Is Liquidation Truly the End of a Company?
It is widely considered that a liquidation is the ultimate conclusion of a company but is that really the case? In Richter v Absa Bank Limited 2015, the South African Supreme Court of Appeal (“SCA”) was faced with a decision of whether a company could apply for business rescue under section 131 of the Companies Act after a final liquidation order had already been granted. What could that decision mean for your business?
WHAT IS THE REAL DIFFERENCE BETWEEN AND LIQUIDATION A BUSINESS RESCUE?
Liquidation is a process where the assets of a company are sold off to pay the creditors. On the other hand, business rescue is a blueprint that aims to rescue the company and turn it around. If the company is in financial distress and there is a reasonable prospect of saving the company, the board may adopt a resolution to start the business rescue proceedings. This procedure often occurs when a liquidation application is launched against a company.
The company must appoint a Business Rescue Specialist or a Business Rescue Practitioner within five days after a resolution has been adopted or filed with the Commission on Insolvency and Public Administration. The business rescue plan must show how much money the company would have received if it was placed under liquidation. It must also prove that under business rescue, the company is able to generate more favourable returns for its creditors.
Business rescue refers to the process of restructuring a company’s debts and assets in order to keep the company running on a solvent basis. It is a last resort that enables companies to avoid going bankrupt.
The SCA considered the meaning of “liquidation proceedings” in relation to section 131(6) of the Act and reflected on whether the term applied to a company awaiting the final court order or if it also applies to the procedure that follows to wind-up the company.
The SCA noted that section 131(1) of the Companies Act allows affected persons to apply to a court for an order placing a company under business rescue. It also stated that section 131(7) allows a court to grant an order during the course of a liquidation proceeding.
In terms of liquidation, the SCA explained that it is “the exhaustive process of bringing a company to an end, and the assets thereof, if any, are redistributed.” The SCA explored the idea that even though a final liquidation order has been given, the company still exists and the control over its affairs still remains with the liquidator. The company is only truly dissolved once the liquidator has wrapped up his duties and the Master’s Office has issued a certificate to confirm this. For this reason, the SCA held that it is able to apply for business rescue in terms of section 131 of the Act, even after a final liquidation order has been granted against a company.
The decision of Richter v Absa Bank Limited 2015 has had substantial practical implications for companies going into liquidation. It has created uncertainty regarding the finality of their liquidation and left the window open for companies that could possibly survive with one more chance breathed into it.
If you have any queries about how Business Rescue or a Liquidation could suit or save your business, do not hesitate in contacting RH Attorneys via our website or by emailing firstname.lastname@example.org. With over 17 years in of experience in the Insolvency Law space, we can offer have the best tailored advice to move your matter forward.