Introduction
Liquidation, which is the winding up of a business, can be voluntary or involuntary. It is done in terms of the Insolvency Act (Chapter 6:07), “the Insolvency Act” or “the Act.” In this article I consider voluntary liquidation of solvent companies.
Liquidation of a solvent company
Section 10 of the Insolvency Act regulates voluntary liquidation of a solvent company. A solvent company is one that is not financially distressed.
Eligible for voluntary liquidation
According to section 10(1) a solvent company that is not an external company or foreign company in terms of the Companies and Other Business Entities Act (Chapter 24:31) or “the COBE Act”, or a solvent private business corporation (“PBC”), may be liquidated voluntarily if the company or corporation has adopted a special resolution to be liquidated as a voluntary liquidation by its members.
Liquidation resolution
According to section 10(2) the resolution must be filed with the Registrar of Companies who must immediately after its registration transmit a copy thereof to the Master of the High Court. The filing of a liquidation resolution must comply with the procedures set down from time to time by the Registrar of Companies. According to section 10(8) a voluntary liquidation of a company or PBC by its members commences when the special resolution has been filed in terms of section 10(2).
Liquidator
In terms of section 10(6) the nomination of a liquidator in terms of an adopted liquidation resolution in terms of this section (section 10) is of no force and effect and the Master must appoint a liquidator in accordance with the provisions of the Act.
A liquidator appointed in a voluntary liquidation by members may exercise all powers given by the Insolvency Act to a liquidator:
- Without requiring specific order or sanction of the Court.
- Subject to any directions given by the shareholders of the company in a general meeting or by the members of a PBC.
Legal status during voluntary liquidation
According to section 10(9) despite any provision to the contrary in a Company’s Memorandum of Incorporation, Articles of Association, or Shareholders agreement or in the founding statement of a PBC:
- The company or PBC remains a juristic person and retains all its powers as such while it is being liquidated voluntarily.
- However, from the commencement of the company or PBC’s liquidation:
- It must stop carrying on its business except to the extent required for the beneficial liquidation of the company or PBC, or
- All the powers of the company’s directors or members of the PBC, cease, except to the extent specifically authorised by the liquidator or the shareholders or members in a general meeting.
Conclusion
Liquidation of an insolvent company or PBC may be voluntary or involuntary. A solvent company or PBC may be liquidated through a special resolution of its shareholders or members. It is important to fully understand the formalities required by the Insolvency Act to avoid a legal nullity or fatal non-compliance.
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), MBA (EBS, Heriot- Watt, UK) is the Managing Partner of Hofisi & Partners Commercial Attorneys, chartered accountant, insolvency practitioner, registered tax accountant and advises on deal and transactions. He has extensive experience from industry and commerce and is a former World Bank staffer in the Resource Management Unit. He writes in his personal capacity. He can be contacted on +263 772 246 900, ghofisi@hofisilaw.com or gohofisi@gmail.com
