Liquidation

The liquidation of companies in South Africa is regulated by sections 79-81 of the Companies Act 71 of 2008, Chapter 14 of the Companies Act 61 of 1973, and various provisions of the Insolvency Act. A company may be wound up in two ways: 

• By court, often referred to as compulsory liquidation, where an application to court is made either by a creditor (in the case of a company being insolvent) or shareholder (in the case of a company being solvent) of the company.
• Voluntary winding-up by means of a special resolution by the shareholders which must state whether the liquidation of the company is to be conducted by the creditors (often referred to as a creditors’ voluntary liquidation), or by the shareholders. 

Although it is a very hard decision to make, directors of companies that can no longer pay their debts often decide to consider voluntary liquidation in order to have more control over the liquidation process, and to avoid being forcefully liquidated by creditors which can result in even more financial implications.