Understanding Liquidation: A Solution for Struggling Businesses in South Africa

Businesses in South Africa are facing numerous challenges including power cuts, tax issues, labour disputes, inflation, and the ripple effects of COVID-19 lockdowns, which are making it difficult for them to survive. The financial strain caused by these challenges can lead to depression, stress, and fear of losing the business for owners. However, there is a silver lining. Business owners can consider liquidation as a way to quickly resolve their financial difficulties and move forward.

If you suffer from stress, fear and worry about a struggling company, we can assist you to get rid of the problem by means of liquidation. Speak to a liquidation attorney today. Contact us now and let us help you.

Section 22 of the Companies act 61 of 1973

It is important to note that liquidation is not a shameful or optional process. According to Section 22 of the Companies Act 61 of 1973, directors have a duty to liquidate a company if the company is unable to pay its debts or when its liabilities exceed its assets (liquidation meaning it is insolvent). This is also a definition of liquidation. Directors and members of a close corporation should know that liquidation is not something to be avoided at all costs but is instead a very important and very necessary step to take when a company cannot pay its debts or if its liabilities exceed its assets. It is also worth noting that a company does not have to own assets to be liquidated, making it a useful tool to liquidate when the time is right.

Some key aspects of Liquidation that you should know

Debt written off

A company liquidation means that any outstanding debts are written off (except for traffic fines and taxes owed in terms of the Customs and Excise Act 91 of 1964. Creditors are prohibited from taking legal action against the company, and any legal action already initiated is halted. After liquidation the liquidator who will wind up the affairs of the company is responsible for handling all communication with creditors. Creditors are required to participate in the winding-up process and are not allowed to pursue legal action against the company

The company ceases to exist

When a company is liquidated, it ceases to exist, and its directors and members lose their legal standing. As a result, they are no longer authorized to access the company’s bank account or make payment arrangements with creditors. Any funds received by the company’s bank account after the liquidation date must be left untouched for the liquidator to distribute to the creditors during the winding-up process.

Lease, hire, finance and other agreements

Liquidation suspends all agreements. The liquidator has the discretion to proceed with agreements, but the chances are slim to zero that a liquidator will proceed with a lease or hire or finance agreement.  If there are other agreements in place where the company will stand to earn more income for creditors, the liquidator may proceed with this agreement provided that the company is in a position to continue to trade to earn more income for the creditors. 

The liability of directors after liquidation

a director is only personally liable for the debt of a liquidated company if the director signed personal surety for the debt of the company. Otherwise the debt is written off, inclusive of SARS debt. Traffic fines and customs excise taxes are not written off by liquidation.

Avoid costly errors

To avoid costly errors or financial losses by trading too long with an insolvent company, rather follow the liquidation process in South Africa.  Please ensure that you only use the services of experienced liquidation attorneys like us.  Contact us today so that we can assist you at in an affordably way with a bespoke plan.