Winding-up a CC

Company Law - Winding-up of a Close Corporation - The New Companies Act

LAWS REGULATING WINDING-UP PROCEEDINGS

The winding-up of a Close Corporation (“CC”) is regulated by sections 66 to 81 of the Close Corporation Act 69 of 1984 (“The CC Act”).   This Act, however, does not specifically regulate winding-up proceedings of a CC, but instead incorporates the applicable sections of the Companies Act dealing with winding-up proceedings by reference.  The applicable sections of the Companies Act should therefore be read as if it prescribes the proceedings for both Companies and Close Corporations.

The Companies Act 61 of 1973 (“the old Act”) used to regulate winding-up proceedings of a company (and therefore the winding-up of a CC) under sections 337 to 348 thereof.  In terms of section 344 of the old Act, read with section 68 of the CC Act, a CC could be wound-up, inter alia:
•    if the CC is unable to pay its debts as described in section 345 of the old Act; and
•    if the Court is satisfied that it is just and equitable that the CC should be wound up.

In terms of section 345 of the old Act, read with section 69 of the CC Act, a CC is deemed unable to pay its debts when:
•    a creditor to whom the CC is indebted in a sum of not less than R 100 has served on the CC, at its registered office, a demand requiring the CC to pay the sum due and the CC has for 21 days thereafter neglected to pay the sum or secure or compound for it to the reasonable satisfaction of the creditor; or
•    the sheriff has issued a return of service against the CC stating that it does not own sufficient disposable property to satisfy a judgment in favour of a creditor; or
•    it is proved to the satisfaction of the Court that the CC is unable to pay its debts, taking into account the contingent and prospective liabilities of the CC.

In terms of the provisions of the old Act a Court could therefore order that a CC be wound-up if a creditor could prove that the CC was indebted to it and was unable to pay such debt.

The old Act has recently, however, been wholly replaced with the Companies Act 71 of 2008 (“the new Act”), save for sections 337 to 348.  These sections of the old Act have been incorporated into item 9 of Schedule 5 of the new Act, subject to a limitation on the applicability thereof.  The applicability of sections 343, 344, 346 and 348 to 353 of the old Act has been limited to apply only in circumstances where a winding-up order is sought against an insolvent CC and shall therefore not apply to solvent CC’s.  As a result hereof, section 68 of the CC Act (the counterpart of section 344 of the old Act, dealing with circumstances under which a CC may be wound up) has also been repealed.  The effect of the aforementioned is that a solvent CC may now only be wound-up by Court order under the circumstances set out in section 81 of the new Act and no longer under the circumstances set out in section 344 of the old Act, read with section 68 of the CC Act.  

Section 81 of the new Act provides that a solvent CC may be wound-up by Court order if, inter alia:
•    one or more of the CC’s creditors have applied to the Court for an order to wind up the CC on the grounds that the CC’s business rescue proceedings have ended in accordance with section 132(b) or (c)(i) and it appears to the Court that it is just and equitable in the circumstances for the CC to be wound up; or
•    it is otherwise just and equitable for the CC to be wound up.

In light of the recent change in legislation a solvent CC may therefore no longer be wound-up purely because of the fact that it is indebted to a creditor and it is unable to pay its debts.  

This has been confirmed in the Free State division in the recent unreported judgments of Daffue J in Herman v Set-Mak Civils (5495/2011) [2012] ZAFSHC 58 (5 April 2012) and Zietsman AJ in HBT Construction and Plant Hire CC v Uniplant Hire CC 2012 JDR 0334 (FB).  In these judgments it is confirmed that a solvent CC can only be wound up by the Court on application of a creditor thereof if business rescue proceedings have ended and it is just and equitable that the CC be wound-up, alternatively if it is otherwise just and equitable for the CC to be wound up.  The mere fact that a CC is not paying the creditor’s debt is, however, not ground which makes it just and equitable for a CC to be wound-up and a creditor will have to prove factual insolvency of the CC before section 344 of the old Act, read with section 68 of the CC Act, will become applicable.  

PRACTICAL CONSIDERATION

In accordance with section 69 of the CC Act, a creditor shall send to the CC, at its registered office, a demand requiring the CC to pay the sum due within 21 days of receipt thereof prior to initiating winding up proceedings.  “Days” are defined as work days excluding the day on which the first event occurs (service of the letter of demand) and including the day on which the second event is to occur (the last day of the 21 day period).

An application for winding up of a CC shall be accompanied by a certificate by the Master, issued not more than ten days before the date of the application, to the effect that sufficient security has been given for the payment of all fees and charges necessary for the prosecution of all winding up proceedings and of all costs of administering the CC in liquidation until a provisional liquidator had been appointed.

A copy of the application for winding up a CC together with the supporting affidavits must be served on the Master prior to filing same with the Court in order for the Master to consider whether it should apply to Court for postponement of the hearing of the matter.  The application and affidavits should thereafter also be served on:
•    any registered trade union of the employees of the CC;
•    the employees of the CC (by affixing a copy to any notice board to which the applicant and the employees have access inside the premises of the CC or by affixing a copy to the front gate or door of the premises where the applicant has no access to the premises);
•    SARS; and
•    the CC at its registered address.

The applicant must then, prior to or during the hearing of the matter, file an affidavit which sets out the manner in which the above service requirements have been complied with and which is deposed of by the person who furnished a copy of the application to the said entities / persons (in practice service is done by the sheriff and the return of service constitutes an affidavit as aforementioned).

The general Rules of Application, as set out in Rule 6 of the Uniform Rules of Court, apply to winding up proceedings.


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