Voluntary liquidation in South Africa

Voluntary Liquidation of a Company

NIHANN VAN ROOYEN

Snr. Associate | Attorney

NATASHA DE ACHADINHA

Jnr. Associate | Attorney

Stats SA recently reported a sharp rise in liquidations, including voluntary liquidation, in the second half of 2020 as the coronavirus lockdowns continues to squeeze life out of South Africa’s economy into 2021. A study of the report by, Business Tech, showed that the total number of liquidations increased by 27.4% in the third quarter of 2020 compared with the third quarter of 2019, and a year-on-year increase of 54% was recorded in September 2020. Voluntary liquidations increased by 65 cases.

The process of liquidation involves a company (or close corporation) ceasing all trading activities, selling its company assets and then distributing the proceeds to its creditors. Voluntary liquidation is an option where a company is not able to pay its creditors as the necessary payments fall due, and the shareholders or members of that business then choose to voluntarily liquidate or wind-up their operations.

So, how does voluntary liquidation work?

There are two options for the voluntary winding-up of a solvent business.

  1. The voluntary winding-up of a solvent company

A solvent business can be wound up voluntarily if the shareholders or members have adopted a special resolution to do so.[1] This resolution must be filed with the Companies and Intellectual Properties Commission (CIPC)  with a prescribed notice and fee.[2] Once filed, the winding-up can take place.[3]

Part of the resolution process involves arrange Security with the Master of the High Court to satisfy the payment of the company’s debts within no more than 12 months after the start of the winding-up of the company. The company can also apply to the Master for consent to dispense with the security requirement.

Once the CIPC provides the Master of the High Court with a copy of the filed resolution and notice, a liquidator can be appointed.[4] The liquidator will assess the value of the assets of the business, arrange meetings with creditors, sell assets, and then distribute the proceeds to the creditors accordingly.

  1. Liquidation by court order (on an application by the company)

The second route to voluntary liquidation is made possible when a company makes an application to the court, in terms of which the owners have made a special resolution for the court to voluntarily wind up the company.[5]

If the application is accepted by the court, a provisional liquidation order will be granted, and the company’s creditors can then be notified of the liquidation application and the court date. Those creditors are then given an opportunity to object. Those objections must be dealt with before proceeding.

If no objections are received, the provisional liquidation order can be made a final order of court. As with the other voluntary option, a liquidator is then appointed to assess the value of the assets of the business, meet with the creditors, sell the assets, and distribute the proceeds to all the creditors.

What happens next?

Once the affairs of the company have been completely wound up, the Master of the High Court must file a certificate of the winding up of the company with the CIPC[6] and the Commissioner then records the dissolution of the business and removes the name from the register of companies.[7]

Bear in mind, the company is only officially dissolved on the date on which its name is removed from the companies register.[8] This dissolves the legal personality of the business.

The removal of the company name does not affect the liability of any former director or shareholder – or any other person in respect of any act or omission that took place before that company was removed from the register.[9] So, at any time after a company has been dissolved, the liquidator or another person with an interest can apply to a court for an order declaring the dissolution to have been void, or any other order that is just and equitable in the circumstances. If the court voids the dissolution, any proceedings may be taken against the company as may have been taken if the company had not been dissolved.[10]

Discussing the option of voluntary liquidation

It is important for the directors, members or shareholders to carefully consider the legal options available to them. An experienced commercial attorney can assist you with all the considerations, steps and details involved in whichever route you choose to take. This includes applications and the procedures to be followed for voluntary liquidations, including the drafting of applications and attending to your matter in court.

Our team is ready to support and advise your business through the voluntary liquidation process. Direct any queries regarding voluntary liquidations to nihann@barnardinc.co.za or natasha.da@barnardinc.co.za.

 


[1] The Companies Act 71 of 2008 (hereafter “the new Companies Act”) section 80.

[2] The new Companies Act (n1 above) section 80(2).

[3] The new Companies Act (n1 above) section 80(6).

[4] The new Companies Act (n1 above) section 80(7).

[5] The new Companies Act (n1 above) sections 81(1) and 81(4).

[6] The new Companies Act (n1 above) section 82(1).

[7] The new Companies Act (n1 above) section 82(2).

[8] The new Companies Act (n1 above) section 83(1).

[9] The new Companies Act (n1 above) section 83(2).

[10] The new Companies Act (n1 above) section 83(3).

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