A Step-by-Step Guide to Liquidation Process in South Africa

Winding up a business in South Africa, whether solvent or insolvent, is possible through Liquidation. The Liquidation strategy provides an opportunity to cease your business operations and to sell your business assets to settle the debts. You can also Liquidate if you do not have assets in your business. In this article, we have formulated a step-by-step guide to the Liquidation process in South Africa. Let’s dive in!

Liquidation: A Brief Introduction

Liquidation, in general terms, would mean turning solid into liquid. In economics, Liquidation refers to converting your business assets to cash. Now, if you choose Liquidation, your business operations will cease to exist and your creditors will collect their debts through liquidated assets.

A business in South Africa would consider Liquidation if there are no other ways to pay debt other than liquidating a company. In other words, Liquidation implies that a business has debts it cannot pay through other means.

Generally, businesses in South Africa consider Liquidation as an exit strategy if the business is making a loss and there are debts to pay that the assets cannot cover. Such companies are referred to as insolvent companies and Liquidation is often a go-to option for them, before bankruptcy.

Then there are solvent companies that just want to wind up their operations and pay off their debts that they cannot pay through other means.

Generally, the decision to liquidate a business in South Africa is viewed as an exit strategy once the business can no longer pay it's bills.

A Step-by-Step Guide to the Liquidation Process in South Africa

Let us understand this in detail in this step-by-step guide to the Liquidation process in South Africa.

Decision to Liquidate the Company

There are two types of Company Liquidation process.

Voluntary Liquidation

Voluntary Liquidation means a Company’s Directors make a decision to liquidate a Company. This process requires a special resolution passed by the board of Directors or Shareholders.

A company may consider Voluntary Liquidation in two scenarios.

• The company is solvent and wishes to wind up its affairs by paying off creditors; or

• The company is insolvent and the debts are piling up with no relief in sight.

  
  

Compulsory Liquidation

A Compulsory Liquidation involves submission of a court application either by business creditors or Shareholder(s) of the Company. In this process, the court exercises the power over the process of Liquidation.

In Compulsory Liquidation, a business is forced to cease its operations and the assets are liquidated as per the court’s order and supervision, done via an appointed liquidator.

Creditors often consider going for Compulsory Liquidation after they exhaust all other possible options to recover the owed money.

The Liquidation Process begins with an Application

The application for initiating the Liquidation process is made on affidavit under oath. This is usually done in the court that has jurisdiction in the area where your company has a registered address. This application is generally made to procure a Provisional Order of winding up (liquidate) a business.

Notice of the Liquidation is sent to SARS, Employees, Creditors, and Shareholders

Notification and Publication

Before the court hearing on the application (Provisional Order), the applicant has to send out the copies of it to all relevant parties. They may be as follows.

• Application to the Company, the employees of the Company, and any registered trade union that represents the Employees of the Company.

• The South African Revenue Service (SARS).

• Creditors or Shareholders.

You will require a proof of doing so before attending the hearing on the application. Alternatively, you may also submit the proofs during the hearing.

The Provisional Order and The Final Order

Once a court grants a winding-up order, the resolution gets registered with the Companies and Intellectual Property Commission (CIPC) under the Companies Act. This marks the formal beginning of the Liquidation process.

Once the court passes the Provision order, copies of it must be delivered to the same parties we have noted above. Furthermore, it has to be published in a local English and Afrikaans newspaper.

Now, a provisional order is a temporary order. This is a period of setting things in stone before the actual Liquidation happens. During this period, The Master of the High Court will appoint liquidators. The selection is based on creditor’s support.

The creditors will have a meeting with the appointed liquidators. to lodge their claims.

There are two meetings to finalise claims and to make sure all parties are satisfied and in agreement

Meetings and Creditor Claims

Meetings are where creditors prove their claims to recover their money. If there are no assets, and as long as personal surety was not signed by the representative of the company, all creditors are written off and receive no proceeds. This also includes SARS if they have not already proceeded with a judgement against the Directors and Shareholders of the company.

There are a couple of meetings to finalise these claims and to make sure all parties are satisfied and in agreement. These meetings will also be published in the Government Gazette.

The liquidator then proceeds to sell all the assets and distributes the proceeds to creditors depending on the order of preference.

This entire process usually takes about six months to two years in South Africa, depending on the complexity of the matter and the assets - if assets exist.

Distribution of the Proceeds of Assets between Creditors

Within six months of being appointed, liquidators have to lodge a first L&D account (Liquidation and Distribution). The Master has to approve the L&D account. Upon approval, the L&D account will lie open for inspection for a period of not less than 14 days. This is where creditors can assess the distribution of assets and lodge claims or complaints if there are any.

If all the assets have been liquidated and there are no unresolved issues, the Master will confirm the L&D account after the expiry of the open inspection period. After such, the Liquidators must give notice of confirmation of the L&D Account in the Government Gazette.

With unresolved issues, the liquidators lodge a new L&D account every six months with revised distribution of assets until the winding-up process is complete.

Once the account is confirmed, the Liquidators will distribute funds that are available for distribution. Upon a successful Liquidation, the Master will send a certificate to CIPC and a copy to the liquidator. CIPC keeps the records of such dissolution of the companies and publishes a notice in the Government Gazette as well.

Contact an Business Liquidation Practitioner before considering Liquidation

Final Words

Liquidation, while it may appear simple on paper, is quite a tedious process. This step-by-step guide was written with the intention of providing basic information to our readers regarding the liquidation process in South Africa.

If you are looking for legal assistance regarding liquidation, or dissolution of your company via any other means, we will be glad to assist you. For solid and sound legal advice on Liquidation in South Africa, give us a call.

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:

National: 087 220 0710

Head Office: 010 880 7589

Email: consultations@solvendi.co.za 

Website: www.solvendi.co.za