If your company is in severe financial trouble, with no option for business restructuring or rescue and without hope for financial investment, you will have to liquidate it. According to the Companies Act No 61 of 1973, a company may not keep on trading if it is insolvent. Even if it does not have sufficient assets to ensure all creditors receive their benefits, the company must cease trading and enter business rescue or liquidate. To this end, it is imperative to get a better understanding of the liquidation process in South Africa.

Below, we briefly explain specific aspects of the liquidation process in South Africa, giving you a better understanding of what is involved.


Once you or your board of directors have decided to liquidate the firm, you must decide on the last day of trading. Any trading thereafter will be for the benefit of the creditors. It thus must make sense to keep to the date and stop all trading from the business entity on that date.

A liquidator will be appointed to oversee the winding up procedures, which will also entail an assessment of the assets and the debts. In addition, the liquidator will sell off the assets and the proceeds will be used to pay the creditors according to their status of secured, non-secured, and preferred.

With liquidation in South Africa, your firm will cease to exist. You will no longer have any director powers in the firm and your employees will be retrenched as part of the process. Understanding what this means is important, as the correct retrenchment procedures must be followed. Therefore, it is best to seek legal guidance the moment you consider liquidation of the firm to ensure the correct procedures are followed right from the start.

Once the decision to liquidate has been made and the proceedings initiated, whether by means of a court application or the appointment of the liquidator, no creditor can take any further legal action against the company. This means all debts due will be handled by the liquidator and the creditors must wait for the sale of assets to receive their benefits.

With regards to contracts in which the company was involved before the liquidation was initiated, the liquidator must decide whether or not to perform on the requirements of the contract. Should the liquidator fail to make a decision on the matter, then it is taken that the liquidator has decided not to perform on the requirements of the contract. The same applies to the lease agreement. The liquidator must decide within 90 days (three months) whether or not to go on with the lease agreement. The lease agreement and rent due remain in place until the liquidator makes the decision regarding the lease agreement.

It is also important to understand which creditors are paid first and how the directors are affected. For one, the legal financial status of a director is not affected unless they have signed surety for one of the company’s debts, in which case they are also liable for those debts.


Avoid costly mistakes and delays in winding up your company. Reach out to our experienced insolvency attorneys for help in understanding and initiating the process in South Africa.

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.