The volatile economic climate in South Africa has left companies with no alternative but to consider either voluntary liquidation or voluntary deregistration when there are no further prospects of trading, and business rescue is not a viable option.
VOLUNTARY DEREGISTRATION
The Companies Act, 71 of 2008, provides for instances in which a company may be deregistered. In practice the two most frequent instances of deregistration are either by voluntary application, or due to failure to pay annual returns whereby a company is placed in “AR final deregistration”.
In terms of Section 82(b)(ii) of the Companies Act 71 of 2008 a company that has ceased to carry on business, has no assets or, because of the inadequacy of its assets, there is no reasonable probability of the company being liquidated, may apply to CIPC, in the prescribed manner and forms,to be deregistered.
Application requirement for voluntary deregistration:
An application must be submitted to the Companies and Intellectual Property Commission (“CIPC”) to successfully proceed with voluntary deregistration. The following documents should accompany such an application:
- Tax clearance certificates (as proof that no returns are outstanding);
- Copy of Identity Documents of the representative of the company;
- Completed application form.
The CIPC will notify the relevant parties as soon as the application has been processed and confirm deregistration of the company.
Effect of the deregistration
Once a company is deregistered, it loses its ability to trade and it no longer has the juristic capacity to be a party in litigation proceedings. This effectively means that a deregistered company cannot take legal action against a debtor, and creditors cannot take further legal action against the company.
If a party wishes to reinstate a deregistered company, they can make an application to the CIPC or apply to court for reinstatement.
It is important to note that deregistration does not absolve former directors, shareholders, or any other individual from their liability for any actions or omissions that occurred before the company was deregistered. These liabilities can still be enforced as if the company had not been removed from the register.
VOLUNTARY LIQUIDATION
When deciding on voluntary liquidation the main factors to consider are whether the company owns assets and whether it has liabilities.
To apply to have the company placed in voluntary liquidation, a special resolution along with the required documents must be submitted to the CIPC, alternatively by way of a court application.
Once the CIPC places the company in voluntary liquidation, a liquidator is appointed by the Master of the High Court. The liquidator will then carry out the necessary administrative duties to finally wind up the company.
The administrative duties will typically include the realizing of assets, approving claims, drafting of liquidation and distributions accounts and making dividend payments to creditors (if applicable).
The appointed liquidator has the authority to initiate litigation on behalf of the liquidated company. Alternatively, a creditor can, on notice to the liquidator, proceed with litigation against the company in liquidation.
It is vital to seek advice from legal experts when considering voluntary deregistration or voluntary liquidation. The appropriate process to follow will depend on the specific facts, financial position, and circumstances of the company.
By Eloise Cilliers | Senior Associate at Barnard
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