Basics Regarding the Voluntary Liquidation of a Company

Unlike with the sequestration of an individual, with the voluntary liquidation of a company, the business does not require cash or assets that are sufficient to ensure sale thereof will be enough to provide for minimum benefit to creditors. If the liabilities of the company exceed the business assets, the business is insolvent and according to the Companies Act, must stop trading.

To determine whether the liquidation of a company is needed, consider whether the company is able to service its debts and pay its salaries and monthly expenses. If not, you should start the application for liquidation of a company as soon as possible. The directors of the company decide which is the last trading day and sign a resolution to the effect. From the last trading day, no more payments may be made to the creditors. Any income generated thereafter forms part of the insolvent estate and may not be used by the business or its directors. Unless the directors have signed surety for the business or have been reckless with the company’s finances, they are not liable for the debts of the company. The liquidation of a company thus does not affect the legal status of the directors.

The directors sign an affidavit that stipulates the reason for wanting to liquidate the company, the history of how it came about, and the debts of the company. A provisional application for liquidation is brought to the High Court, who postpones the matter for 30 days, during which time creditors are notified and have opportunity to bring objections. If no objections are received, the final order for liquidation is given and the company is liquidated. If objections are received and cannot be solved, a trial follows and the court rules on the outcome. Creditors can oppose the liquidation of a company if they can prove that it is not fair and just for the company to liquidate and if they can prove that the company is not insolvent. The company directors do not have to appear in court. Their attorneys bring a motion to court and the directors thus present their application and all the relevant information in writing. It takes a few weeks to have the company liquidated.

Once the applicants give the insolvency attorneys instruction to apply for the liquidation of their company, it takes about 28-42 days before the provisional order is granted. This is then advertised in the relevant newspaper and the government gazette. The final order for liquidation of a company is usually given 30 days after the provisional order has been granted. Note that the full effect of the final order is in effect the moment the provisional order is given. A liquidator is appointed and the process is completed according to the requirements of the Insolvency Act.

The directors must meet with the liquidator and give full disclosure. They must assist the liquidator as required and must attend meetings with the creditors; these are held at the Master of the High Court or the magistrate’s court. These meetings are not interrogations or legal action against the directors; however, directors must attend them to assist the liquidator in identifying valid claims against the insolvent business estate. It is essential to include all the creditors of the company in the application. If a creditor is left out by accident, it is important to notify the creditor.

The winding-up process after the liquidation of a company usually takes about six to 18 months, but it is possible for the process to take years, depending on the complexity of the assets and debts. After the winding-up process, no share transfers can be made, and any such transfers are deemed void. Note that the property of a company under liquidation falls under the control of the Master of the High Court, who hands it over the appointed liquidators. Keep in mind that, if a company had overseas assets and debts, the creditors in those countries must also be notified about the pending liquidation of the company.

Get legal guidance on what to do before and during the liquidation of a company and ensure that you stay on the right side of the law.

 


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 – October 2018.

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