A company in South Africa must stop trading if it is insolvent. To be insolvent, the company’s liabilities must exceed its assets and it must be unable to pay its debts when due. However, liquidation is not the only option. It is thus best to seek legal help from liquidation specialists right from the start to determine the financial status of the company and whether one of the other options is relevant.

As our liquidation specialists can explain, it is not necessary for the company to be both factually and commercially insolvent for it to be insolvent. A company’s liabilities may exceed its assets, but it may still have enough liquid finances to pay its debts when due. In this case, the company is factually insolvent, but not commercially insolvent. It may also be commercially insolvent in the sense that it cannot keep trading because it is unable to pay its debts because of cash-flow issues. To determine whether your company is insolvent, start by completing the online assessment form and our liquidation specialists will help you determine its financial status.



The board of directors may, in a desperate attempt to save jobs, try to keep liquidation off as long as possible. However, by doing so, they may unknowingly put their personal financial estates in danger. Rather than risking acting contrary to what the law requires, it is recommended to speak to liquidation specialists as to the route to follow. If early enough, it may still be possible to make use of one of the alternative solutions.

Your firm may not yet be insolvent, but in financial distress. This is when your company is likely not to be able to pay debts when due or likely not to be able to do so within six months from now. Our liquidation specialists can also help you determine if your company is in financial distress. If it is the case, there may still be the option of business rescue as opposed to liquidation.


If the company is in financial distress, it can enter a compromise with the creditors to restructure its debts and pay a settlement amount. Note that this should not be attempted without legal help from liquidation specialists, as you will need a commitment from the creditors to not initiate liquidation proceedings. The law makes provision for a compromise and it is thus a valid option, but only if specific requirements are met, best discussed with our insolvency specialists. For one, it is only a suitable solution if your company is small enough with only a few employees. Also note that all the creditors must agree. A meeting must thus be held with all the creditors to discuss the compromise. To this effect, the expertise of our liquidation specialists will be exceptionally valuable. If all the creditors agree, then the agreement can be binding.


Here too the help of liquidation specialists is essential to determine if the company qualifies. The test is whether the company is in financial distress, thus whether it is likely to become insolvent within the next six months. In this sense, the company’s current financial situation and up to six months from the date must be assessed. It must also be in the interest of the country to ensure the business stays operational. Note that not all business rescue operations succeed. If the business rescue practitioner during the course of the rescue operation determines that it is not possible to get the business to a level of solvency and ensure it can pay its debts, then the practitioner must notify the relevant parties. Liquidation is then the only solution.

With business rescue being a formal process, it is essential to make use of liquidation specialists. A court order is given, and an approved business practitioner is appointed to oversee the restructuring process. The board of directors gives up part of or all of their management rights to the practitioner for the duration of the rescue process.

The process starts once the company’s office has received the required documents. Although the process is only supposed to take three months, in reality, it is often not the case. The business practitioner can, with the agreement with most of the creditors, have the period extended. As such, it can take up to two years to complete. Directors of the company must adhere to the management of the company by the business practitioner. In most instances, the practitioners create their own claim forms, which the creditors must use to file their claims against the company.

The advantage of the business rescue process is that the employees keep on working and their contracts remain valid. If the practitioner decides on retrenchments as part of the restructuring process, then appropriate steps are followed according to the labour law requirements of the country.


If after you have completed the online assessment form and our insolvency specialists have assessed the information, it becomes clear than voluntary liquidation is the only viable solution, then they will discuss the procedures with you.

With voluntary liquidation of an insolvent company, a court approval is required. The last day of trading is decided and from that moment on, any income generated by the business is to the benefit of the winding up process and the creditors. It is thus recommended to stop trading at the agreed date. The assets of the company is sold by means of a private treaty or auction and the winding up costs paid, after which the residue is used to pay the preferent creditors, such as employees.

The claims of secured creditors are paid from the proceeds of sale from the assets which formed the security for the particular debts. Where the amounts due have not been paid in full by such sale, the creditors then can form part of the concurrent creditors. The latter creditors receive their benefits once all the above creditors have been paid.


For questions regarding the winding up process, it is best to consult with our liquidation specialists. They will be able to answer your questions regarding employment contracts, shareholders, voidable transactions, and more. Do not delay in seeking help from our insolvency specialists. They will assist you in determining whether a compromise, business rescue, or voluntary liquidation is the best option for your particular company and situation. Complete the online assessment form to determine the best course of action for your company or get in touch with our insolvency specialists for more information on any of the processes.

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.