company liquidation

You did not start your business with the aim to close it, but now you may face mounting debts, income limits, and trade restrictions. If the situation is so dire that business rescue is not an option, you can go with the voluntary liquidation of a company option. Before you do, make sure you understand what it entails. Start with the important considerations as shared in this article.

  1. Difference Between Factual and Commercial Insolvency

Factual insolvency is when the liabilities exceed the assets whereas commercial insolvency is when a business cannot pay debts when due. In both instances, you can initiate voluntary liquidation.

  1. Who Can Initiate the Voluntary Liquidation of a Company?

The board of directors can, by means of a special resolution, call for the winding up of the firm, which they submit to the CIPC and notify the affected parties. This process is quick and straightforward. With this process, the chances of liquidation enquiries are slim, and the creditors are not notified upfront. They receive notification with the filing of the resolution, which can put them at a disadvantage in getting money owed to them.

  1. Liquidation of a Company Through a Court Order

The alternative is to apply to court. In this instance, a creditor, employee, shareholder, or company itself can apply. The court appoints a liquidator who oversees the winding up process. A public auction is held to sell the assets. The liquidator sees to the distribution of the proceeds according to the requirements of the law. The residue of the proceeds go to the shareholders according to the legal order of preference.

  1. Legal Aspects to Keep in Mind with Voluntary Liquidation

Here are some legal aspects you will need to be aware of:

  • The immediate suspension of legal proceedings already in place against the company.
  • Voiding attachment of assets and judgment execution against the firm.
  • Legal proceedings are revived within four weeks after the liquidator has been appointed. The liquidator must receive three weeks’ notice of this reviving. If not done, the proceedings are considered as abandoned.
  • The Master of the Court is in charge of the assets until the liquidator’s appointment.
  • Any lease agreements stay in place, but the liquidator must decide within 90 days of appointment whether or not to terminate the agreement.
  • Employees cannot render services to the firm during the period. Their contracts terminate automatically at 45 days after the liquidator has been appointed, even if the liquidator failed to terminate the employment agreements.
  • Employees can only receive unemployment benefits during the winding up period.
  1. Decide on the Last Day of Trading

As soon as you have initiated the resolution for winding up the firm, you need to decide on the last day of trading. You must keep to this date because any income thereafter is for the benefit of the creditors. If you continue trading, you put creditors at risk, and it can be seen as reckless management.

  1. How to Protect Employees

Discuss the issue with employees and their representatives. If it is not possible to keep the firm by means of business rescue or another solution to bring it back to solvency, you need to discuss retrenchments with the employees. Keep in mind they are also creditors. Give them support in finding new employment with letters of reference and time to attend job interviews. Contact us to discuss options on how to keep business going with our insolvency attorneys.

  1. Who Are the Affected Parties in the Voluntary Winding-Up Process?

Any creditor with a claim against the business is an affected party. SARS, employees, suppliers, and contractors are all creditors. The order of preference is determined by law.

  1. Tax and Voluntary Liquidation of a Business

You must submit the tax returns to SARS, who will perform an assessment and will initiate a claim against the liquidated estate for outstanding taxes.

  1. What if a Director Signed Surety for the Firm?

If the business entered credit agreements in the past, the creditors may have required that the directors sign surety. If this is the case, the directors will also have to sequestrate unless they can pay the claims against the firm.


You have two options. The first is the special resolution and the second entails a court application. Discuss the two options with our insolvency attorneys. Get professional help in determining the best course of action for the voluntary liquidation of a company. Complete the secure and obligation-free online assessment form for winding up your firm.

Disclaimer: This article is for informational 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.