Complete the Online Assessment Form to Find Out if Liquidation is the Solution

Thousands of South African businesses struggle to pay their debts. The recent health crisis and the subsequent lockdown have caused many more to default on their debt payments. Business owners in the tourism and hospitality industries have especially been hit hard during these trying times. Unable to operate from the start of the lockdown period, thousands of businesses had to close doors.


Do You Need to Complete the Online Liquidation Assessment Form?

If your company has been unable to operate during this period and you face the decision of having to close doors, it is essential to start the liquidation process before the creditors apply for the compulsory liquidation of your business. You can start with the completion of an online assessment form to determine whether your business qualifies.


Why Not Just Wait Until the Creditors Apply for The Liquidation of The Company?

liquidationIf the creditors apply for the company to be liquidated, you are in the defence position. The liquidator is less likely to be sympathetic towards the business. However, the Companies Act states that a company must liquidate if its liabilities exceed its assets and the entity is unable to pay its debts due. To this end, it is best to complete the online liquidation assessment form to determine whether your company should liquidate or not. It is possible to place the firm under business rescue if it is in the interest of the public and there is a reasonable chance for it to return to a state of solvency.


What If the Business Does Not Have Any Assets?

A company can be liquidated even if it does not own any assets. Indeed, it is legally obligated to do so once the liabilities exceed the assets and it cannot pay its debts.


What If You Wait in The Hopes That You May Be Able to Rescue the Business?

Unless there is a reasonable chance that the company can be rescued through restructuring that may include retrenchments, the selling of assets, and closure of specific units, it is best not to wait too long. Indeed, if the directors fail to take steps for business rescue or to apply for liquidation of the company, they can be held responsible for the financial situation of the company.

The longer you wait, the more dire the situation becomes. Instead, complete the online liquidation assessment form to determine whether the company should undergo business rescue proceedings or be liquidated.


Understand the Liquidation Process in South Africa

Work with experienced insolvency lawyers who understand the liquidation process and implications. Start the process with the completion of the online assessment form. You will be asked questions, such as whether the company is still trading, whether or not employees have already been retrenched, details of the company directors, whether retrenchment packages have been finalised or are still outstanding, the details of the company’s debt, and more. You can also download the liquidation assessment form instead of completing it online.

Completion of the assessment form, whether online or offline and submitted, helps us to determine the financial state of the company and whether business rescue or liquidation will be the better option. We briefly explain some aspects regarding the liquidation process in South Africa below to help you gain a better understanding of what it entails.

The Companies Act No 61 of 1973 governs the liquidation of insolvent companies in South Africa. The new Companies Act governs the liquidation of solvent companies. We look at the process involved for liquidating an insolvent company.


Available Options

Your company can be liquidated through a court order or voluntarily. To voluntarily wind up the company, a special resolution is filed at CIPC along with the required forms and supporting documentation. The process commences with the filing of the special resolution to the Registrar of Companies who registers the resolution. A copy is also submitted to the Master of the High Court.

The process is rather straightforward and fast. It is also relatively inexpensive. Unlike with voluntary sequestration where the creditors have sufficient time to learn about the intention to sequestrate, with this type of voluntary liquidation, the creditors are disadvantaged as they do not necessarily know with immediate effect that a resolution has been passed to liquidate the company.

In the instance of a liquidation by court order, the directors of the company, the shareholders, creditors, or employees can apply to court for the winding up of the company. The process commences once the application has been submitted to the court.

The master appoints a liquidator to handle the winding up of the company. The process can take several months to complete, and it is expensive as it entails an application to the High Court. If it is unopposed, the process can be completed quickly.

The company directors, shareholders, members of a close corporation, or the creditors nominate the liquidator. However, the nomination must be approved by the master, who has the final decision on who to appoint. The liquidator oversees the winding up process, which includes the sale of assets and distribution of the proceeds according to the requirements of the law to the various creditors.


Implications of The Liquidation

Once the proceedings commence, all legal actions against the company are stayed until the liquidator has been appointed. The creditors can thus not take further legal action against the company during this time. This also means that all attachments, after the liquidation proceedings have commenced against the company’s assets, are invalid.

Creditors, whose claims have been suspended because of the proceedings, must within four weeks of the liquidator’s appointment, provide the liquidator with at least 21 days’ notice before they continue with their proceedings. This notice must be written. Failure to notify the liquidator implies abandonment of the claims, unless a court rules differently.


What Happens to The Company’s Assets If the Appointment of The Liquidator Is Delayed?

The liquidator’s appointment may be delayed, or the liquidator may not be able to commence with duties immediately. During this time, the Master of the High Court is the guardian of the company assets.


What Happens to The Contracts in Place?

With the completion of the online assessment form, you may also have to indicate whether your firm has contracts in place or whether such are in the process of being concluded. The reason is that contracts in place are not necessarily suspended. The appointed liquidator has the responsibility for deciding what to do with such contracts.

If the decision is not made within a reasonable time, then it implies that the liquidator does not intend to keep to the performance requirements of the contracts. The liquidator thus has the final decision as to whether or not they perform according to the terms of a specific contract. The contracting party, however, can cancel the agreement after the company has been liquidated. The contracting party can claim for damages if the liquidator decides not to keep to the performance terms of the agreement.


What Happens to The Firm’s Lease Agreement?

The lease terms stay in place until the liquidator has made a decision to continue or cancel the lease terms. The liquidator must make the decision within 90 days of appointment. The lessor is given written notice of the liquidator’s decision. Where the liquidator does not make a decision or does not notify the lessor within 90 days from appointment, the lease is deemed cancelled by the liquidator.

The rental due on the movable or immovable property is thus payable for the period before a decision has been made and the lessor notified. The money due from the date of liquidation until the decision and notification of such form part of a preferred claim and are thus paid from the liquidation administration expenses.


In Conclusion – Do You Need to Complete the Online Liquidation Assessment Form?

We understand how difficult it can be to close business doors. Our team of experienced insolvency lawyers are here to answer your questions regarding business restructuring, rescue, or liquidation proceedings. We have the legal expertise to guide you through the process. Start by completing the online liquidation assessment form or get in touch for more information.


Disclaimer: This article is for information purposes only and does not constitute legal advice. Call on our attorneys rather than relying on the information herein to make any decisions. The information is relevant to the date of publishing.

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