Liquidation is a legal process whereby a business is closed and the assets are sold to pay back creditors. Liquidation generally occurs when a company faces financial challenges and is no longer able to meet their financial obligations. While the process might seem incredibly overwhelming, liquidation offers companies the chance to pay off their debt and recover financially.
At Francois Uys Inc. Attorneys our seasoned legal experts have decades of experience when it comes to navigating liquidation laws. Our team works closely alongside our clients to find the best possible solutions for their financial problems.
If you are looking to close your company, our experienced team of insolvency lawyers are ready to help you liquidate your business quickly and effectively so that you can regain financial freedom. We’re always available to help and answer any questions and urge clients to make contact early so that we can work towards achieving the best results.
Understanding Liquidation in South Africa
Under South African Law, liquidation can be understood as a formal process whereby a company or close corporation (CC) is dissolved because they cannot meet their financial obligations. Liquidation is mainly governed by the Companies Act 61 of 1973 and the Companies Act 71 of 2008. During the liquidation process, a liquidator is appointed to oversee the entire process including the sale of all business assets. The proceeds are then distributed to various creditors according to a pre-determined hierarchy.
In South Africa, any company that cannot pay their liabilities within a 6-month period must begin liquidation proceedings. The failure to do this can lead to criminal charges, as revealed within the Insolvency Act 24 of 1936. This law is in place to ensure greater levels of financial responsibility and to ensure that creditors are protected.
Since liquidation law can be so complex, many myths exist, Below we aim to debunk some common liquidation myths.
- Liquidation is optional
If you are part of a closed corporation or a director and cannot foresee being able to repay your creditors within the next six months, you are legally obligated to liquidate the business. Failure to comply to this legislation is a criminal offense since businesses are not allowed to legally operate when they are insolvent.
- Liquidation results in personal liability for directors
While many might think that the liquidation process leads to the personal liability of directors, this is not the case. South African law does not impose personal liability even if an individual’s company is liquidated. Therefore, directors are only held personally accountable if there is evidence of any misconduct, including reckless trading, fraud, or negligence. If a company’s directors are shown to have acted in good faith, they will generally not face personal financial consequences.
- The liquidation process cannot be stopped
The liquidation process can be stopped depending on the unique situation and the timing. A director of the company might be able to apply to the court to rescind the liquidation order if they can show evidence that their financial issues have been resolved and they have made an agreement with their creditors.
Contact Our Liquidation Specialists at Francois Uys Inc. Attorneys
Over the past three decades, Francois Uys Inc. Attorneys has supported thousands of clients through this complex process, ensuring that they achieve a smooth transition and work towards effective debt resolution. Our experienced team is ready and available to assist you as you navigate the liquidation process. Get in touch with us and let us help you safeguard your financial future and handle insolvency issues with the latest legal insights and know-how.
