Part 5: Voluntary winding-up of solvent companies in terms of the Companies Act
By Dommisse Attorneys on 1st March 2016
Although any mention of the “winding-up” or liquidation of a business enterprise has the tendency to attract negative sentiments in the commercial world, the voluntary winding-up of a solvent company remains a useful and practical tool for businesses to achieve certain defined outcomes. Section 80 of the Companies Act, 71 of 2008 (“the Companies Act“) deals with the voluntary winding-up of a solvent company either by its shareholders or by its creditors; this article will however focus exclusively on a winding-up instituted by the shareholders of that company. By simply asking: “Why, How and What?” we will address some of the reasons for considering the voluntary winding-up of a solvent company and provide some practical insight into the procedures that need to be followed by the shareholders of a company who wish to utilise the provisions of section 80 of the Companies Act.
The Companies Act prescribes the procedure for the winding-up of solvent companies, whereas the previous Companies Act, 61 of 1973 (“the Old Act“) still largely regulates the winding-up procedure of insolvent companies. As mentioned, this article will focus exclusively on the voluntary winding-up of a solvent company by its shareholders. It is however important to note that even after a voluntary winding-up procedure has begun in terms of section 80 of the Companies Act, if a court determines that a company is insolvent, it may be ordered to be wound up as an insolvent company in accordance with the relevant provisions of the Old Act. The factual and commercial solvency position of a company therefore remains an important consideration in determining which winding-up procedure should be followed.
Why the voluntary winding-up procedure should be considered for solvent companies?
The voluntary winding-up of solvent companies exists as a means to achieve various purposes, including: the restructuring of businesses forming part of a group in order to streamline current or future operations; companies becoming redundant due to mergers or takeovers; and the winding-up of companies used as special purpose vehicles to complete certain projects (once such projects have been finalised).
Therefore, the catalyst for the use of the voluntary winding-up procedure is a decision that the company serves no further purpose, and that available assets should rather be realised and distributed to its shareholders.
How does the procedure start?
The winding-up process involves both the office of the Master of the High Court (“the Master“) as well as the Companies and Intellectual Property Commission (“the CIPC“). As mentioned, the procedure is regulated by section 80 of the Companies Act and essentially consists of three main steps.
Before the actual procedure can commence with the CIPC, the Master should be approached. If the company to be wound-up has any debts, security must be furnished to the Master for the payment of these debts within twelve months after the start of winding-up procedures. In the event that the company to be wound-up has no debts, consent must be obtained from the Master in order to dispense with the need to furnish security. For the Master to consider dispensing with the security requirement, the following documents should be submitted to the Master, after which a determination will be made:
- a sworn statement by a director of the company authorised by the board, stating that the company has no debt; and
- an auditor’s certificate stating that, to the best of its knowledge and belief, the company appears to have no debt.
Only once satisfactory security has been furnished to the Master, or the Master has consented to the dispensing of the security requirement, can the process be initiated with the CIPC, where the following documents must be submitted:
- form CoR 40.1: this is the required Notice of a Special Resolution to Wind-up a Solvent Company;
- written resolutions of the shareholders of the company authorising the winding-up of the company and the appointment of the liquidator;
- confirmation of security provided, alternatively the Master’s consent to dispense with security; and
- an originally certified identity document of the authorising director.
If all the above documents are correctly submitted, the service turn-around time for the CIPC to process the voluntary winding-up can take anything between two to four weeks, following which the CIPC will then issue a certificate of confirmation to this effect.
The next step would be to approach the Master for purposes of appointing a liquidator. The Master will require the CIPC certificate of confirmation, together with the following documents, in order to appoint the liquidator:
- proof of publication in the Government Gazette, of the notice to wind-up the company voluntarily and to appoint the liquidator; and
- an affidavit of non-interest deposed to by the liquidator.
What are the implications for the company?
When the winding-up procedure starts, the company is still regarded as a juristic person and retains all such power whilst it is being wound up (unless the memorandum of incorporation of the company provides otherwise), but is prohibited by the Companies Act from carrying on its business, except insofar as it benefits the company during the winding-up process. In practice, this usually means that a liquidator would continue trading the business for a short period of time to finalise current transactions.
Furthermore, it also needs to be noted that once the liquidator is appointed, the directors’ powers will cease, unless specifically authorised by the liquidator or shareholders in general meeting. For all practical purposes, the liquidator is now in control of all winding-up operations and proceedings of the company up until dissolution by the CIPC occurs, and it is removed from the register of companies, as envisaged by section 82 of the Companies Act.
We hope that this article has shed some light on the purposes of, and processes concerned with, a voluntary winding-up of a solvent company. Please feel free to contact our offices if you think this process might be applicable to your business’s needs, or if you have any other queries or questions regarding this or any other topic, and we will gladly assist you in your undertakings.