THE LIQUIDATION OF A COMPANY OR CLOSE CORPORATION

Liquidation is more commonly known as “bankruptcy” of a business. In layman’s terms this terminology refers to the fact that a business is in such a bad financial state that the creditors cannot be paid.

Liquidation refers to the bankruptcy of a company, close corporation or some other legal entity. In the legal process of liquidation the company is placed in the control of a liquidator. It is the duty of the liquidator to realize the company’s assets for the sole purpose to divide the proceeds fairly amongst the creditors. The liquidator must dissolve the legal entity in an orderly fashion.

According to the Insolvency and the Company Law Acts  the “members” of the legal entity may apply for the liquidation thereof. Such members include directors, creditors, shareholders, employees or even investors.

An liquidation application for a company may only be brought at the High Court. In the event of a close corporation the Magistrate’s Court does have the necessary jurisdiction to grant the final liquidation of such corporation. The liquidation order will normally be granted by the Court if the Applicant successfully made out a clear case that the company or close corporation is unable to pay its debts and that it is fair and equitable that the company/corporation be wound up.

What is the procedure that needs to be followed when applying for the liquidation of a company or close corporation? The attorney firstly has a consultation with the Applicant and during such consultation will the attorney advise whether liquidation is indeed the best option in the given circumstances. From the commencement of the process it approximately takes about between four to six weeks before the application is heard in court, unless the application is brought on an urgent basis. The Applicant does not appear in Court; only the legal representatives appear on the Applicant’s behalf. After the provisional order is granted and a return day for the final order is established, the Master of the High Court will appoint a liquidator. The liquidator will then take charge of the legal entity’s affairs. Once a liquidator is appointed the Applicant’s legal representative will set up a meeting with him/her during which the attorney negotiates on behalf of the Applicant with the appointed liquidator. After the provisional order is granted the attorney for the Applicant has to attend to certain legally prescribed formalities before the appearance in Court on the return day. The time frame between the first day of the application and the return day is more or less three weeks.

After the final order is granted the liquidator will realize the legal entity’s assets which fall in the insolvent estate. The liquidator distributes a dividend amongst the creditors.

Written by: Annerine du Plessis

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice.

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