Once a company is liquidated, legal actions are suspended. Asset attachments are void. The liquidator will proceed or stay with legal action. Legal action refers to any summons, civil judgment, court application, or ongoing litigation are suspended.
If your company is locked in legal action, it is worth considering liquidation as a cheaper and faster way to get rid of the problem. Talk to us during a FREE 15-minute call so that we can give you bespoke legal advice from a liquidation perspective.
Difference between void and suspended legal actions
As we said when a company is liquidated all legal actions are suspended. Attachment of assets are void.
• Void legal actions
Attachment of assets by the Sheriff following a Warrant for Execution is void as soon as the company is liquidated.
The reason for this is because as soon as the company is liquidated, a concursus creditorum is established https://www.empowerlaw.co.za/understanding-concursus-creditorum/
Allowing one creditor to sell a company’s assets would harm other creditors, so it is not permitted after liquidation, hence any attachment is void.
The Liquidator will sell the assets after appointment https://www.empowerlaw.co.za/what-happens-to-company-assets-after-liquidation/
• Suspended legal actions
In terms of Section 359(1) of the Companies Act 61 of 1973, any legal action, whether it is ongoing or must still happen, is suspended as soon as the company is liquidated.
After his appointment the liquidator has the discretion to proceed or stay the legal proceedings. His decision will depend on the legal action and cash flow available to proceed or not.
What happens to suspended legal actions
Section 359(2)(a) of the Companies Act 71 of 1973 states that any creditor who wants to enforce a legal action against a company after liquidation must notify the liquidator thereof in writing and must give three weeks’ notice. This notice must be given within four weeks of the liquidator’s appointment. If a creditor does not give such notice to the liquidator, the claim shall be abandoned unless a court otherwise directs.
Creditors' claims after liquidation
Creditors with claims against the company must prove a claim against the insolvent estate of the company if they want to be acknowledged as creditors. If there is legal action that was started before liquidation, the liquidation will suspend the legal action. If the liquidator can proceed with the legal action and if it is viable, he will. If he cannot, the creditor can proceed to obtain a judgment, but the consequence will only be that the creditor must still prove a claim against the insolvent estate of the company. No creditor can act independently without following the winding up process.