The liquidation application process, unlike with the sequestration application process, does not require a business to have cash or assets sufficient to ensure that the sale thereof can provide for the minimum benefit to creditors and pay for the liquidation process. This is so because, according to the regulations of the Companies Act and the Trust Property Act, a business is insolvent as soon as the liabilities of the entity exceed its assets – and the business must stop trading when it is insolvent.

However, in many instances, the liabilities of a business do exceed its assets. To determine whether it is time to start the voluntary liquidation application process, one also has to consider whether the business is able to service its debts and pay its monthly expenses. If not, it is time to start with the liquidation application process. The business entity thus does not need cash or assets to commence with the liquidation application process.


In such an instance, the business does not have time to prepare for the process. Employees immediately lose their jobs and the business owners do not have time to register other businesses to ensure ongoing trading. They also cannot take the necessary steps to minimise the impact of the liquidation on the trading partners and employees. The creditor then nominates the liquidator. If the business owner is able to nominate the liquidator, the liquidation application process can be less stressful.


It commences with the directors of the company – or, if it is a close corporation, its members – deciding which is the last day of trading. In the case of a trust, it will be the trustees who decide which day is the last day of trading. Once the decision has been made, no more debt can be paid. This means the business must cease all payments to creditors, as one cannot benefit one creditor over another. It is still possible to trade, but the income from that moment on will form part of the insolvent business estate and will not be available for use by the business entity.

The above being said, if the business owners take the proactive step in dealing with debt through liquidation, they can plan and register a new business entity before the application process starts. In this way, they can ensure that the business can trade and generate income and no employees have to lose their jobs. If there is no time for this, employees must immediately be informed about the pending liquidation. This is to provide them enough time to find suitable alternative employment. The business owners should assist them with references and time off to find employment.


Once the decision has been made to commence with the liquidation application process, the members, trustees, or directors sign a resolution to the effect. An affidavit is drafted by the liquidation attorneys, which must be signed by the authorised parties who will bring the application for liquidation. It sets out the history of why the entity must be liquidated and the debt situation of the business.


Once all the documents have been signed, the application is submitted to the High Court, which issues a case number with a court date for the provisional application. The attorneys bring the application on a semi-urgent basis, which ensures immediate relief by the Court. A provisional liquidation order is given without notice to creditors first. The matter is postponed and the creditors are notified. SARS is the only creditor that receives notification before the provisional liquidation order date.

Once the court has given the provisional liquidation order, no further legal action can be taken against the business entity. Interest on debt is frozen and the case is postponed for 30 days. The creditors are given this time before the return date to lodge objections. If no objections are received before the court return date, a final liquidation order is given. However, where a creditor opposes the liquidation application process, the creditor must submit an affidavit that contains the reasons for doing so. A trial follows and the court decides the outcome.


Call on our attorneys to help your business apply for voluntary liquidation.

Disclaimer: This article is for informational purposes only and does not constitute legal advice. Call on our attorneys for legal advice, rather than relying on the information herein to make any decisions. The information is relevant to the date of publishing – October 2018.