Westrust

What is the liquidation process in South Africa?

Liquidation in South Africa is the legal process of winding up a company or close corporation, selling its assets, paying creditors, and dissolving the entity. Governed by the Companies Act 71 of 2008, Companies Act 61 of 1973, and the Insolvency Act 24 of 1936. There are two main types: voluntary liquidation (initiated by shareholders through special resolution) and compulsory liquidation (ordered by the High Court). The Master of the High Court appoints a liquidator to administer the process. The typical timeline ranges from six months to two years.

How does voluntary liquidation work for a solvent company?

A solvent company may be wound up voluntarily under Section 80 of the Companies Act 71 of 2008. Shareholders pass a special resolution to liquidate. The company must lodge security with the Master of the High Court or obtain consent to dispense with security. The resolution is filed with CIPC. The company must cease trading except as required for winding-up, and directors' powers cease except as authorised by the liquidator.

What is compulsory liquidation and when does it apply?

Compulsory liquidation occurs when a court orders liquidation on application by a creditor, shareholder, or interested party. The applicant must demonstrate commercial insolvency (inability to pay debts as they fall due) or factual insolvency (liabilities exceed assets). The court grants a provisional order first, then a final order after the return date.

What is the role of a liquidator in South Africa?

A liquidator is appointed by the Master of the High Court to administer winding-up. Duties include securing assets, investigating company affairs, calling creditor meetings, adjudicating claims, realising assets, lodging L&D accounts, distributing dividends, and acting as representative taxpayer. Liquidators must appear on the Master's National List of Insolvency Practitioners.

What is sequestration and how does personal insolvency work?

Sequestration is the South African legal process for individual insolvency, governed by the Insolvency Act 24 of 1936. The court grants a provisional then final sequestration order. The Master appoints a trustee who takes control of the estate, investigates finances, realises assets, and distributes proceeds. Sequestration must be to the advantage of creditors.

What is the difference between liquidation and business rescue?

Liquidation is a terminal process where the company is wound up and ceases to exist. Business rescue (Chapter 6, Companies Act 71 of 2008) is a rehabilitation process to restructure a financially distressed company so it can continue on a solvent basis. A business rescue practitioner develops a rescue plan approved by creditors.

How are creditors paid in a liquidation?

Creditors are paid according to statutory ranking: (1) Secured creditors from proceeds of secured assets, (2) Costs of liquidation, (3) Preferent creditors including SARS and employees, (4) Concurrent unsecured creditors share pro rata. The liquidator prepares an L&D account which lies open for inspection for 14 days before distribution.

How long does the liquidation process take in South Africa?

Simple voluntary liquidations: 6 to 12 months. Standard liquidations: 12 to 24 months. Complex liquidations with litigation or cross-border assets: several years. The liquidator must lodge a first L&D account within six months, with supplementary accounts every six months until finalisation.