If your company faces insurmountable financial challenges with no options for restructuring or rescue, liquidation might be the only path forward. Under South Africa's Companies Act No 61 of 1973, continuing to trade while insolvent is illegal. Even if your company lacks the assets to cover all debts, it must stop trading, enter business rescue, or proceed to liquidation. Here's a concise overview of the liquidation process in South Africa:The Liquidation Process:
- Decision to Liquidate: Set a final trading day once you or your board decide on liquidation. After this date, any trading must benefit creditors.
- Appointment of a Liquidator: A liquidator is appointed to manage the winding-up process, which includes evaluating assets and liabilities, selling assets, and distributing proceeds to creditors based on their status (secured, unsecured, preferred).
- Cessation of Business: Your company will cease to exist. You'll lose director powers, and employees will be retrenched following legal procedures. Understanding these steps and seeking legal advice early in the process is crucial.
- Protection from Creditors: Once liquidation proceedings start, creditors cannot take further legal action against the company. The liquidator manages all debts.
- Contract Handling: The liquidator decides whether to fulfil existing contracts. If no decision is made, contracts are considered void. For leases, this decision must be made within 90 days.
- Creditor Prioritization: It is crucial to understand who gets paid first. Directors' personal liability only arises if they have signed as surety for company debts.
WHERE TO GET HELP WITH UNDERSTANDING THE LIQUIDATION PROCESS IN SOUTH AFRICA
It is vital to avoid mistakes and delays in your company's liquidation. Our expert insolvency attorneys are here to guide you through the process in South Africa, ensuring you navigate this complex phase with confidence and compliance. Reach out today for personalized assistance in understanding and initiating the liquidation process and taking the first step towards resolving your company's debt issues.
