Administrative Law

Liquidation (Company Winding Up)

The process of winding up a company — selling its assets, paying creditors, and distributing any remaining surplus to shareholders — before the company is deregistered.

Legal Definition

Liquidation (also called winding up) is the formal process for ending a company's existence. It can be voluntary (MVL — members' voluntary liquidation, if solvent) or compulsory (court-ordered, usually on insolvency). A liquidator is appointed to realise assets, pay creditors in order of preference, and distribute remaining funds. Once the liquidation account is approved and distribution made, the company is deregistered with the CIPC.

📖 Constitutional / Statutory Basis: Section 22 (freedom of trade and occupation)

Practical Example

A company with more debts than assets is unable to pay its creditors. They apply to court for winding up. A liquidator is appointed, the assets are sold at auction, and the proceeds are distributed to creditors proportionally.

Frequently Asked Questions

What is the difference between liquidation and sequestration in South Africa?

Liquidation applies to companies and other legal entities. Sequestration applies to natural persons (individuals) and partnerships. The processes are similar but governed by different statutes — Companies Act and Insolvency Act respectively.

Are employees preferential creditors in a company liquidation in South Africa?

Yes. Employee claims for outstanding wages (up to a maximum of 3 months' wages per employee, as adjusted), leave pay, and COIDA contributions are preferent claims that rank ahead of unsecured creditors.

Related Terms

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