Frequently Asked Questions

In short, a Company is Liquidated when it can no longer pay its debts as they fall due. This is the test as to whether a Company should be Liquidated or not. The Liquidation process includes the sale of a Company’s assets (if applicable) in order to repay Creditors. If there are no assets in the company then the creditors do not receive proceeds from the sale of assets and this debt is written off 100%.

All company structures except for Sole Proprietorships. In South Africa, a sole proprietor refers to a person who possesses and operates a business, without any legal separation between the owner and the business itself. This is the most basic business structure, in which the owner is entirely accountable for all debts and liabilities of the business, potentially affecting personal assets. All earnings are declared as the owner's individual income for taxation reasons. For this type of company structure, sequestration is recommended. Sequestration writes off up to 75% of the debt owing by the sole proprietor. Certain assets may be affected by this process and so talking to an insolvency practitioner is key in making an informed decision.

A Sole Proprietorship is a business owned and run by one person, with no legal distinction between the owner and the business itself. This means the owner receives all profits, makes all decisions, and is personally responsible for all business debts and liabilities, potentially putting their personal assets at risk. It is the simplest business structure to establish and operate, with the owner paying personal income tax on the business's profits. Sole Proprietors will therefore apply for Sequestration if they are insolvent instead of Liquidation.

Secured Creditors have a claim against a specific company asset as security and are paid before unsecured Creditors. Examples include banks, leasing companies, and other lenders. Preferent Creditors have debts that are given preference and are paid before concurrent Creditors in a liquidation. Examples include employee claims and tax liabilities. Unsecured Creditors have claims that are not backed by collateral and are paid after secured and Preferent Creditor. s Examples include customers, suppliers, service providers and contractors Concurrent Creditors are paid from any remaining assets after Preferent and Unsecured Creditors have been paid. Shareholders are concurrent Creditors. All Creditors are paid from the sale of assets in the business or are written off 100% if the company does not have assets.

A Liquidation cannot write off business debt where personal surety has been signed. In this case the representative of the company that signed surety is now personally liable for that debt. A payment arrangement can be made to settle the personal surety with the creditor concerned. Alternatively, if the outstanding surety results in the individual becoming insolvent then that individual can apply for Voluntary Sequestration. Voluntary Sequestration writes off 75% of the debt owing. The remaining 25% can be paid off over 18-24 months.

The Liquidation of a Company is actually dependent on the co-operation of the client. The Provisional Liquidation order can be obtained in 5 days if the client provides the required documentation as it becomes due. The Provisional Liquidation order is regarded as the start of the process and the date of the Provisional Liquidation Order is also the date of the Final Liquidation Order, once certain administrative duties are finalised and confirmed by the Master of the Court. The Provisional Order puts an end to legal action by unsecured creditors. Legal action by Secured Creditors or where personal surety is signed can still commence. What is the difference between a Provisional and Final Liquidation Order? After the Provisional Liquidation Order is granted a Liquidator is appointed to meet with the Creditors to finalise claims. Assets (if applicable) must be sold and distributed to the Creditors in the application in line with their priority in law. Once the above is finalised, a liquidation and distribution account - called and L&D Account - is submitted to the Master of the court for approval. Once approved the Final Liquidation Order is granted. The Final Liquidation Order is back dated to the Provisional Liquidation Order's date. The above process takes 12-18 Months to complete depending on how complex the administrative duties are. This is affected by the number of assets, employee claims, creditor claims and debtors in the application - if applicable.

The cost of a Liquidation is dependent on various factors and also the attorney costs. Solvendi can obtain a Liquidation Order for as little as R10,000.00 - R15,000.00 depending on various factors. It is unlikely though that the costs will exceed R30,000.00 unless specialised legal advice and assistance is required. What factors affect the costs: Company Compliance with CIPC. You cannot liquidate a company that is de-registered, annual returns not up to date, or where the beneficial ownership certificate is completed. The company must either be reinstated or the annual returns and beneficial ownership certificate brought up to date. This will incur additional costs. Complexity of the application. Sale of Assets, Employee Claims, SARS Personal Liability, Creditor Judgements and Personal Surety will affect the cost of the Liquidation.