Get Answers on Questions About Voluntary Liquidation

Is your business struggling? Do you have to deal with mounting debts, the inability to pay employees on time, and a lack of funds to order stock? Do the liabilities exceed the company’s assets? If so, consider voluntary liquidation as a solution. Every day you keep trading in the insolvent state, you add to the problem. As a director/CC member, you have a responsibility to the creditors, your employees, and shareholders to minimise damages.

To help you make an informed decision, we answer some of the pressing questions about voluntary liquidation in South Africa.

 

What is The Difference Between Voluntary Liquidation and Business Rescue?

in debtVoluntary liquidation is the process whereby your firm applies to be liquidated. If the company is solvent, it applies via a special resolution to have the firm liquidated and de-registered at CIPC. Where it is insolvent, the process entails a court application, whereafter a liquidator is appointed to handle the winding up process that entails selling the assets and paying the creditors from the proceeds of sale. The process can take anything from six months to two years, depending on the complexity of the company’s assets, operations, and debts.

Business rescue is a legal process whereby a business practitioner is appointed to oversee the process of bringing the company back to a place of solvency. It is an alternative to liquidation, but specific requirements must be met, best viewed here.

 

Why Not Just Wait for The Creditors to Apply for Compulsory Liquidation of The Firm?

If the creditors have to apply, you can be sure that it will be a hostile process. They will be less keen to discuss issues. In most instances, the creditors are reluctant to liquidate debtor companies because of the legal costs involved. They are more likely to bring execution steps through an appointed sheriff, which means the firm will still have debts to pay afterwards while without many of its assets. Hostile liquidations are usually only pursued when the debtor companies have sufficient assets, enabling the creditors to recoup the money owed.

 

What Are the Effects of the Voluntary Liquidation?

The assets are liquidated and the proceeds of sale are used to pay out the benefits to the creditors. The liquidator and legal costs are paid. You cannot dispose of assets or property after the winding up process has started. All attachments enforced against the business entity after the winding up process has started are void. No shares may be transferred after the winding up process has started. As directors or CC members, you are no longer in control of the company management. The Master takes custody of the company’s assets until the liquidator has been appointed, who then takes custody.

 

How Long Does the Voluntary Liquidation Process Take to Complete?

The answer is not straightforward, as it depends on factors, such as the complexity of the company’s assets, organisational structure, and debts. However, protection against creditors is almost immediate. It takes between four and six weeks from the date of liquidation instruction to obtain a provisional liquidation order and have the details required published in the Government Gazette. From that moment on, your firm will not have to pay creditors or deal with them.

They deal directly with the insolvency attorneys and must wait for the appointment of the liquidator and distribution of benefits. To complete the process can take from six months upwards. The appointment of the liquidator takes time, which is part of the reason for the lengthy process. The good news is that you will, for the most part, not be involved, as our attorneys and the liquidator will handle the process.

 

Is it Possible for Creditors to Oppose the Voluntary Liquidation Application?

Yes. If they believe that you are simply using the process to avoid your debt responsibilities, they can oppose it. The application and required documents are available for their inspection. Use the online assessment form to determine if your company qualifies for voluntary liquidation in South Africa.

 

Do We as Directors Have Obligations During the Voluntary Liquidation?

Yes. Once the liquidator is appointed, the insolvency attorneys set up a meeting, which you will have to attend. This is important, as you are familiar with the debts of the company and can help the liquidator to validate claims from the creditors. You must disclose all the debts and creditors. Give your full cooperation during this time. It is not an interrogation, but a meeting. You will have to attend the creditor meeting as well. This will be held at the Magistrate or the High Court. This is not a court appearance, but a straightforward meeting. Should any creditor attempt to interrogate you at the meeting, you will have the right to call in legal representation.

 

How Long Does the Liquidator Take to Wind up the Company?

This depends on the debtors of your company. If the liquidator has to take steps against debtors, then the process can take anything from six months to several years. As a general guide, you can work on 6 to 18 months. However, the process is mostly handled by the liquidator without any involvement from the company directors.

 

What Happens If I Forget to Include a Creditor in The List?

If you have not done so on purpose, you can ask the court to condone the fact that you have excluded the creditor by mistake. If, however, you owe a large sum to a creditor, but fail to disclose it, then it can become an issue. You will need to inform the creditor that you have excluded them. Consult with our attorneys on the matter to minimise the risk of oversight.

 

Do We Have to List Creditors of The Company from Whom We Have Not Had Any Communication for A Period More Than Three Years?

The debt can only have prescribed if the creditor did not take judgment against the company and there has not been communication regarding the debt for a period of three years. Not being listed at a credit bureau does not mean that the debt has expired. Judgments in the magistrate court are valid for up to 30 years while those in the High Court do not expire. The debt could have been sold in the meantime. Do not assume that debt is written off. Rather consult with our insolvency attorneys on the matter.

 

What Happens to Assets Registered in The Company’s Name, But Which Do not Belong to The Company?

The fact that a vehicle is registered in the company’s name does not automatically make it company property. Several factors are considered. For one, did the company pay for it or did you as the director pay for it from your income? Did the company pay for the insurance, service, and repairs? Did the company pay for licence renewal? Who used the vehicle? It is thus possible to keep an asset if it is possible to prove that it belongs to you and not the company. Consult with our attorneys on the matter.

 

What About Debts and Assets in Other Countries?

According to the Cross Border Act, your company’s voluntary liquidation in South Africa includes the debts owed in other countries. You must notify those creditors about the liquidation within the required time. The creditors in the other countries have the same claim rights as those in South Africa. The assets in other countries are included in the voluntary liquidation. The liquidator can apply at the relevant courts for the liquidation to extend to the assets in those countries. You thus have to declare those assets and debts as well.

 

What is The Cost of The Liquidator?

The liquidator is paid a percentage of the sale of the immovable and movable assets, as well the money in the company’s estate. If the company does not have any assets, then the money is to be paid by the directors of the company to have the process commence.

 

Until When Can Creditors Take Legal Steps Against the Company?

They have the right to do so until the court has awarded the voluntary liquidation of the company’s estate.

 

What Happens to The Legal Actions Brought Against Debtors of The Company After the Liquidation Order Has Been Granted?

The liquidator can decide whether or not to proceed with those legal actions. If the liquidator does not want to do so, you can negotiate for the right to proceed. You will then buy this right, which can be from as little as R1 to millions in rands, depending on the particular legal action.

 

Where to Find More Information

Consult with our insolvency attorneys on how to proceed with voluntary liquidation in South Africa.

 


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.

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