WHAT YOU NEED TO KNOW ABOUT COMPANY LIQUIDATION IN SOUTH AFRICA
How much do you know about company liquidation? In this article, we briefly answer some of the questions about what you need to know about company liquidation in South Africa. For comprehensive information, visit our liquidation section on the topic or complete the online form for an assessment.
WHAT HAPPENS WHEN THE BUSINESS ENTITY IS LIQUIDATED?
The assets are frozen, all civil proceedings against the business entity are stayed, and judgment executions are void if these commence after the liquidation proceedings have started. Once the entity has been wound up, and the creditors have received their benefits, the entity is deregistered with CIPC and ceases to exist.
WHAT DOES THE PROCESS ENTAIL?
The last day of trading is decided. From that date onwards, the entity does not trade any more. The creditors are notified and winding up commences, in which the assets are sold and proceeds are distributed to the creditors. Once done, the business is removed from the Companies and Intellectual Property Commission (CIPC) and ceases to exist.
HOW LONG DOES THE PROCESS TAKE?
The duration depends on the complexity of the firm’s asset structure, debts, size, and more. It can take from six months to two years and sometimes longer to finalise all the required steps before the process is complete.
IS IT POSSIBLE TO REINSTATE A BUSINESS TO ITS FORMER LEGAL STATUS AFTER LIQUIDATION?
Yes, provided it is solvent and only if the correct procedures were followed in deregistering it at CIPC.
WHEN ARE SHAREHOLDERS PAID IF A COMPANY LIQUIDATES?
The secured creditors receive their payments first. Then comes payment to the unsecured creditors, which include the employees. Shareholders are third in line for payment from proceeds if there are any proceeds left.
CAN A DIRECTOR OF THE LIQUIDATED FIRM START A NEW ONE WITH THE SAME NAME AFTER THE LIQUIDATION?
Yes, as there are no laws against it, provided the director informs the creditors and they know about the new business entity.
DO THE OWNERS DECIDE WHO GETS PAID WHEN A FIRM IS LIQUIDATED?
No, they have no control over it. Once the firm enters the process, a liquidator is appointed. This liquidator assesses the debts and, based on the principle of secured creditors first, pays out the proceeds of assets sale in the particular order.
CAN A FIRM LIQUIDATE EVEN IF IT DOES NOT HAVE ASSETS?
Yes. According to the Company’s Act, a business needs to stop trading if its liabilities exceed its assets and if it is unable to pay debts due – regardless of whether the firm has assets or not.
WHAT HAPPENS IF THERE IS NO MONEY LEFT AFTER THE SECURED CREDITORS HAVE BEEN PAID?
The unsecured creditors and shareholders receive only part of their money or no compensation.
ARE DIRECTORS LIABLE FOR THE FIRM’S DEBT?
No, unless they have signed personal surety or guarantee for the firm’s debt. Sometimes, directors sign personal guarantees to purchase much-needed equipment or other types of assets for the firm. In these instances, they become liable for the firm’s debt and, if unable to pay, must sequestrate.
WHERE CAN YOU GET MORE INFORMATION ON WHAT YOU NEED TO KNOW ABOUT COMPANY LIQUIDATION?
Learn what you need to know about company liquidation from legal experts. Reach out for guidance to help your firm liquidate.
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.