LIQUIDATION OF A CLOSE CORPORATION
Winding-up proceedings of close corporations are governed by the provisions of various South African Legislation including the Close Corporation’s Act 69 of 1984, the Companies Act 61 of 1973 and certain provisions of the Insolvency Act 24 of 1936 and finally by provisions of the Companies Act 71 of 2008. Both a solvent and insolvent close corporation can be liquidated.
WHO CAN BRING THE APPLICATION?
- The corporation itself.
- One or more of the corporation’s creditor’s.
- One or more of the corporation’s members.
- The Master of the High Court.
JURISDICTION
For purposes of winding up, the court having jurisdiction over the registered address of the corporation, being the same address as its principal or only place of business, has the requisite jurisdiction.
GROUNDS FOR LIQUIDATION OF AN INSOLVENT CLOSE CORPORATION
- A demand for payment has not been met.
- A nulla bona return has been obtained in respect of the corporation.
- The corporation is unable to pay its debt.
FORM OF APPLICATION
The application is brought on a notice of motion with a supporting founding affidavit which must state the following:
- The applicant’s particulars.
- The respondent’s particulars.
- Jurisdiction.
- That the respondent corporation is insolvent.
- Grounds for winding up.
- Any relevant facts.
- The advantage to creditors.
- Security for costs of the application has been provided.
- That proper service has been effected.
THE COURT ORDER
On hearing of the application for liquidation of a close corporation, the court may act in the following manner:
- Adjourn the hearing, conditionally or unconditionally.
- Make an interim order.
- Grant or dismiss the application.
- Make any other order it may deem just.
LIQUIDATION OF A COMPANY
The winding up proceedings by the court are governed by the Companies Act 61 of 1973, certain provisions of the Insolvency Act 24 of 1936 and the Companies Act 71 of 2008.
WHO CAN BRING THE APPLICATION?
- The company itself;
- One or more of the company’s creditors, including contingent and prospective creditors, one or more of its members, subject to Section 346(2) of the Companies Act 61 of 1973;
- The Master of the High Court;
- The Provisional and Judicial Manager of the company;
- The Minister of Trade and Industry.
JURISDICTION
For purposes of winding up, the court having jurisdiction over the registered address of the company, being the same address as its principal or only place of business, has the requisite jurisdiction.
GROUNDS FOR LIQUIDATION
- Section 344 and 345 of the Companies Act 61 of 1973 has a complete list of grounds for winding up a company that is insolvent.
- The following are some grounds for winding up:
- A special resolution is passed by the company for its winding up.
- The company is unable to pay its debts.
- It is just and equitable that the company be wound up.
FORM OF APPLICATION
The application is brought on notice of motion with a founding affidavit which must set out the following:
- Full details of the applicant.
- Jurisdiction.
- Insolvency of the respondent.
- Grounds for winding up.
- Any facts that may have a bearing on the exercise of the courts discretion such as security held by the applicant for its claims and assets of the company should be provided.
- That security for costs of the application has been provided.
- That proper service has been effected.
THE COURT ORDER
On hearing of the application for liquidation of a company, the court may act in the following manner:
- Adjourn the hearing, conditionally or unconditionally.
- Make an interim order.
- Grant or dismiss the application.
- Make any other order it may deem just.
VOLUNTARY LIQUIDATION WITH CIPC
A company or close corporation can be winded up voluntarily through the companies and Intellectual Property Commission (CIPC).
THE PROCESS
- The legal process for a liquidation commences with the shareholders of the company passing a special resolution resolving that the company is to be wound-up by means of a creditors’ voluntary winding-up.
- The liquidation process is thus being followed because the company / close corporation being liquidated is insolvent and it is unable to pay its debts as and when they fall due for payment.
DOCUMENTATION REQUIRED
- The shareholders file the resolution together with a statement of affairs in respect of the company with CIPC.
- The statement of affairs must be prepared by one of the directors of the company and takes the form of an affidavit.
- The statement of affairs must contain the following information:
- details of the company’s assets and liabilities;
- whether the company is involved in litigation;
- contact details for each of the company’s creditors and how much each creditor is owed;
- details of any security held by the company’s creditors for the amounts owed to them.
DATE OF LIQUIDATION
The winding – up of the company is considered to have commenced on the date of the registration of the special resolution.
APPOINTMENT OF LIQUIDATOR
- Once the members have received confirmation from CIPC that the company has been registered as liquidated, the special resolution must be registered with the Master who will then appoint a provisional liquidator.
- The liquidator has the power to sell all the assets, assist creditors in proving claims, do the administrative tasks required to wind-up the estate and pay out the proceeds to creditors if the company is insolvent, and/or shareholders if the company is solvent.
- Once the provisional liquidator has been appointed, the legal process for a liquidation continues in a more or less identical manner as where the company or close corporation has been wound up by means of a court application.
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Types of Liquidation
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