The Process of Voluntary and Involuntary Liquidation
As a business owner, when you register a new company, your initial thought would be that your business will become a success, but despite the hype that lasts for a few months, or even a few years, the market can be cruel towards your business. It is especially also true with regards to your business failing, because of any unforeseen situations that may have occurred, which you couldn’t prevent whatsoever.
Primarily due to the internet, which has boasted entrepreneurial tendencies for a lot of individuals, both young and old, people are deciding to create new businesses every day, and it’s resulted in more new businesses being created, than ever before.
However, when these businesses do poorly, and due to a lack of financing, has depleted all its alternative financial resources, it’s recommended that business owners or creditors, apply for liquidation.
These cases are generally referred to as voluntary and involuntary liquidation.
What is liquidation?
The process surrounding liquidation is when a company voluntarily decides to declare itself as insolvent or in the case of when a creditor of the company brings their application to court, to declare the company insolvent, which is also referred to as involuntary liquidation.
The result of being identified as insolvent, merely means that the company isn’t allowed to proceed with operations within the business.
According to section 79 to 83 in the Companies Act, No. 71 of 2008, there is a procedure which follows both voluntary and involuntary liquidation.
The process of voluntary liquidation
It takes a lot from a company to decide that they can’t move forward with their business and most likely must close it. According to section 80 of the Company’s Act, it is required that company shareholders should adopt special resolutions, to indicate that they voluntarily agree to the winding up of a company.
Liquidation allows for the company to make payments within a 12-month period, which commences after the start of winding up the company. During this period, the company isn’t allowed to conduct any means of business, whatsoever.
The process of involuntary liquidation
This type of liquidation requires a procedure that must be followed when a company gets wound up, due to an application by a creditor of the company. Section 81 of the Company Act explains this procedure.
When a creditor/ shareholder of the company, chooses to apply for a liquidation order, the court grants a provisional liquidation order, that results in a company receiving the opportunity to oppose it.
If the company, however, does not oppose it, the court will grant the order to be made as a final liquidation order.