Voluntary liquidation is a mechanism within South African insolvency law that allows a business that faces financial difficulties to find relief. This is where an application is made to the High Court of South Africa to place the company under the liquidation process owing to its inability to satisfy its creditors. A company is in a position where it is unable to pay its debts to its creditors as they fall due, the decision may be taken by its shareholders and board of directors to submit the company for voluntary liquidation. The company may be put into this position for several reasons, but the requirements for voluntary liquidation to proceed will remain the same. This article shall provide a brief overview of the requirements which must be present for a voluntary liquidation application to succeed.
South Africa’s insolvency law is regulated by the Insolvency Act No. 24 of 1936; the Constitution of South Africa Act No. 108 of 1996; the Companies Act No. 71 of 2008 and where these pieces of legislation are silent, the common law. Section 80 of the Companies Act sets out the requirements for the voluntary winding up of a solvent company. The first requirement is that the company must have adopted a special resolution that provides for the winding up by the company or its creditors. Secondly, the company would have to be compliant with CIPC (Companies and Intellectual Property Commission) by filing with it the resolution for winding up as well as the prescribed notice thereof and the payment of the fee. Once these steps outlined have been complied with, the Companies Act sees this as the beginning of the winding-up process of a company.
A resolution may provide for the winding up of a company, however before the filing the resolution and notice it is imperative for the company to ensure that it has arranged for security for the payment of the company’s debts to be satisfied within 12 months after the start of the winding-up of the company. However, should the company wish to dispense with the security they must obtain the consent of the Master to dispense therewith. This may only be done if the company has submitted to the Master both a sworn statement by a director authorized by the board of directors stating that the company has no debts, as well as a certificate from the company’s auditors that to the best of their knowledge the company has no debts.
This is merely a brief overview of some of the requirements necessary for the voluntary liquidation of a company.
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