Introduction
Since the year 2020 I have written many articles on insolvency proceedings covering corporate rescue proceedings and liquidation of companies. In this article I look at provisional liquidation orders and final liquidation orders granted by the High Court.
Liquidation
Liquidation is the process of winding up a company. This is done by selling off the company’s assets and paying its creditors. If there is any residue it is then distributed to the company’s shareholders. Liquidation can be voluntary or involuntary.
Voluntary liquidation of a company
This can be done in terms of section 5 or 9 of the Insolvency Act (Chapter 6:07) or “the Insolvency Act”. Section 5(1)(a) provides for voluntary liquidation of a company by an order of the Court whereby the company passes a resolution for voluntary liquidation and then makes an application to the High Court seeking the Court to grant a liquidation order, essentially to confirm the company’s resolution for voluntary liquidation.
Alternatively, voluntary liquidation can be done in terms of section 9 whereby the company passes a liquidation resolution and subjects the resolution to a vote by the company’s creditors. In this case the High Court is not involved.
Involuntary liquidation
Section 6 of the Insolvency Act applies. In this case a creditor who has a liquidated claim may apply to a Court for the liquidation of the company. In the case of a company or private business corporation (“PBC”):
- Corporate rescue proceedings have ended in the manner contemplated in part XXIII of the Act and it appears to the Court that it is just and equitable in the circumstances for the company to be liquidated.
- It is otherwise just and equitable for the company to be liquidated.
According to section 6(2) a claim in respect of a liquidated debt which is payable at some determined time in the future may be taken into account.
Provisional and final liquidation orders
In the case where the Court is involved and has to decide on an application for liquidation made in terms of section 5(1)(a), it is normal, subject to certain legal requirements, for the Court to grant a provisional liquidation order and then a final liquidation order.
Provisional liquidation order
This is regulated by section 14 of the Insolvency Act. According to section 14(1) the Court may grant a provisional order for the liquidation of the estate of a debtor (company) if the Court is satisfied on the face of the documents that the applicable requirements of section 4, 5 or 6 have been complied with and:
- The Company has resolved that it be liquidated by the Court in terms of a liquidation resolution, if the debtor is not prevented by law, agreement or any other legally enforceable reason, from passing such resolution. This makes reference to section 5.
- If it is just and equitable that the debtor should be liquidated.
- The debtor’s liabilities exceed its assets.
- The company is unable to pay unable to pay its debts in terms of section 3.
- corporate rescue proceedings are not appropriate.
- a compromise in terms of section 148 is not appropriate.
According to section 14(2) a Court granting a provisional liquidation order may simultaneously grant a rule nisi calling upon all interested parties and the respondent to appear on a date mentioned in the rule and to show cause why the debtor’s estate should not be liquidated finally. In this case the Court will be giving interested parties the right to be heard. According to section 14(3) the return day of the rule nisi may on the application of the respondent be anticipated for the purpose of discharging the order for provisional liquidation if 24 hours direct notice is given to the applicant.
According to section 14(4) if the Court does not grant a provisional liquidation order it may grant an order in terms of section 15 if it is satisfied that no one will be prejudiced by such an order without a provisional order in terms of this section, dismiss the application, postpone the hearing thereof to a determined date, or make any other order it considers just.
Final liquidation order
This can be granted in terms of section 15 of the Insolvency Act. In terms of section 15(1) the Court may make an order for the final liquidation of a company at the hearing of an application contemplated in section 4, 5 or 6 or pursuant to a rule nisi contemplated in section 14(2) (provisional order), if:
- The applicable requirements of section 4, 5, or 6, as the case may be, have been complied with.
- the debtor is unable to pay its debts in terms of section 3.
- corporate rescue proceedings are not appropriate.
- a compromise in terms of section 148 is not suitable.
In other words, through the rule nisi if a liquidation order is granted, affected or interested persons will be given the opportunity to be head by the Court. If the Court is satisfied that the liquidation should go ahead, the Court will grant a final liquidation order.
Conclusion
A provisional liquidation order may or may not be confirmed through a final liquidation order.
Disclaimer
This simplified article is for general information purposes only and does not constitute the writer’s professional advice.
Godknows (GK) Hofisi, LLB(UNISA), B.Acc(UZ), Hons B.Compt (UNISA), CA(Z), ACCA (Business Valuations) MBA(EBS, Heriot- Watt, UK) is the Managing Partner of Hofisi & Partners Commercial Attorneys, chartered accountant, insolvency practitioner, commercial arbitrator, registered tax accountant and advises on deals and transactions. He has extensive experience from industry and commerce and is a former World Bank staffer in the Resource Management Unit. He was recently appointed to sit on the Council of Estate Administrators in Zimbabwe. He writes in his personal capacity. He can be contacted on +263 772 246 900 or ghofisi@hofisilaw.com or gohofisi@gmail.com. Visit www//:hofisilaw.com for more articles.
