One of the questions often asked is “can a company in liquidation continue to trade?” Though certain exceptions may apply, the answer is no. The main purpose of a company liquidation is to stop trading and close all business operations. This also helps to prevent the business entity from creating more debt and to protect the creditors.

However, to understand why a company in liquidation cannot continue to trade as the existing entity, we need to take a closer look at what liquidation is and how the process works.


If the liabilities of a company exceed its assets and the entity is unable to pay debts when due, the company is insolvent and must stop trading. Thus, the company must be liquidated if it is capital and cash-flow insolvent.

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Liquidation is the process whereby the company in financial trouble ceases to trade. Liquidation can be voluntary, upon the request of the creditors or as the outcome of a court order.

A solvent business entity can be voluntarily liquidated by the directors, by means of a special resolution, or by a creditor. For the winding-up process, a resolution is submitted to the CIPC after security has been set at the Master of the High Court for debts of the business entity no longer than a year after the winding-up process has commenced. The winding-up process can also commence once consent has been given by the Master of the High Court for dispensing with security.

In the latter instance, a director of the company or member of the close corporation must submit a sworn statement, which has been authorised by a company’s board. The statement states that the business entity does not have debts. In addition, a certificate by the company’s auditor to verify the statement that the company has no debts must also be submitted. The Master of the High Court may also require other documents and procedures.

company in the liquidation process can continue to trade only as directly related to activities needed for the winding-up process. Once the company name is removed from the CIPC register, the entity is dissolved and thus no longer exists and can thus not trade under the dissolved company’s name and registration number. However, this does not mean the former directors cannot be held liable for their actions before the removal of the company’s name from the CIPC register.

A liquidator or party with interest in the business can, after the entity has been dissolved, apply to court for an order to declare that the dissolution of the business entity is void. If such an order is granted, legal actions stayed through the dissolving of the business entity can proceed as if the company has not been dissolved. The company is a legal entity until it has been dissolved.

Liquidation is the process that must be followed according to the requirements of the Companies Act of 2008 to wind-up and dissolve the company or close corporation. As discussed, a solvent business can also be liquidated. However, if the business entity is insolvent, according to law, it must stop trading. A company in liquidation can thus not continue to trade, apart from the activities needed to complete the winding-up process.


A creditor or shareholder of a solvent or insolvent business can apply to court to have the debtor business liquidated. This is involuntary liquidation. A provisional liquidation order is given, and the business entity can oppose the order. If the business does not oppose the liquidation order at the set date, then the order is made final and a liquidator is appointed for liquidation of the company’s assets in order to pay the debts owed. Once again, the business in liquidation cannot continue to trade in the same entity other than required for the winding-up process completion once the provisional order has been given. In such an instance, it is essential to oppose the application by the court set date to prevent the provisional order from becoming final.


Once the final date of trade has been set, the directors of the company or members of the close corporation must see to it that all trade stops at the stipulated date. Should trade continue, all the income from such are to the benefit of the creditors, as the income forms part of the insolvent estate.

If the business is in financial trouble, the directors must take the necessary steps to bring it back to a solvent state. If unable to do so, they need to have it placed under business rescue where a practitioner is appointed to take over management functions and restructure the entity to make it solvent. Where it is not possible for the entity to return to a solvent state, the practitioner must notify the court and creditors to ensure that the entity can be liquidated.

As an alternative, the board of directors can decide to voluntary liquidate the business. A court application can be brought for liquidation. Should the directors fail to take the necessary actions as stated, they can be held accountable for debts of the insolvent business entity.

It is thus imperative to seek legal guidance on how to proceed should a company be in financial trouble.


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A company can be liquidated when it owes money to SARS according to the regulations of the Tax Administration Act 28 of 2011. Even if the business does not have assets, it can still liquidate and SARS then writes off the money owed. Only when taxes are due regarding Customs and Excise, does SARS not write off the taxes owed or where directors have committed fraud. If the directors fail to liquidate an insolvent company that owes money to SARS, then the directors are at risk of being personally responsible for debts owed to SARS and other creditors should the company continue to trade.


The question should be how a company in liquidation can continue to trade in another entity to ensure ongoing income. The answer is that directors should take the necessary steps to set up another business entity as soon as possible to ensure ongoing income after the liquidation of the insolvent business.

It is also imperative to take the necessary steps for business rescue or liquidation of a company in financial distress sooner rather than later. Notify employees of the decision as soon as possible to give them enough time to seek new employment where necessary. With essential planning, it is possible to ensure ongoing trade in a new business entity.


Aspects, such as the lease agreement, sureties by directors, and need for ongoing trade with the purpose of income generation must be considered. Since every business has unique circumstances, it is imperative to consider the factors that apply to the specific entity. To this end, get legal advice from experienced insolvency attorneys on how to apply for business rescue or voluntary liquidation of a company in trouble and how to establish the last day of trade. The attorneys help you through the process and advise you on how to continue in business and thus prevent large-scale job losses of your current employees.

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