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16-04-2020 - LIQUIDATION APPLICATIONS

Liquidation application

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4 views

16-04-2020 - LIQUIDATION APPLICATIONS

Liquidation application

Uploaded by

archibaldleon3
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOC, PDF, TXT or read online on Scribd
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APPLICATIONS FOR THE LIQUIDATION OF INSOLVENT COMPANIES

NOTE: In terms of section 9 of schedule 5 to the Companies Act 71 of 2008


(“the new Companies Act”), the provisions of Chapter 14 of the Companies
Act 61 of 1973 (“the old Companies Act”) continue to apply to the winding up
of insolvent companies and close corporations until further notice. [The old
Companies Act no longer applies to the winding up of solvent companies.]

The relevant sections of the old Companies Act are:

Section 344(f): Grounds for winding up

A company may be wound up by the Court if is unable to pay its debts as


described in section 345

Section 345: Inability to pay debts:

345(1) A company is deemed to be unable to pay its debts if

- 345(1)(a): a creditor has served a written demand on the company, by


leaving the same at its registered office, calling upon the company to
pay a debt of at least R 100.00 which is due and the company has for
three weeks thereafter neglected to pay the sum or secure it;

- 345(1)(b): the sheriff renders a nulla bona return indicating that the
company does not have sufficient disposable property to satisfy a
judgment debt of the company

- 345(1)(c): it is proved to the satisfaction of the Court (by any relevant


evidence) that the company is unable to pay its debts.
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Section 346: locus standi: Who may apply for the winding up of an insolvent
company?

- the company itself (section 346(1)(a))

- one or more creditors of the company (including prospective or


contingent creditors) (section 346(1)(b))

- (and see, too, sections 346(1)(d), (e) and (f) for the sake of
completeness – but these are less common applicants)

- NB: Section 346(2) a member / shareholder of a company may NOT


apply to liquidate a company on the grounds of inability to pay debts in
terms of section 344 (f). If you prospective applicant is a shareholder of
the company, he will have to also be a creditor of the company to enjoy
locus standi to apply to liquidate the company for inability to pay debts.

Formalities

- Section 346(3): Security must be furnished to the Master for the costs
of liquidation proceedings and administering the company in liquidation
until the appointment of a liquidator. (Similar to the situation in
sequestration applications) In Cape Town the Master’s certificate that
security has been furnished is contained in his report. NB: The
Master’s Certificate / Report regarding security must not have been
issued more than 10 days prior to the date of the application.

- Section 346(4):Copy of the application to the Master who then reports


to the Court

- Section 346(4A): Copy of the application to any trade union


representing employees; to the employees themselves (by sticking the
application up on a notice board in the company premises or on the
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front gate or door of the premises if the premises are closed); to SARS
and to the company itself (unless the company is the applicant).

- Affidavit of service: Section 346(4A)(b): (Usually by the applicant’s


attorney) detailing the manner in which the service requirements in
346(4A) have been complied with. Note: Where service is effected by
the Sheriff, the sheriff’s return suffices and no affidavit of service is
necessary.

Procedure:

In the Cape the practice is to apply for a provisional liquidation order and a
Rule Nisi calling upon all interested persons to show cause on the return
day why the provisional order should not be made final.

What must be on the Court file / in your brief at the stage of the application
for a provisional liquidation order?

- Notice of motion and supporting affidavits

- Proof of service of the application (by way of a Sheriff’s return) on the


employees, on any trade union known to represent the employees, on
SARS and on the company itself at its registered office

- Master’s Report which certifies that due security has been lodged with
the Master and that a copy of the application has been lodged with the
Master

The provisional order of liquidation

If the Court grants a provisional order of liquidation, it will order:

- service of the provisional order by the sheriff on every trade union


representing the employees; on the employees, on SARS and on the
4

company itself (unless the company is the applicant) [See section


346A]

- publication of the provisional order in one English and One Afrikaans


newspaper – usually the Cape Times and Die Burger

- where the company itself is the applicant or an insider of the company


is the applicant (“friendly” liquidation) : notice must be given to creditors
having claims above R 5,000.00 by sending them a copy of the
provisional liquidation order by registered post (See Practice Note
30(4))

Procedure on the return day: obtaining a final order

The applicant must satisfy the Court that there has been due compliance with
the provisional order, i.e. that there has been service, publication and, if
applicable, notice to creditors.

What must be in the Court file and in your brief on the return day?

See Western Cape Consolidated Practice Notes, note 27

- Affidavit of compliance by the applicant’s attorney (27(3) setting out in


what respects there has / has not been compliance with the provisional
order and annexing the relevant documents, namely:

o Sheriff’s returns of service showing service on trade union,


employees, SARS and company itself (unless the company is
the applicant)

o Proof of publication by filing tear sheets from the Cape Times


and Die Burger (NB: See practice note 27(4) regarding
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requirements for proof of publication: One must have the whole


page from the relevant newspaper, folded to A4 size in such a
way that the name of the paper, the date of publication and the
order are visible.)

o Proof of notice to creditors (in a “friendly liquidation”) by


annexing the list of creditors and the registered post slips
showing that a copy was mailed to each of them. The attorney
must state in the affidavit where he obtained the names of the
creditors (e.g. from the provisional liquidator) and must confirm
that he sent a copy of the provisional order to each one of them
by registered post.

Regarding Close Corporations the position is essentially the same: consult


sections 68(c)[= s344(f)] and 69 [=s345]. The procedure is the same.

Essential averments in an application to liquidate a company unable to pay its


debts:

- Locus standi: who is making the application?

o If a creditor: the amount cause and nature of the claim

o If the company itself: a resolution by the company authorizing the


application and authorizing the deponent to depose to the affidavit
and represent the company in bringing the application

- Grounds of application: inability to pay debts

o Letter of demand left at registered office for three weeks and no


response
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o Nulla bona return rendered by sheriff

o Any relevant evidence which indicates an inability to pay debts, e.g.


numerous judgments taken against the company, dishonoured
promises to pay, cheques referred to drawer etc etc etc

- Formalities

o Due security has been or will be furnished to the Master

o Copy of papers will be lodged with the Master

o Service will be effected as required

NOTE: THERE IS NO REQUIREMENT TO PROVE ADVANTAGE TO


CREDITORS IN A LIQUIDATION AS THERE IS IN A SEQUESTRATION
APPLICATION

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