Legal Advice to Liquidate a Company in South Africa

Unlike with individuals applying for voluntary sequestration, who must have enough assets to ensure that the sale thereof can realise enough benefit for the creditors, liquidation of a company in South Africa can be done even if the company doesn’t have any assets. This is so because the Insolvency Act states that as soon as a company’s liabilities exceed its assets, it is technically insolvent. The application process to liquidate a company is also less complicated than for an individual, and the creditors don’t have to be notified before the first court hearing.

However, since there are still many factors involved to consider, it is best to get legal advice to liquidate a company before taking any steps. Indeed, the application must be submitted to the High Court of South Africa, and as such, you will need more than legal advice, you will need legal representation and assistance to liquidate a company.

When should you liquidate a company?

If the company is dormant and thus not used for a long time, you may want to liquidate it, because of the administrative costs and tax implications of having a company. Also, if you no longer use a company and want to make sure that creditors don’t later come and state that the company owes them money, you can apply to liquidate it. Forced liquidation is when creditors bring an application for liquidation of the company, in order to get compensation for the money that the company owes them.

It is essential to get legal advice to liquidate a company the moment you realise that the company’s debt has become unmanageable. Voluntary liquidation is better than forced liquidation, because it gives you the opportunity to register another business, and to start trading in that business before you liquidate the current one. In this way, you can give employees work, ensure continuity of income, and get rid of the mountain of debt.

But keep in mind that irresponsible management of the company finances can mean that you, as the director, will be personally held accountable for the debt. Therefore, before you take any action, speak to our attorneys.

What is the first step?

The first step is to determine which date will be the last day of trading. Once decided, you must keep with the date. Make sure that you help your employees to find other employment by giving them adequate time to do so and giving them references. Once the day of last trading has arrived, you will then stop all transactions and will not make any payments to creditors. The law states that one creditor cannot be benefitted to the disadvantage of other creditors. Our attorneys will bring the application for liquidation to court. It will be an urgent application.

Keep in mind that the creditors can still take legal action until the final order for liquidation has been granted. However, the initial application for a provisional liquidation order is brought urgently, and then the creditors are notified. Only SARS gets immediate notification. The creditors will have until the court hearing to object to the liquidation.

The court will hear their objections and your advocate will represent you. If the court grants the final order, then the liquidation proceeds and the assets are sold with benefits distributed to the creditors. The company is liquidated and dissolved. All debts are thus paid. You are not personally responsible for the debt and can thus still be a director in another company. That being said, if you have signed surety for any of the company’s debts, you will be accountable for the debts, and if unable to pay such, you will need to be sequestrated.

It is thus best to get legal advice to liquidate a company before commencing with any debt agreements or liquidation steps.

Disclaimer – Information provided in this article is for general information purposes only and not intended as legal advice. We recommend seeking legal guidance for all matters related to insolvency and to speak to our attorneys before relying on the accuracy of the information provided in this article to make decisions affecting your financial status.