Understanding the process of voluntary liquidation

Recent reports have highlighted the comparative increase in company liquidations, including voluntary liquidations, during the second half of 2021. The statistics showed that the liquidations commenced in the third quarter of 2020 were 27.4% higher than the third quarter of 2019, which shows the apparent damage of the pandemic on our current economy.  Of particular concern is that a large majority were voluntary.

1. The voluntary closure of a solvent business

Shareholders or members may adopt a special resolution to wind up a solvent business. This resolution is filed with the CIPC and requires a prescribed notice and fee. Once this is placed successfully, the winding-up can commence.

This process involves arrangements with the Master of the High Court to conclude payments for all company debts within 12 months of the company’s winding up. Once the CIPC has provided the Master of the High Court with the filed resolution notice, a liquidator can be appointed to assess the value of business assets and distribute the proceeds accordingly.

2. By court order or company application

This route of company liquidation occurs when a company makes an application to the court under a special resolution for the company’s winding up. If the court accepts the application, a provisional liquidation order is granted. Thereafter, creditors are notified and given the opportunity to object.

Objections must be dealt with before liquidation can proceed. In the event of no objections, the order can be finalised. A liquidator can then be appointed to assess the business’s assets, meet with creditors and distribute proceedings to relevant creditors.

Once all company affairs have been successfully wound up, the Master of the High Court will file a certificate with the CIPC to certify the company’s liquidation. Thereafter the Commissioner will record the business’s dissolution and remove its name from the register. Once the name is removed from the companies register, it is legally dissolved.

This removal does not impact the liability of former directors or shareholders. This means that the liquidator or another party may apply for a court order to declare the dissolution void. Should this occur, proceedings against the company may be taken normally.

Directors, members or shareholders should carefully consider their available legal options, including that of voluntary liquidation. Considering all factors and details involved in this process is essential to ensure it is the best move for your company.

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