The Process

Under current South African law, the winding-up of solvent and insolvent companies is governed by different legislation. Solvent companies are regulated by the Companies Act, while insolvent companies fall under the Insolvency Act 24 of 1936 (Insolvency Act) and the Companies Act 61 of 1973 (Old Companies Act). This guide focuses on the winding-up of insolvent companies.

Liquidation or winding-up is a process involving the realization of a company’s assets through private treaty or public auction to cover the costs and expenses incurred. After settling these expenses, remaining funds are distributed to creditors according to their prescribed order of preference and their rights and interests in the company.

The criterion for placing a company in liquidation is its inability to meet its debts as they become due. Liquidation can occur either voluntarily, through a resolution passed by the board of directors, or through a court application initiated by the company itself (requiring a shareholders’ resolution), a creditor, or a shareholder. Typically, a court application is based on the company’s inability to meet its debts. This application is made under oath in the court where the company is registered.

The process may vary across different regions, but typically involves an initial application for a provisional winding-up order. Subsequently, on the return day, usually about six weeks later, an application is made for a final winding-up order.

Before the application hearing, the applicant must ensure that a copy of the liquidation application is provided to the company, its employees, any registered trade unions representing the employees, and the South African Revenue Services (SARS). Proof of this notification must be provided to the court.

Upon granting a winding-up order, the process is backdated to when the application was presented to the court. If liquidation begins through a resolution, it commences upon registration with the Companies and Intellectual Property Commission (CIPC) established under the Companies Act.

Once a provisional winding-up order is granted, it must be delivered to the same parties as mentioned above. Additionally, the court usually orders publication of the provisional order in English and Afrikaans newspapers in the area. The court may also require sending the order to all known creditors. The Master of the High Court (Master) appoints provisional liquidators, with consideration given to creditor support and potential inclusion of previously disadvantaged individuals.

Following the final winding-up order, the Master calls a meeting of creditors for claims submission and nomination of final liquidators. This first meeting typically occurs within six to eight weeks after final liquidation and is published in the Government Gazette. Creditors may also prove claims at subsequent meetings if necessary. Claims are supported by affidavits and necessary documentation, with only submitting creditors benefiting from fund distribution.

The liquidator’s role is to administer the company’s affairs, realize all assets, and distribute proceeds to creditors according to preference. This process usually takes between six months and two years, depending on the company’s complexity.

Trading ceases upon liquidation unless continued trading benefits all creditors, requiring court or creditor/shareholder approval.

The liquidator must lodge a liquidation and distribution account with the Master within six months of final appointment, with subsequent accounts submitted every six months until completion. The Master approves accounts after advertising for creditor inspection and addressing objections if any.

Once confirmed, the liquidator distributes available funds. If creditors contribute due to asset insufficiency, it becomes payable.

Upon complete winding-up, the Master notifies CIPC, leading to company dissolution and publication in the Government Gazette.

Ranking of creditors is crucial, distinguishing between secured, preferent, and concurrent creditors based on security, preference, and payment order.

The liquidator’s remuneration is usually governed by tariff in the Insolvency Act, varying based on asset class and realization percentage.