Is Your Business on the Edge of Collapse? Find a Way Out – Learn How Voluntary Liquidation Works

Thousands of businesses have suffered financially since the start of the lockdown back in March 2020. Although many came through the worst part of it, others were not so lucky, especially in the hospitality, liquor, and tourism industries. If your business is also hardly keeping afloat, take the time to learn how voluntary liquidation works, as it can mean the difference between ending up with forced liquidation and directors being held responsible for the debt, and being able to start over.


First – Your Company is Not the Only One

in debtPerhaps not a comforting thought, but your business is not the only one suffering now. As many as 216 firms had to liquidate in March 2021 compared to 178 in February 2021. This is according to the Stats SA Report of 26 April 2021. If we compare it with March 2020, the figures indicate a rise of more than 45% in liquidations from the same period last year.

According to an article titled “The businesses hit hardest by liquidations in South Africa right now” by Duncan Vermeulen of the Daily Star (May 25, 2021), there have been 55,3% more liquidations in the first quarter of this year than the same period in 2020.

Most liquidations have been in business services, insurance, financial services, and real estate followed by liquidations in trade, accommodation, and catering while businesses in manufacturing have also been hit hard.


How Does Knowing How Voluntary Liquidation Works Help You?

Knowledge still equals power. If you do not know how the process works, you may wait until it is too late to take the necessary action. Rather than wait for creditors to force your business to close doors, you need to take action. When creditors apply to have your company liquidated, it is normally an aggressive process, leaving your employees out in the cold. And did you know that, by law, a company cannot keep trading if its liabilities exceed its assets and it is unable or likely to become unable to pay its debts when due (within six months)? So, let us learn more on the topic of how it works to help you make an informed decision.


What is Voluntary Liquidation?

Voluntary liquidation entails a process whereby the business announces a last day of trading and then ceases all trading-related activities thereafter. It sells the assets of the business and then distributes the proceeds according to the requirements of the law among the creditors.

If the business is solvent, the shareholders, close corporation members, or directors can adopt a special resolution to wind up the business by filing the resolution with the Companies and Intellectual Properties Commission (CIPC). They do so through the completion of the relevant notice and payment of the fee for such. Thereafter, they can start with the winding up process.

They must arrange for the provision of security with the Master of the High Court for paying the debts of the business within twelve months after they have commenced with the winding up process. Where relevant, a business can apply to set aside the security prerequisite. CIPC gives a copy of the resolution notice to the master and then a liquidator is appointed who has to assess the assets of the business and make the necessary arrangements for selling the assets. Part of this process entails meeting with the shareholders and creditors. Once the assets have been sold and the creditors have received the proceeds, the process can be completed.


Voluntary Liquidation by Means of a Court Order

A business can also apply to court for an order for the voluntary winding up of the business assets. This route is normally followed when the business is insolvent. The directors, shareholders, or close corporation members adopt a special resolution to the effect. They apply to court and, if approved, the court grants a provisional liquidation order.

The creditors receive a notification of the voluntary liquidation application in addition to the court hearing date. They get time to review the details of the application and can object against the voluntary winding up of the business. If all objections have been dealt with or no objections received, the court grants the final liquidation order, and the appointment of the liquidator follows. The liquidator assesses the company or close corporation’s assets, arranges to meet with the creditors, oversees the selling of the assets, and distributes the proceeds according to the requirements of the law among the creditors.


When is the Process Complete?

Once the Master of the High Court has filed a certificate of the business wind-up with CIPC and the dissolution of the entity has been recorded at CIPC, the business is removed from the CIPC register of companies. This brings an official end to the process and means the business is officially dissolved. It is no longer a legal entity.


What About Director or Shareholder Liability?

The law provides that the former shareholders or directors are still liable for acts or omissions that have taken place before the business was officially removed from the CIPC register. It is possible for the dissolution to be voided when a court approves the application by a creditor for such. In this instance, legal steps against the business can proceed as if the business has never been removed from the CIPC register.


Why Get Professional Help?

The duration of the winding up process depends on many factors, including the complexity of the business operations and assets. It can take anything from a few months to years, but fortunately, if you make use of our experienced team of insolvency attorneys, the largest part of the process is handled by them without your direct involvement. They make sure the necessary forms are completed, the correct processes followed, appropriate notices given, and more. They represent you in court and provide you with guidance on how to ensure that you can trade in another entity and how to minimise effects on the employees.

Whether your business is solvent or insolvent, do not delay in seeking legal guidance and professional help with the voluntary winding up process. Our attorneys have dealt with countless voluntary liquidations in South Africa and will help you to avoid costly pitfalls as well.


Get Started

Our insolvency attorneys are here to provide you with legal support and sound advice throughout the process. We have a proven track record of successful voluntary liquidations. As our testimonials page shows, we provide first-class service. With us, you are not just a number. Each client receives personal service.

Complete the online form from the convenience of your office or home for a professional assessment and get in touch for immediate help with voluntary liquidations in South Africa.


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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