Liquidation
A company or close corporation can be liquidated when it is factually or commercially insolvent. Factual insolvency is when a company's liabilities exceeds its assets and it is subsequently unable to pay its debts as they fall due. When a company's assets exceeds its liabilities, but is still unable to pay its debts, the company is said to be commercially insolvent.
When a company is liquidated it will result in the realisation of the company's assets in order to pay its creditors.
Liquidation proceedings are not to be used to enforce payment of a debt that is disputed on reasonable grounds. Therefore, a creditor must be able to prove the claim against the company is a liquid claim which cannot be disputed.
Grounds for Liquidation
The following are the most prevalent grounds for the liquidation of a company:
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A special resolution is passed by the company for its winding-up (liquidation)
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The company is unable to pay its debts - this can be demonstrated in one or more of the following manners:
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a demand for payment has not been met;
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a nulla bona return has been obtained either to the effect that the Sheriff did not find sufficient disposable property to satisfy a judgment or that the disposable property found did not upon sale satisfy the judgment debt;
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it is proved that the company is unable to pay its debts;
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When it is just and equitable to liquidate the company.
Who can bring an application for liquidation?
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The company itself - with a resolution of the general meeting;
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One or more of the company's creditors, including contingent and prospective creditors;
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the Master of the High Court;
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The provisional and final judicial manager of the company;
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The Minister of Trade and Industry.
The Liquidation Process
The following is the scenario when liquidation proceedings are instituted by a creditor:
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The creditor must send a notice to the company informing it of the creditor's intention to liquidate;
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If no response is forthcoming, the creditor will proceed with an application to the High Court for a provisional liquidation order;
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If the provisional order is granted, the court will issue a return date to enable any party to oppose the application if they wish to do so;
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If the court finds, on the return date, that a proper case has been made out by the applicant/creditor, no valid defence has been raised and the company is in fact insolvent, the provisional liquidation order will be made final and the liquidation of the company can commence.
Contact B Gouws Inc. Attorneys today for assistance with liquidation proceedings.
