In Pinfold v Edge to Edge Global Investments Ltd [2013] ZAKZDHC 52, the plaintiffs demonstrated fraudulent activity by providing false information and the winding-up order was upheld. In Knipe v Kameelhoek (Pty) Ltd (2012) ZAFSHC 160, the Court held that a company is solvent even if it is not liquid if its fair valued assets exceed actual liabilities. It is imperative to take responsible action to save a business unit, as employees are involved and depend on the company for their revenue. However, if it is not possible to restructure the transaction to a solvent state, it is your responsibility to minimize the risk to creditors. To this end, apply for the liquidation of your business. In addition to Article 22 of the Law on Joint Stock Companies, which obliges the director or directors to liquidate a company that cannot pay its debts, the psychological burden on the director must also be taken into account, as well as wise financial decisions. If the company does not have equity, it is not to your advantage to liquidate it. In the event of liquidation, you may withdraw only 20 cents of the rand for debts owed. Debt collection should come first. Again, caution is advised as this can result in a permanent gap between your business and the debtor. Consider the amount owing. Is it enough for your business to become insolvent because of the unpaid amount? If this is the case, this is reason enough to initiate a debt recovery procedure. The delisting of a corporation from the CIPC is also known as liquidation.
In this regard, a solvent entity is terminated, and the simplest way to terminate it is to remove it from the CIPC. Assets and liabilities must be sold before write-offs can take place. This usually takes between 90 and 150 days. Regardless of which party has applied for the liquidation of the company, the purpose of the proceedings is that, through the appointment of a liquidator, the assets are disposed of by public auction or private agreement, so that the proceeds can be used to settle creditors` claims in accordance with the statutory preferential arrangement. Liquidation provides an opportunity to get rid of all problems and get on with business, usually without worries or fears. Immediately, the company has better cash flow because you don`t have to pay creditors. In this way, the company has a chance of survival (if it wants to continue), whereas without liquidation, it does not. The Companies Act 2008 does not fully provide for the dissolution and liquidation of a company in financial difficulty.
Instead, the Companies Act 1973 continues to apply. Schedule 5, section 9 of the Companies Act 2008 states (in italics): It is also important to understand which creditors are paid first and how directors are affected. On the one hand, the legal financial situation of a director is not affected, unless he has signed a guarantee for one of the company`s debts, in which case he is also liable for these debts. The liquidation of a solvent company may also be initiated under the Companies Act 71 of 2008 and certain sections of the Companies Act 61 of 1973. Section 81 of the 2008 Act provides that liquidation may be commenced if: The company must first make a special decision indicating that it wishes to be wound up. He must then file a special resolution form CM 26 with the Companies and Intellectual Property Commission (CIPC). Once this is done, the application for liquidation of the company can be filed. Below, we briefly explain the specific aspects of the liquidation process in South Africa and give you a better understanding of what it is all about. A company may be wound up either in the High Court or in the offices of the companies.
The application for liquidation of the High Court is costly and takes some time. Liquidation in the company`s offices is fast and cheaper. A person who wishes to liquidate an insolvent business may do so by appealing to a competent court. Whatever the economic reasons for a decision to liquidate a company, creditors, shareholders and directors must be aware of the consequences. The liquidator, not the directors, has control and makes decisions about almost every aspect of the corporation – taking into account what is in the best interests of all creditors – not the liquidating creditor. The liquidation process involves the realization of a company`s assets by auction or otherwise in order to repay creditors. With the court`s application for liquidation, the board of directors or shareholders sign an agreement on the approval of the dissolution of the company. The application is made to the Master of the Court, and security is provided for the company`s debts. The appointed liquidator acts as a public official for a private company/company in liquidation and is responsible for the tax affairs of that entity as part of the liquidation process.
The liquidator is also the representative taxpayer of the company/private company in liquidation. Liquidating a company may seem like a daunting decision, but in most cases, it`s in the best interest of shareholders and directors. One of the advantages of being a shareholder is the protection of limited liability. A company has its own legal and financial identity. In most cases, when a corporation is liquidated, the outstanding debt is forgiven and shareholders are not held personally liable for the corporation`s debts. Determine if you have signed a debt guarantee, because as a director, you will then have to pay or sequester the debt. If you sequester, you may no longer be a director of a corporation until your estate is restructured. Remember that only if you follow CIPC`s delisting procedures can you subsequently apply for the company`s reinstatement in its legal form and only if the company is solvent.
If the company has been liquidated by the request of the court, it is no longer a legal person and therefore does not exist. According to section 22 of the Companies Act, the director of a company is obliged to liquidate the company as soon as he is unable to pay his debts. For this reason, a company does not need to own assets to be liquidated. If a director does not liquidate the company, if the company cannot pay its debts but continues to act, the director may be held personally liable for the debts of the company, even if no security has been signed. Compulsory liquidation begins with an application for a provisional liquidation order. Subsequently, the parties will be informed of a return date so that all parties wishing to oppose the liquidation can do so. If, on that return date, the court finds that all relevant rules and regulations have been complied with and that the company is effectively insolvent, it will issue the final injunction and the liquidation of the company will begin. As a general rule, the competent court is the court in whose territory the company has its registered office. Alternatively, liquidation can be initiated by a judicial request from the company`s creditors, the company itself or the shareholders, known as compulsory liquidation. The liquidation or “liquidation” of a business takes place: To determine whether liquidation is the right option, the business must consider what it has to lose other than the right to do business. Directors must also determine whether directors or shareholders are held personally liable for the debts of the Corporation.
This is especially important if money is owed to the South African Revenue Authority (SARS) or if there have been reckless transactions, as directors can be held personally liable for a company`s tax bill. Directors must also consider their obligations with respect to securities that members/directors/shareholders may have signed. First, the powers of directors cease as soon as the corporation is wound up. The liquidator follows in the footsteps of the directors and the directors have no legal authority to represent the company. The company`s suppliers and service providers must deal with the liquidator – not with the directors. Customers and debtors should talk to the administrator about the insolvency of payments, contracts and unpaid deliveries. In the case of contracts to which the company was a party before the start of the liquidation, the liquidator must decide whether or not to comply with the requirements of the contract. If the liquidator does not make a decision on the matter, it is considered that he has decided not to comply with the requirements of the contract. The same applies to the rental agreement.
The liquidator must decide within 90 days (three months) whether or not to continue the lease. The lease and rent due remain in effect until the receiver makes the decision on the lease. Nothing, unless the director has signed a personal guarantee for the company`s debts.