Under the Companies Act of South Africa(1973)
There are many grounds available to creditors and/or members of a company or close corporation to launch liquidation proceedings. Normally liquidation proceedings will be launched by a creditor of a company or close corporation because that company or close corporation is unable to effect payment of a debt due and owing to the creditor. In that instance, the creditor can apply to Court for the liquidation of that South African company or close corporation.
The company or close corporation (voluntary liquidation) or the creditors (compulsory liquidation) apply to the high court to place it in liquidation. The court hears the application and appoints a provisional liquidator to manage the company with the interests of the creditors in mind. The court makes an order which will stipulate a time period by which the liquidator must report to the court on the status of the company or close corporation.
The provisional liquidator may recommend to the court that the liquidation order to be lifted and that control of close corporation or company be given back to management or that the company or close corporation be placed in final liquidation. A company under provisional liquidation has to suspend all contracts of employment (rather than terminate which was the situation prior to the amendments). This will regulate the rights of employees during this period.
Final liquidation occurs when a company or close corporation has applied to the High Court (or the Magistrate's Court in the case of the close corporation) for an order of final liquidation. This order will have the effect that the company no longer exists. The company will stop trading; its assets will be liquidated and distributed to creditors in order of ranking. All contracts of employment are automatically terminated (s38 of the Insolvency Act) when a company or close corporation is placed in final liquidation.
Under the Companies Act of South Africa (2008)
While to a certain extend the liquidation of companies and close corporations have been done away with in terms of the new Companies Act, the provisions of the old Companies Act STILL apply to existing companies and close corporations, and as such there are no substantive changes which we will need to deal with at this point.