F.A.Q - Liquidation

What is the process of liquidating a company or close corporation?
Liquidating a company or close corporation is a difficult decision, but it can be a necessary step to limit financial losses or bring a business to an end. Voluntary liquidation may be sought if the company is unable to pay debts, if liabilities exceed assets, or if the directors cannot agree on how to manage the company.

Voluntary liquidations can be dealt with informally without court involvement, but it's advisable to seek legal assistance to avoid personal liability for debts. When a company is placed under liquidation, a liquidator is appointed to manage the process and sell off its assets to pay outstanding creditors.

There are two types of voluntary liquidation: solvent and insolvent, and the process for each varies considerably. Fees for liquidation services vary depending on the specific needs of the client, and can range from R10,000 to R45,000.

Once a company goes into liquidation, all legal actions against the company are halted immediately. Any attachment made by creditors against the company after the start of liquidation is considered null and void. The directors or members of the company lose control of the company and a liquidator is appointed by the Master of the High Court to handle all the company's matters.

During a company liquidation, the liquidator is responsible for managing the company's assets, paying off its debts and distributing any remaining assets to the company's stakeholders.

The liquidator also has to ensure that the liquidation process is conducted in accordance with the relevant laws and regulations. Additionally, the liquidator must provide regular updates to the relevant stakeholders regarding the progress of the liquidation.

The Liquidator is appointed by the Master of the High Court by way of Requisitions received by Creditors. The Master of the High Court could also make a discretionary Appointment.

The liquidator is appointed by the Master of the High Court, either through requisitions received from creditors or at the discretion of the Master of the High Court. The liquidator is responsible for managing the company's affairs during the liquidation process, which includes handling assets, paying off debts, and distributing remaining assets to stakeholders.

The employees' contracts with the company will be terminated immediately upon liquidation. However, they will have a preferential claim against the insolvent estate of the company for any outstanding salaries owed to them.

This means that the employees' claims for unpaid wages will have priority over other creditors' claims. The liquidator will be responsible for ensuring that the employees are paid their outstanding salaries from the company's remaining assets.

Employees have preferential claims for payment after creditors who hold security on bonds over immovable properties. The preference of their claims is determined as follows:

• Salaries or wages, up to a maximum of R12,000, for a maximum of three months.
• Leave pay accrued in the year of insolvency or the previous year, up to a maximum of R4,000.
• Any payments due for any other form of paid absence for a maximum of three months prior to the date of insolvency, up to a maximum of R4,000.
• Severance or retrenchment pay, up to a maximum of R12,000.
• Contributions payable by the insolvent company as employer in respect of any employees to any pension, provident fund, medical aid, sick pay, holiday, unemployment, training, or any other similar scheme, up to a maximum of R12,000.

Any amounts due to the employee over and above the monies for which the employee has a preferential claim become a concurrent claim, which means that the employee will stand in line with the creditors who do not hold security.

A requisition is a form that a liquidator sends to creditors, asking them to support his or her application to the Master of the High Court for appointment as liquidator.

The requisition typically contains information about the liquidator's experience and qualifications, as well as the reasons why the liquidator should be appointed to handle the company's affairs during the liquidation process.

Creditors can submit a requisition at their discretion if they wish to support a particular liquidator's application for appointment. However, it is advisable to first find out from the liquidator whether there is any chance of contribution towards the insolvent estate. If a contribution is levied after the creditor has submitted a claim, they may be required to pay it to the insolvent estate.

1 to 6 months: Appointment of Liquidator

• Provisional sequestration/liquidation Order is granted
• Potential Liquidators/Trustees lodge requisition within 48 hours of court order
• Master of the High Court appoints Provisional liquidator/trustee
• Provisional Liquidator/Trustees take control of assets
• Provisional Liquidator/Trustees mail 1st circular + claims forms to all known Creditors

1 to 6 months: First Meeting of Creditors

• Final Sequestration/liquidation order is granted
• Master convenes 1st Meeting of creditors/or Liquidators in case of CC.
• First meeting takes place

2 to 6 months: Second Meeting of Creditors

• Provisional Liquidators/Trustee comments on assets
• Master of the High Court issues final certificate of appointment
• Liquidators convene 2nd meeting
• Advertisement appears in newspaper + 2nd report is sent to all known Creditors

3 to 6 months: Special Meeting to Prove Claims

• 2nd Meeting takes place (prove claims)
• Special Meeting to prove of late claims (if required)

1 to 12 months: Lodgment of Liquidation and Distribution / Contribution Account

• Lodge Liquidation Account with Master or apply to lodge
• Master inspects account and issues query sheet
• Liquidators/Trustee replies to A queries

1 to 12 months: Pre-Confirmation of Liquidation and Distribution / Contribution Account

• Once all A queries are deleted, Master grants permission to advertise the Account
• Place advertisement & send circular regarding inspection period to all proved creditors
• Account lies open for inspection at Master & Magistrate’s office
• If account lies free from objection, Master confirms account
• Dividend payments are made according to confirmed account.

After a liquidation, your obligations may include attending a meeting with the appointed liquidator, fully disclosing all assets to the liquidator, and assisting the liquidator as much as possible.

It is important to cooperate with the liquidator and provide any information or assistance they may need to properly handle the affairs of the company during the liquidation process.

The liquidation process for your company or close corporation typically takes between six to twenty-four months to finalize. It is important to note that the administration process generally does not require your personal involvement, except for fulfilling certain obligations such as attending meetings with the liquidator, fully disclosing all assets to the liquidator, and assisting the liquidator to the best of your ability.

The Liquidator's fees are determined by a schedule in the Insolvency Act, which outlines the percentage of the sale of different types of assets that the Liquidator will receive. For example, for the sale of immovable property, the Liquidator will receive 3% of the sale price, for the sale of movable assets, the Liquidator will receive 10% of the sale price, and for cash in the estate, the Liquidator will receive 1% of the amount.

If a Company is Liquidated and has no assets, the Liquidator may still incur expenses to wind up the estate, and in these cases, it is recommended that the Director or Member of the Company pay the Liquidator's fees and expenses. If there is a contribution payable and it is not paid, the Liquidator may sue the Director or Member for the outstanding amount.

If the Liquidator decides not to pursue legal action after the Liquidation Order has been granted, it is possible for you or someone else to negotiate with the Liquidator to purchase the right from the Insolvent Estate to pursue the legal action privately.

The cost of acquiring this right would depend on the likelihood of success and the potential damages involved in the legal action.

The purchase price could range from a nominal amount to a significant sum of money.

The Master of the High Court is an institution that acts as a legal guardian for insolvents, minor children, and the estates of deceased persons. Guardians, trustees, liquidators, and executors all report to the Master when carrying out their duties.