Amidst the financial turbulence of South Africa’s economy at present, questions often arise for stakeholders of companies in financial difficulty regarding the mechanisms at their disposal to liquidate the company to realise its assets. Often attorneys are approached to assist with the preparation of voluminous voluntary liquidation applications to the courts when a decision is made to wind up a company – but think again.
A mechanism often overlooked or otherwise unknown which enables a company to be voluntarily liquidated is through an application to the Companies and Intellectual Property Commission (“the CIPC”).
The application requires an array of documents to be submitted to the CIPC, however, the fundamental requirement is the passing of a special resolution by the shareholders of the company agreeing to wind up the company voluntarily, known as a CM26 Form. A resolution from the board of directors approving the winding-up of the company is also required.
Once the application is finalised with the CIPC, it will issue a CM26 Certificate confirming that the company has been placed into final liquidation. This is a massive benefit as the court application route is far more cumbersome and often takes many months before the company is placed into final liquidation.
Thereafter, the company’s creditors must appoint a provisional liquidator through the submission of a requisition form with the Master’s Office (“the Master”). Until such time as two provisional liquidators are appointed, one by the body of creditors and the other being a previously disadvantaged individual appointed by the Master, the control of the company vests in the Master. The Master’s intended appointment will be communicated via notice and later confirmed by a provisional certificate of appointment.
A first meeting of creditors is then convened by the Master whereby, inter alia, the first tranche of creditors’ claims is lodged against the liquidated company, where after the Master will issue a final certificate of appointment. A second meeting of the creditors is then held by the appointed liquidators to facilitate a second tranche of creditors’ claims to be proved. The liquidators will then realise the company’s assets, as well as initiate proceedings to recover debts owing to the company.
Should no unforeseen events or hurdles arise, the voluntary liquidation process takes roughly between 6 – 9 months to finalise, from start to finish.
It is therefore clear that this voluntary sequestration mechanism is not only more efficient than its court application counterpart but is also more affordable. It furthermore enables the stakeholders of the company, should they have sufficient voting powers, to exercise more control over the process – at least in the initial phases until such time as the Master finalises the liquidators’ appointment.
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This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE).