You have no other choice. Despite your best efforts and doing everything you can your business is not salvageable. As part of the finality of shutting down a business this guide gives you an overview of how to deregister or liquidate your business and what your liabilities are as a member or director.
What to do
The processes and forms to be used for deregistration of companies and close corporations are identical under the new Companies Act, due to the fact that section 26 of the Close Corporations Act, 1984 was repealed. A company or close corporation may be referred for deregistration in the following circumstances:
- Upon application by the company or close corporation itself.
- If annual returns are outstanding for more than two successive years, in which case the company or close corporation will be automatically referred by the system and then notified.
- If the Companies and Intellectual Property Commission (CIPC) believes that the company or close corporation has been inactive for seven years or more.
If deregistration is triggered by point 1 or 3, the directors have to complete form CoR40.3 (Demand notice concerning inactive company). The deregistration process will then begin.
Procedure after CoR40.3
The entity or other interested parties have 20 business days from date of issue of letter to object. If no objection is received, CoR40.4 (Commission Notice of pending deregistration) is issued.
After a further 20 business days from the date of issue of this letter, the entity is allowed to object before final deregistration. Once the entity is placed in final deregistration and this is published on the CIPC website, final notices go out to the role players and the applicant to inform them of the final deregistration.
If deregistration is triggered by non-compliance with annual returns (point 2), after the 20 business days from issuing CoR40.3, and if there are no objections received and still no compliance with annual returns, a Compliance Notice (CoR40.4) is issued. The entity then has an additional 15 days to comply with the annual returns.
Deregistration and Liquidation
A business that ceases to operate may be deregistered or “dissolved” as a result of liquidation. These situations are usually quite complicated, technical and specialist information should be sought from a lawyer.
Deregistration and liquidation are not the same thing. Deregistration implies that a business may choose to deregister and is able to pay its debts. The business can continue in a different form such as a sole proprietor after deregistration.
How the company or CC is deregistered:
- A letter requesting the deregistration and the reason is required
- You must complete the form Notice of resolution to wind up solvent CC Form (CoR 40.1) www.cipc.co.za. The fee for filing this notice is R250.
- You will also need to provide certified passport copies (if a foreign national) or certified Identify Document (ID) copies (if South African) of all indicated initial directors and incorporators.
How liquidation works
Liquidation implies that the business is not able to pay its debt and that the business will cease to operate, generally as a result of financial problems.
The liquidation may come about as the result of a legal court process, through action by the creditors, or the owners of the business may choose to voluntarily liquidate. The court will normally grant a liquidation order if it is proven that the company or close corporation is unable to pay its debts and that it’s fair and equitable that a liquidation order be given.
Liquidation is a legal process that places the company under the control of a liquidator who must realise the assets and divide them among creditors according to the stipulations in the Companies Act. The main aim of liquidation is to divide the yield from the sale of assets amongst creditors fairly and to dissolve the company in an orderly manner.
The liquidator’s job is to realise the assets that fall in your company’s insolvent estate and to distribute a dividend among creditors, subject to the approval of the Master of the High Court. You must disclose everything to the liquidator. After you have given instructions to liquidate, you must stop paying all creditors to ensure equitable distribution of the value of the business’s assets.
Liability of directors and members
Directors and members are only liable for debt for which they have signed surety. Should you have been grossly negligent or fraudulent in your capacity as a director or member, the corporate veil can be lifted between yourself and your business and you may become personally liable. Only the court can give an order that the company veil be lifted.
Dealing with creditors
Once you have instructed your attorneys to proceed with the liquidation, donot try to deal with your company’s creditors yourself – leave it up to the attorney.
When presenting your company’s liquidation application to Court, your company must prove that your preferential claims will be paid in full. Preferential creditors rank ahead of all other creditors when realisations are achieved from assets where there is no fixed charge registered.
If the business has no ability to pay its debts, you will be summonsed in person to appear on its behalf. You will thus appear in your representative capacity and you’ll have to explain why the company is unable to pay its debt. The creditors can summons you (in you representative capacity) to appear in Court again and again. If the company cannot pay its debts, it’s advisable to liquidate the company because the creditor cannot summons you to appear in court after liquidation.
Your company’s liquidation does not terminate employees’ employment contracts. If you haven’t terminated their employment contracts, the liquidator will decide whether to do so. The employees however, rank second to creditors who hold security, and above SARS.
Section 30 of the VAT Act places you in the position of a trustee of the government’s money. You’re supposed to receive it, keep it, save and pay it over to SARS. Section 48(9) of the VAT Act states that any member or director who has regularly partaken in the management of the company is liable for its VAT in person. Should you appear in Court and you have to plead, you will definitely be found guilty if you have not paid VAT. The same applies to the payment of UIF fees.
Paying other taxes
Unlike VAT and UIF payments, other taxes are deemed to be “civil” debt. This means that the money owed to SARS simply gets written off if SARS does not get a dividend from the entity’s insolvent estate.
Keep in mind however that SARS may also issue criminal summons against you. SARS is a preferential creditor and must be paid after secured creditors and employees who might have claims against your insolvent estate.This means that SARS must be paid before your company’s concurrent creditors (those creditors who do not hold any security).