What is liquidation?
Ever wondered ‘What is Liquidation’ and what it entails? Because we were flooded with numerous Business Owners seeking information pertaining to the Process of liquidating a Business, we decided it will be a great idea to write an article about what Liquidation is and what the process entails.
AN EXPLANATION OF THE LIQUIDATION PROCESS
Is your Business in Serious Financial Distress?
If your company is in serious financial distress and there are no options for the business to restructure the debt or undergo the debt rescue process, as well as no chance for financial investment, the company must be liquidated because a company may not continue to trade if it is insolvent, in terms of the
Companies Act No. 71 of 2008.
There're no assets left in the business. Can I still liquidate the company?
Even if it lacks adequate assets to ensure that all creditors are paid, the business must halt operations and undergo liquidation. To that end, it is critical to gain a greater grasp of the liquidation process in South Africa.
What does the Liquidation Process entail?
Below, we will provide a quick overview of the specific components of the liquidation process to give you a better understanding of declaring your business bankrupt.
Liquidation by way of directors' resolution
When you or your board of directors decide to declare bankruptcy, you must determine the last day of trading. Any subsequent trading will be for the benefit of the creditors. As a result, it makes sense to stick to the date and cease all trading with the company entity on that date.
What happens once the company has been liquidated?
A liquidator will be appointed to oversee the winding-up process, which will also include an asset and debt assessment.
What will happen with the assets in the liquidated company?
The liquidator will sell the assets, with the revenues going to the creditors in the order of secured, preferred, and unsecured creditors.
What will happen to the company once it is liquidated?
The company will cease to exist if it is liquidated in South Africa, and your employees will be laid off as part of the process.
What will happen to the directors of the company once it’s liquidated?
You will lose your directorship in the company. A director's legal financial standing remains unaffected unless they sign surety for any of the company's debts, in which case they are also accountable for those debts in their personal capacity.
What will happen to the employees of the company?
Will legal action stop against the company?
Creditors can pursue further legal action against the company once the decision to liquidate has been made and the processes have begun, whether through a court application or the CIPC Liquidation Process, by submitting their claims to the liquidator against the liquidated company.
Who will deal with the creditors once liquidity is affected?
The liquidator will handle any outstanding debts, and creditors will have to wait for the assets to be sold before receiving any payments.
What happens with contracts signed prior to liquidation?
For any contracts prior to the liquidation, the liquidator must decide whether to fulfil the contract's requirements. If the liquidator does not decide on the topic, it is assumed that the liquidator has opted not to perform according to the contract's requirements.
What will happen to the lease agreements?
The same is true for lease agreements prior to liquidation. The liquidator must decide whether to proceed with the lease arrangement or not. The lease agreement and rent are still in effect until the liquidator reaches a decision.
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