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Liquidation and Company Bunkcuptcy

Liquidation:

 

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What is Liquidation:

 

The term liquidation refers to the bankcruptcy of a company or close corporation and certain other legal entities.

The liquidation of a company/close corporation is a legal process whereby the company, and its affairs, are placed under control of a liquidator. The liquidator must realise, and divide, the company assets among its creditors and this must be done per the stipulations of the Companies Act.

The purpose of liquidation is to divide the yield from the sale of assets among the creditors fairly, and to dissolve the company in an orderly manner.

 

When to liquidate:

 

When it is foreseeable that your company / close corporation will not be able to pay its creditors as they fall due in the ensuing 6 months, there is a legal obligation on you to liquidate the company.

 

Solvency and Liquidity test:

 

In terms of the Companies Act of 2008 there is now a solvency and liquidity test. If a company is solvent, its assets, valued, will be equal or exceed the liabilities of the company.

 

The liquidity of a company refers to that company or close corporation being able to pay its debts as they become due in the ordinary course in the period above.

 

Who may apply for liquidation of the company or close corporation:

 

The members of the close corporation or the directors of the company may apply for voluntary winding up of that entity. Further interested parties may include, but are not limited to, the creditors or shareholders of that entity depending on the specific circumstances.

 

Can a new company be set up after the liquidation:

 

Yes, there is no legal prohibition.

 

What is the obligations of the director of the company/ member of the close corporation after liquidation:

 

Assist the liquidator as far as possible – helping them would only benefit yourself as there will be no need for enquiries to be held and would expedite the finalisation of their administration.

 

Liability of Members / Directors:

 

Members and Directors will only be liable for the debt if:

 

  1. They have signed surety on behalf of the company of close corporation;
  2. Reckless and negligent trading.
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