In South Africa, the liquidation, dissolution, or winding-up of a company is not limited to instances of financial distress but includes both voluntary and compulsory processes as outlined in the Companies Act 71 of 2008.
The terms ‘liquidation,’ ‘dissolution’ or ‘winding-up’ are consequential processes usually associated with a company that is unable to pay its debts. There is a common misconception that, only when a company is financially distressed (or unable to pay its debts), it must begin with liquidation proceedings. However, in South African law the Companies Act makes provision for the winding up of solvent and insolvent companies.
Voluntary liquidation is governed by Sections 79 to 80 of the Companies Act 71 of 2008 and Compulsory Liquidations is governed by Sections 81 of the Companies Act 71 of 2008 and Chapter 14 of the Old Companies Act 61 of 1973.
Voluntary Liquidation
Voluntary liquidation can either be initiated by a company’s directors or by its shareholders, or by way of Court Application. A member’s voluntary liquidation is initiated through a special resolution and the required documents are filed at the CIPC. The date for voluntary liquidation will be deemed to be the date when the special resolution is registered with the CIPC.
Compulsory Liquidation
Section 344 of the Companies Act provides grounds for when a company may be wound up by Court. The application to court is made by way of Notice of Motion and an accompanying affidavit, by a person with the necessary locus standi (someone with the right or capacity to bring an action or to appear in the court) to institute the liquidation proceedings.
When issuing the Application, the court documents must be served on various parties such as trade unions, employees, the Master of the High Court, SARS, the registered and business address of the company and interested parties as provided for in the Companies Act.
The liquidation application can either be opposed or unopposed and the hearing of the matter will be determined by the relevant practise directives and rules of Court. After the granting of a liquidation order, the company’s property is initially under the custody of the Master until a liquidator is appointed, and the company may not continue with its business proceedings.
The Master of the High Court is authorised to appoint a liquidator of the company who will attend to the administration of the estate. The liquidator must then convene a meeting with creditors, realise the assets, proceed with advertisements, and distribute funds to creditors as per the liquidation and distribution agreements.
Are you facing the complexities of liquidation or business rescue in South Africa? The experienced team at Barnard is here to guide you through every step of the process. Whether you are dealing with questions of voluntary or compulsory liquidation, our legal experts provide comprehensive advice and handle all necessary legal requirements under the Companies Act 71 of 2008. We understand the intricacies involved, from filing special resolutions with the CIPC to navigating court applications and the appointment of liquidators. Contact us today for expert assistance in liquidation and business rescue.
by Eloise Cilliers | Senior Associate