Solvent Close Corporation Liquidation in South Africa

Since April 2011, Close Corporations (CCs) have not been registered under the Close Corporation Act 69 of 1984 in South Africa. However, existing CCs can still operate and can be liquidated when needed. In this article, we talk about how a Close Corporation can undergo liquidation in South Africa.

Liquidation of Close Corporation in South Africa: What is it?

Liquidating a closed corporation means formally ending its existence, selling off its assets, paying debts, and distributing whatever remains to the shareholders according to their ownership interests. The liquidation process is governed by the Companies Act 71 of 2008, along with the amendments noted in the Close Corporations Act 69 of 1984. In South Africa, a close corporation can liquidate in three ways: Voluntary Liquidation of an Insolvent Company, Voluntary Liquidation of a Solvent Company and Compulsory Liquidation by Creditors.

In Voluntary Liquidation, the members of the Close Corporation unanimously decide to liquidate the company. Here, the company can either be insolvent or solvent and simply wishes to stop trading.

In compulsory liquidation, the court initiates and oversees the procedure. It begins with submitting a resolution to the court, which deems that the company is insolvent.

In this article, we will solely focus on the Voluntary Liquidation of a Solvent Company or Close Corporation.

The members of the close corporation unanimously decide to liquidate the company in a Solvent Liquidation

Solvent Close Corporation Liquidation Process

a. Lodging the Resolution to Wind Up the Company

A solvent Close Corporation can begin by taking a members' vote to liquidate a company. In South Africa, all members must agree to liquidate a company. If all are in agreement, the company will pass a special resolution to voluntarily wind up the Close Corporation.

Upon passing the resolution, the company must file it with the Companies and Intellectual Property Commission (CIPC) by filling the CoR40.1 form along with all necessary documents and other forms. This is best done by appointing a Liquidator as the the relevant documentation must also be lodged with the Master of the Court and must be done promptly as there are late-lodgement penalties if the resolution isn't filed within a month.

According to the Companies Act, Section 80, CIPC requires a CC to set security with the Master of the High Court to settle the company's debts within 12 months from the date that the liquidation officially begins. If the company has no debts, then a sworn statement by the company's director or auditor to declare so. The above processes can become tedious and time-consuming and so approaching a Liquidator to assist in this process may be in the Company's best interest.

b. Appointing a Liquidator and the Liquidator's Role

Upon filing the resolution with CIPC, the liquidation process begins. A Liquidator is then appointed to take control of the property, realise assets, and distribute the proceeds. If the company has already engaged a Liquidator, they can be nominated and appointed to the company by the Master of the Court. Engaging your own Liquidator means that the company can control the costs involved in the process. If the Master randomly appoints a Liquidator, then the company has to pay the fees of the appointed Liquidator and those costs can be out of the Company or Close Corporation's control.

Once the process begins, a CC must stop trading activities except those that benefit the winding-up process. Furthermore, the members' power will cease except to the extent specifically authorised by the Liquidator.

The Liquidator is also responsible for the tax affairs of the CCs during the wind-up

The Liquidator studies the assets and liabilities, collects book debts, settles creditors in the proper order (if any), and distributes any surplus to members according to their interests. The Liquidator is also responsible for the tax affairs of the CCs during the wind-up. Furthermore, he or she is also considered the representative taxpayer of the CC undergoing Liquidation.

As a result, the Liquidator is also responsible for the following.

• Informing SARS of the liquidation of the CC;

• Engagement with SARS regarding the CC;

• Submission of outstanding tax returns;

• Payment of outstanding tax liabilities; and

• Deregistration of relevant tax types after winding up the business.

  
  

All the SARS-related obligations during a CC's liquidation can be found on their website.

Final Words

And that's about it. While CCs may no longer be registered, laws that govern the liquidation process of a Close Corporation in South Africa still exist. For a deeper understanding of these laws, we highly recommend reviewing the Closed Corporation Act 69 of 1984 and the Companies Act 71 of 2008.

The information provided in this article is intended for general informational purposes only and does not constitute legal advice. Readers should not rely solely on this content when making legal or business decisions.

For sound legal advice regarding the liquidation and dissolution of a business, contact our team of expert lawyers today.

Considering Voluntary Liquidation? We have legal experts with 20 years experience that can guide you through the process. Our main aim is to be as informative as possible. Let's Chat.

If you require advice with regards to Sequestration, Business Liquidations, Insolvency, Bankruptcy or Credit Rehabilitation kindly contact SOLVENDI as follows:

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