HOW TO START THE COMPANY LIQUIDATION PROCESS IN SOUTH AFRICA
As an individual, you can only apply for voluntary sequestration in South Africa if you own immovable property or have other large assets that are not encumbered by debt, to ensure that there is enough benefit for the creditors. However, if you own a business, you can apply for liquidation of the business, regardless of whether the business has any assets, and even if there is no benefit to the creditors. This is so because the law stipulates that the moment the liabilities of the business exceed its assets, the business is insolvent and must stop trading. As such, the company liquidation process in South Africa differs from the sequestration process for individuals or natural persons.
It is better to initiate the company liquidation process in South Africa voluntarily, as opposed to being forced by court order on demand of a creditor. In this way, you have the opportunity to register another business before the process starts to ensure continuity of trade and thus employment for your workers. The first step in the process is to decide on a date for the last day of trading. Once the date is reached, it is important to stop trading, as any income derived from that date onward will be for the benefit of the insolvent estate and thus the creditors; you have no right to those earnings. You must also stop paying debt on that date, as you cannot, by law, benefit one creditor more than another.
Don’t wait too long to make the decision. The longer the business struggles, the more debt will pile up and the higher the risk of a creditor taking legal steps to recover debt owed. It is essential to immediately register another entity and to protect the employment of the people working for you. You may have to restructure, so some retrenchments may follow. You will need to give your employees time off to find other employment, provide them with the necessary references, and assist them as far as possible to minimise the effect of the liquidation on their lives.
Once the decision for last trading is made, you sign a resolution to the effect and the company liquidation process commences. An affidavit is drafted on your behalf and an authorised person makes the application for voluntary liquidation of the business entity. The affidavit details the debt of the business and gives a summary of the circumstances that led to the liquidation. The affidavit is drafted by our attorneys.
The application is submitted to the High Court of South Africa and the Court supplies a case number, which is delivered to the business’ registered address. The provisional application court date is set and the application is brought by the applicant on a semi-urgent basis. The application entails immediate relief granted by the Court, which means that the creditors don’t receive notice of the application first. The Court grants the provisional order and postpones the matter to ensure that creditors receive notification, with the exception of SARS, who receives notification of the application before the set court date.
The provisional order is important, as once it has been granted, no creditor can take any steps to recover debt from the business. The matter is postponed for a period of 30 days and during this period, notice is sent to all relevant parties, giving them time to oppose the liquidation application before the Court return date. If no opposition is lodged during this period, the Court grants the final liquidation order and the business entity is liquidated. If there is opposition, the relevant party must submit an affidavit detailing the reasons for opposing the application and a trial may follow.
Our attorneys will explain in detail the entire liquidation process in South Africa and handle it on your behalf.