pressure. You must make it more painful for the City not to pay you than it is to admit they have a problem.

As Minister Godongwana’s letter makes clear, the "fake budgets" era is over. It’s now time for the City to choose between paying its workers an illegal R10 billion raise or paying the suppliers who actually keep the "lights on" - even if Mayor Morero thinks the latter is the only metric of success.

For the CEOs and Executives watching this unfold, the lesson is clear - in the City of Gold, the only thing currently "shining" is the red ink.

Disclaimer: This article is for informational purposes only and should not be regarded as legal advice.

We have taken the utmost care to ensure that the above information is correct, but we urge you to consult with a suitably qualified legal practitioner who will be able to assist you should you have any questions or require assistance regarding municipal debt, or if you would like further information regarding Johannesburg’s current debt.

Please feel free to contact us to see how we can best assist.

We are a law firm that considers honesty to be core to our business. We are a law firm that will provide you with clear advice and smart strategies - always keeping your best interests at heart!

(Sources used and to whom we owe thanks – News24 here, here; here and here; Facebook here, here, here and here; Timeslive; Parliamentary Monitoring Group here; here and here; Business Day; Moneyweb here ;here and here ; YouTube; Daily Maverick; X ; People’s Assembly; eNCA; City of Johannesburg; Daily Investor and GroundUp).