Liquidation of a company happens when the company or close corporation can no longer afford the expenses that it accumulated. It declares itself insolvent. They then begin the process of liquidation. The liquidation could be voluntary or it could be forced. It is in the company’s best interest to voluntarily liquidate itself rather than continuing to accumulate debts and have a creditor force the liquidations through an act of insolvency via the High Court.
A sequestration is the process of voluntarily approaching the High Court with an attorney to apply voluntarily admit that the business is in financial despair and to request if some of the debts that the company owes to some creditors to be written off as the business will not be able to pay their debtors.
Private liquidation of a company does not require a process with the courts. This private liquidation requires the business to sell their assets in order to pay their creditors. The sooner a business decides to liquidate itself, the more manageable the debts would be as they did not continue to accumulate more and more debt. This option is commonly only a short-term solution could place strain on the company’s operations and inevitably negatively impact the company’s profit margins which could in turn increase the financial strain experienced by the company.
Voluntary liquidation, however, is a court application brought in the High Court of South Africa. This allows the business to assess their debts with legal representation. Voluntary liquidation requires that the indebted company place its assets in control of a liquidator who is responsible for identifying the assets create a payment which equally spread their debts. This entire process will need to follow the guide lines set out by the Companies Act the debtor may not pay one creditor more than the other.
There are a multitude of aspects a company need to consider before choosing voluntary liquidation as their course of action. Many of these include possible financial repercussions for the shareholders / owner of the company and thus it becomes essential to make use of a seasoned professional when considering liquidation as a principal option for debt relief. Dreyer Engelbrecht Attorneys is a great partner to assist you with any liquidation and sequestration needs.