Liquidation is the process whereby a company or close corporation is wound up due to it not trading actively or its inability to continue trading in the normal course. The liquidation of a company will put an end to the juristic entity’s existence.
When winding up a company or close corporation that is not a solvent company, the old Companies Act, 61 of 1973 shall be applicable. The old and new Companies Act, 71 of 2008 are both applicable in the winding up of solvent companies or close corporations.
For ease of reference this article will deal with voluntary liquidation when the company is solvent, and a consequent article will explore the winding up of an insolvent company.
Winding-up of solvent companies and deregistering companies
The new Companies Act, 71 of 2008 makes sufficient provision for the winding up of solvent companies and therefore this act is referenced when dealing with this specific manner in which to wind a solvent company up. The old Companies Act does also make provision for winding up of solvent companies and therefore the application for liquidation will also make reference to the old Companies Act.
Section 79 of the New Companies Act provides that a company may be dissolved by either
- Voluntary winding up initiated by the company as contemplated in section 80 of the act, which provides for winding up initiated by the company’s creditors, or by the company, having passed a special resolution to do so, or
- Winding up and liquidation by Court Order as contemplated in section 81 of the act.
Voluntary winding-up of solvent company in terms of Section 80 of the act.
The act provides as follows:
“(1) A solvent company may be wound up voluntarily if the company has adopted a special resolution to do so, which may provide for the winding-up to be by the company, or by its creditors.”
The section provides that the resolution passed in terms of this section should be filed together with the notice and filing fee and together with same in most circumstances, a security should be filed with the Master for satisfaction of any possible debts that may arise within 12 months of the liquidation. In some instances, this security may be dispensed with by the Master on application of the company. This will be in circumstances where the company has no debts.
The voluntary winding-up of a company begins when the resolution of the company has been filed with CIPC. After such filing, the Commission must promptly deliver a copy of it to the Master. The company remains a legal entity and retains its powers as such while being wound up voluntarily; but it must cease trading except to the extent required for the beneficial winding-up of the company; and the powers of the company’s directors cease, except to the extent specifically authorized.
Winding-up of solvent companies by court order
In terms of Section 81, a solvent company may be wound up by Court if:
- The company has resolved by special resolution to wind up, or applied to Court to have the company would up by Court Order; or
- The Business Rescue Practitioner approaches the Court to wind the company up as there is no prospects of successfully rescuing the company; or
- One or more of the company’s creditors have applied to Court to wind the company up; or
- The company, a director or shareholder has applied to wind the company up due to a deadlock of sorts by the directors or shareholders; or
- Application by a shareholder or the CIPC for winding up due to the improper actions of a director or person in control of the company or the company as a whole.
According to section 343 of the old Companies Act, the process is largely similar in that a Court may wound up by Court or voluntarily. A voluntary winding up may be done by members or creditors. Similar to the new act, a special resolution to the effect is passed by the company. The further factors in this section is not relevant to the voluntary winding up process and will not be elaborated on in this article.
Once your attorney has drafted the affidavit in support of the application for voluntary liquidation of your company, a shareholder or director or whomsoever has the requisite authority will commission same. The application is then issued at Court and thereafter lodged at the Master of the High Court for it to indicate the amount of security it requires. The application is hereafter served on all interested parties, which include the company itself, employees of the company, Trade Unions representing the employees, SARS and all known creditors.
Once service has been properly affected, the matter will be properly enrolled at Court for hearing. Once the order for winding up is granted, the order shall similarly need to be served on all relevant parties
What happens when the company is liquidated, who pays the costs?
Section 342 of the old Companies Act, describes what happens to the assets and costs of winding up as follows:
“(1) In every winding-up of a company the assets shall be applied in payment of the costs, charges and expenses incurred in the winding-up and, subject to the provisions of section 435 (1) (b), the claims of creditors as nearly as possible as they would be applied in payment of the costs of sequestration and the claims of creditors under the law relating to insolvency and, unless the memorandum or articles otherwise provide, shall be distributed among the members according to their rights and interests in the company.
(2) The provisions of the law relating to insolvency in respect of contributions by creditors towards any costs shall apply to every winding-up of a company.”
Our offices are happy to assist should you wish to properly wind up a company that you are a shareholder by making use of the voluntary liquidation process.