When Must a Company Be Liquidated?
A company must liquidate when it cannot pay any debt of more than R100.
A company must also liquidate if its liabilities exceed its assets.
Take note of the word “must.”
Under Section 22 of the Companies Act 2008, a company is obliged to liquidate when these conditions exist.
If the director does not liquidate the company when required, they become personally liable for the company’s debt—even if they never signed personal surety.
This is never a good situation and should be avoided at all costs. It is far better to liquidate sooner rather than later for peace of mind.
How Liquidation Works.
Liquidation can be Voluntary.
In this case the directors sign documents that we draft and the company is liquidated at the CIPC.
This process takes about one week if you use our services, as we work very quickly.
There is no court involved – you don’t have to court and you do not have to “prove” your case. The directors only need to sign the documentation that we will draft.
The liquidation of a close corporation works exactly the same as that of a company.
Liquidation can be Compulsory.
If a creditor brings a liquidation application against your company, the process is much longer. You can oppose a liquidation application against your company.
Purpose of Liquidation.
Liquidation ensures that a company’s affairs are wound up properly and under supervision by a liquidator.
Without liquidation, creditors can each take separate legal action, creating chaos and potentially destroying the company.
By liquidating, everything is handled in an orderly and structured way:
- Creditors must deal only with the liquidator, not the directors.
- Directors are free from constant harassment and can move on to a new company if they wish.
- The stress and fear of creditor pressure end almost immediately.
Liquidation clears all company debt—including SARS debt—and is often a smart strategic move.
It gives the business a clean slate and, if desired, allows trading to continue in a new entity without the old debt.
Starting the Process.
1. Consultation: Talk to us today. We will explain your options and provide all the information you need to make an informed decision.
2. Documents: If you decide to proceed, we draft the documentation, lodge it with the CIPC, and ensure that all the legalities are complied with and that a liquidator is appointed.
3. After Liquidation:
- You do not deal with creditors (unless you signed personal surety—in which case we can discuss personal sequestration to remove personal debt).
- You can continue to trade in another entity if you prefer.
- You may buy back assets from the liquidator (if any).
Our process and Timeline.
- Once you instruct us, we send a questionnaire for you to complete.
- We issue a statement and arrange for your signature upon receipt of payment.
- You email the signed documentation to us and we lodge it with the CIPC.
- The CIPC registers the liquidation within 3–5 days.
- If you match our pace, the entire process—resolution and registration—can be completed in about one week.
- After registration, the Master of the High Court appoints a liquidator who works independently from us.
- The liquidator’s work typically takes 4–6 months, but may take longer depending on the size and circumstances of the company.
- Once the liquidator’s work is complete, the company is deregistered at the CIPC and ceases to exist.
Management During Liquidation.
Once the directors sign the documentation we draft:
- The company’s bank account may not be used.
- Any income earned after signing must remain in the account for the liquidator.
- After liquidation, directors lose authority and only the liquidator may act on behalf of the company.
After the Liquidator Takes Over.
The liquidator:
- Takes control of all company assets (if any) and bank accounts.
- Notifies creditors and invites them to prove their claims (by submitting invoices, contracts, or certificates of balance).
- Pays creditors only if assets are sold or cash is available.
Creditors who do not prove their claims receive nothing.
If there are no assets or funds, creditors will not receive payment and may even be asked to contribute to the costs of winding up.
Key Takeaway.
If your company cannot pay its debts—or if its liabilities exceed its assets—do not delay liquidation.
Liquidation removes the debt and, importantly, protects you from personal liability.
It provides a fair, orderly winding-up of the business, instead of a slow, painful deterioration that keeps you awake at night.
Liquidate early to protect your sanity and preserve your financial freedom.
Author: Nanika Prinsloo
nanika@nanikalaw.co.za
For more info and email request form, visit Liquidate Your Company
Sam Busa
