Sadly, as the country is slowly recovering from Covid 19, most companies have not recovered from Covid 19 and found themselves unable to make ends meet. The only way out would be to declare the Company insolvent and start with the liquidation process. This article will outline and explain the liquidation process and what it entails.


What is Liquidation

The test for insolvency is when a debtor’s liabilities exceed his assets. The process is known as the inability to pay the debt in terms of Section 4 of the Companies Act.[1] Insolvency is when a company cannot pay its debts or other outgoings on time or in full. In many ways, insolvency can be seen as bankruptcy for businesses.


 Liquidation Process  

To declare a Company insolvent, an application needs to be made by an application to the High Court, having jurisdiction in the area where the Company has its registered place of business. The Company or a creditor brings the application.

When the board of directors have decided to liquidate the Company, the Company will have to decide on the last day of trading or doing business. A liquidator will be appointed to oversee the winding up procedures, which will also entail an assessment of the assets and the debts. In addition, the liquidator will sell off the assets, and the proceeds will be used to pay the creditors according to their secured, non-secured, and preferred status.

When the board has decided between directors to institute proceedings by way of a court application or to appoint a liquidator, the creditors may not take any further legal action against the Company. The Company or the court may appoint an insolvency professional as the official liquidator to take charge of the process. Once the insolvency professional dissolves the assets after assessing the liquidator, the owners will lose their rights once the liquidator takes over. The liquidator will determine all the debt of the Company. Then, the liquidator will distribute all the available funds to the claiming creditors based on their order of priority.


When the dissolution is complete, the Company will be deregistered, and the Company will close down. As a result, many employees will lose their jobs. In essence, this is the liquidation process.

Contact an attorney at SchoemanLaw Inc for your legal needs!

[1]The Companies Act, 71 of 2008.