Introduction

Corporate entities such as companies and close corporations can be liquidated in terms of the old and new Companies Act. Both Acts provide for compulsory and voluntary liquidations.
Once a corporate entity has been placed in liquidation the Master of the High Court will appoint a Liquidator to take over the affairs of the entity.

Compulsory Liquidations

A compulsory liquidation is a formal court process by which, in most cases a creditor will apply for the liquidation of the corporate entity. This process is generally followed by a creditor when it becomes evident to the creditor that the company is unable to pay its debts. Once a creditor has obtained the court order for liquidation it is important that it ensures that a competent Liquidator is appointed in order to manage the affairs of the company and administer the winding up process.

This is important as the liquidation order itself does not ensure the payment of the debt. It is imperative that the Liquidator diligently performs his duties in order to ensure that a recovery is made and that the assets are realised for the benefit of creditors.

Voluntary Liquidations

Both the old and new Companies Acts provide for a voluntary liquidation of corporate entities. This process is different from a compulsory liquidation in that it is mainly driven by the shareholders of the company. This is usually an alternative to a Business Rescue, especially in cases where the corporate entity has reached a financial state where it is impossible to restructure its affairs so that it can trade profitably.

The procedure is also different as it requires formal documentation to be completed which will be submitted to the Companies and Intellectual Property Commission (CIPC) for registration. Once the CIPC registers the voluntary liquidation the company will then be deemed to be in liquidation. The formal Certificate from the CIPC will then be submitted to the Master of the High Court for the appointment of a Liquidator.

In many instances the winding-up procedure that is followed by the Liquidators in a compulsory liquidation would be applied in the voluntary liquidation.