You don’t start a business thinking you will have to liquidate it a few months down the line but the business world is extremely competitive. Add the high costs of labour and non-paying clients and there is a risk of a business becoming insolvent. Due to misconceptions regarding the cost of liquidating a company, directors may try everything possible to keep the business afloat. However, the cost of liquidating a company is often far less than the debts owed by the business. Did you know that by law, the directors must liquidate a business when its liabilities exceed its assets and it is unable to pay debts when due? You thus have a legal obligation of liquidating the business by means of a special resolution rather than keeping it going and adding to the debt.

As an alternative, you can apply to have it placed under business rescue. A business-rescue practitioner is appointed to temporarily manage the firm and bring it back to a solvent state. This can be done through restructuring. If they find that the entity cannot be rescued, they notify the court, shareholders, creditors, and directors and the business must be liquidated. You also have the option of notifying the employees, trade unions, shareholders, and creditors why you don’t want to liquidate, like when considering the cost of liquidating a company with the personal liability for the business if you fail to take action. If you don’t place the business under business rescue or apply for liquidation when it is insolvent, you can personally be held responsible for its debts, regardless of whether or not you have signed surety for the company’s debts.


Unlike the costs of voluntary sequestration that are covered through the sale of assets (and creditors having to be notified of the intention to sequestrate before the court hearing), the cost of liquidating a company does not necessarily have to be paid by liquidating the firm’s assets. A company without any assets can be liquidated. As soon as the directors realise that the business is no longer solvent and is unable to service its debts, you need to decide whether to liquidate. A special resolution is called whereby you agree to liquidation. Before doing so, speak to insolvency experts about the cost of liquidating a company and the implications for the directors. In most cases, directors sign surety for company debts, so they may be held responsible for them and may need to sequestrate because of the size of the debt. The lease agreement can add to the directors’ liabilities. We highly recommend speaking to insolvency attorneys about the implications of lease agreements.

The cost of liquidating a company by means of an application to the High Court is higher than when liquidating through the Companies and Intellectual Property Commission (CIPC); however, liquidation through the CIPC is relevant when the firm is simply closed and its debts paid and assets sold – and thus not liquidated because of debts owed. When the application to the High Court is made, the application is placed on the court roll and a provisional liquidation order is granted. The final liquidation order is only awarded at the hearing. However, as soon as the provisional order is granted, creditors’ actions are stayed. Your business ceases payments to creditors to prevent benefiting one over the other. Keep in mind that employees are also affected. Ask our attorneys about the process to prevent job losses and help employees find new work, where relevant.


company can be liquidated even if it owes money to SARS, in which case SARS becomes one of the creditors. Be mindful of the Tax Administration Act, making provision for the directors to be held liable for taxes owed by the firm. SARS is unlikely to take action against the directors. If they do, you can personally sequestrate as well.


If your firm keeps trading after the last day of trading as decided through the special resolution, all the income from such trading goes to the benefit of creditors. To keep business going, you may want to establish another entity and provide employment through it.

Considering the high cost of being liable for the company debts if you don’t take steps in addressing the debt problems, the cost of liquidating a company is very reasonable. Make use of our attorneys to help you through the process.

Disclaimer: This article is for informational purposes only and does not constitute legal advice. Call our attorneys rather than relying on the information herein to make any decisions. The information is relevant to the date of publishing: October 2019.