FAQ – COMPANY LIQUIDATION IN SOUTH AFRICA
Liquidation of a company is a legal process. Therefore, you need the assistance of a corporate insolvency lawyer, to apply to court to declare your company bankrupt. The corporate insolvency lawyer handles the application on your behalf, and guides you through the process.
What is Liquidation?
It is the legal process whereby, upon court order, the company’s financial affairs are placed under the management of a liquidator. The liquidator has the task of assessing and selling the assets. The proceeds of the assets are divided amongst the various creditors, according to the requirements of the Companies Act. The distribution of the proceeds of sale is done in a fair manner.
What Is the Difference Between a Secured and an Unsecured Creditor?
The secured creditor holds security for the credit provided to your company. This can be in the form of a bond over the commercial property. The company vehicles that were bought under a credit instalment agreement, are security for the financing provided for purchasing the vehicles. The secured creditor has priority over the unsecured creditor when assets are sold as part of the liquidation. The unsecured creditor is, for instance, a supplier of goods or services to whom your company owes money. The unsecured creditors are known as concurrent creditors.
When Does a Creditor Get Preferential Status?
The secured creditors have preferential status, and get priority when it comes to the distribution of proceeds from the sale of assets. Statutory creditors, such as SARS, as well as employees also have preferential status.
Is a Private Liquidation Also a Court Process?
No. You do not need to apply to court for a private liquidation, and you do not have to use a corporate insolvency lawyer, even though it is recommended. With a private liquidation, you sell the assets of the company in an attempt to pay off the debt of the firm.
Why Not Just Deregister the Company If It Is Unable to Pay Its Debt?
If you deregister the company when it is unable to pay creditors, the directors of the company will become personally liable for the debt. As such, you also risk forced sequestration as director of the company. In addition, all the assets in the company then belong to the state.
What If a Person Has Signed as Surety for The Company?
If you have signed as surety for the company, you will also be held liable for the debt to the particular creditors.
When Will the Court Approve a Voluntary Liquidation Application?
If you are able to prove that the company cannot pay its debt, and when it is fair to award the liquidation order. There are a few instances in which the liquidation order will be awarded. It is best discussed with an experienced corporate insolvency lawyer.
What If Creditors Still Demand Payment While the Company Applies for Liquidation?
Do not speak to the creditors. Instead, refer them to the insolvency lawyer. Do not make any further payments to creditors, as the law prohibits benefitting one creditor over the other.
What Next?
Before you take any steps to liquidate, deregister, or privately liquidate your company, speak to our team of corporate insolvency lawyers, regarding which pitfalls to avoid, the correct procedures to follow, alternatives to liquidation, and the costs involved.
Disclaimer: This article is for informational purposes only, and does not constitute legal advice. Call 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.