Understanding how the process works and why it can be beneficial in the business world starts with getting an answer to the question: “What is liquidation of a company?”

We thus briefly answer the question, helping you to decide whether to apply for liquidation of a company in South Africa. What is important to understand is that if your business is in financial trouble, is unable to pay its debts, and has liabilities exceeding its assets, according to the Insolvency Act, you must take steps to liquidate the business or apply for business rescue. Failure to do so can mean that you as the director, member, or owner of the business can be personally held responsible for the business debts. Under certain circumstances, you can be legally prosecuted for not doing so.

On to the question of “what is liquidation of a company?” In South Africa, the law provides that whenever a business is unable to pay the creditors and its liabilities exceed its assets, it must stop trading. The business does not need any assets to be liquidated. To commence with the process, the directors or members of the business entity must decide on the last day of trading. Once the decision has been made to file for bankruptcy, it is time to prepare the employees, as to ensure they can find new employment.

Note that any business you conduct after the last day of trading is for income of the creditors. This means you must stop trading on the date selected. You must not pay any creditors after this date, as it means preferring one creditor to another. Seek legal help in this regard and guidance on how to keep generating business in another entity to minimise the impact on employees.

The directors of a company or members of the closed corporation sign the resolution for liquidation. It is important that they understand what it means. Our attorneys draft the affidavit, which one of the authorised members, directors, or trustees must sign, and we apply to court for the voluntary surrendering of the business estate. The affidavit details the reason for having to liquidate and the debts of the business entity. We submit the application to the High Court, which issues a case number and court date for the provisional application.

We submit the application as semi-urgent, and this means your business gets immediate relief without notification to the creditors before you apply. The court postpones the liquidation of the company, giving time to notify the creditors. SARS, however, is notified before the court date for the final order. What is important is to understand is that the creditors cannot take any further legal action against your business during this period. They can bring their objections to court and we then oppose.

A liquidator is appointed, and meetings are set up with the members/trustees/directors and the creditors. Once the process is completed, the business is liquidated and you can start fresh or continue trade in another business entity.

Speak to our lawyers to understand what the liquidation of a company entails and to help you start the process.

Disclaimer: This article is for information 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.