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Liquidation of COs and CCs

26 August 2010


Presently uncertainty prevails as to the interpretation of section 56(1)(b) of the Deeds Registries Act 47 of 1937 with regard to the lodging of bonds for disposal when land belonging to a company or Close Corporation is transferred by the Liquidator appointed to liquidate the assets of such company or close corporation.

The relevant part of section 56(1)(b) reads as follows:

"……, the liquidator of a company or a close corporation which is unable to pay its debts and which is being wound up by or under the supervision of the court …" (my underlining)

Cognizance must be taken of the fact that although the referred to section only refers to companies and close corporations, the application is not only restricted to such entities, but will also be applied in the case of Cooperations, etc.

For purposes of applying the provisions of section 56(1)(b) the different methods of winding up of companies and close corporations will be discussed, from which it will become abundantly clear under what circumstances open bonds must be lodged for disposal, and when the provisions of section 56(1)(b) finds application.

Members' voluntary winding-up (see section 350 of the Companies Act 61 of 1973)
A certified copy of the members' resolution to wind up must be forwarded to the registrar of deeds by the company, in terms of section 357(3) of the Companies Act, as must any order of court affecting such resolution. The registrar must record such copies and note thereon the day and hour of receipt and must file a caveat (section 357(4) of the Companies Act).

The certificate of appointment of the liquidator issued by the Master, in terms of section 375, must be referred to in the power of attorney. The liquidator can act only from the date of his/her appointment.

The liquidator acts as duly authorized by the resolution referred to above or by a subsequent resolution or order of court and, if confirmed thereby, has the powers mentioned in section 386(4). Item (h) thereunder gives him/her the power to sell immovable property. The powers of a provisional liquidator are the same but may be restricted by the Master (section 386(6) of the Companies Act).

All civil proceedings by or against the company are suspended until the appointment of the liquidator (section 359(1)) and can be continued thereafter only by notice to the liquidator (section 359(2)). Any attachment or execution enforced against the estate or assets of the company after the commencement of the winding-up is void (section 359(1)).

Bonds must be lodged for disposal (section 56(1)(b) of the Deeds Registries Act does not apply as the company is not being wound up by the court).

Creditors' voluntary winding-up (see section 351 of the Companies Act 61 of 1973)
A certified copy of the resolution of the company to wind up, as a creditors' voluntary winding-up, must be furnished (referred to supra) and a caveat noted.

The liquidator may, subject to directions given by the creditors, exercise all the powers given by the Act to the liquidator in a winding-up by the court (section 351).

As regards civil proceedings, attachments, etc., the discussion supra applies.

The lodgement of open bonds in the cases of voluntary liquidation was referred to in the case of Joubert NO v Welgemoed Dorpsgebiede (Edms) Bpk (1980 C unreported). The relevant issue was whether a company placed under voluntary liquidation by special resolution, but unable to pay its debts could be regarded for purposes of section 56(1)(b) a company being wound up by and under the supervision of the court and that it is therefore not necessary to lodge the bonds for disposal.

The Registrars at their annual conference (see RCR 9 of 1980) held that the deeds registries must, for the purposes of applying section 56(1)(b), insist on proof not only that the company is unable to pay its debts, but that the company is being wound up by or under the supervision of the Court, otherwise all bonds must be lodged for disposal.

Winding-up by the Court (see section 344 of the Companies Act 61 of 1973)
A copy of every winding-up order, whether provisional or final, and of any order staying, amending or setting such order aside, made by the Court must be furnished to the registrar of deeds (section 357(1)). The registrar must record such copies and note thereon the day and hour or receipt (section 357(4)).

The liquidator in a winding-up by the court, with the authority granted by meetings of creditors and members or contributories or on the directions of the Master given under section 387, has the powers mentioned in section 386(4). Item (h) thereunder gives him/her the power to sell immovable property.

As regards civil proceedings, attachments, etc., see discussion above.

Bonds need not be lodged for disposal as long as the company is unable to pay its debts. If the fact that the company is unable to pay its debts is not disclosed in the winding-up order, the liquidator must furnish a certificate to that effect (see sections 344(f) and 345 of the Companies Act 61 of 1973).

CONCLUSION
The provisions of section 56(1)(b) will only find application where the entity is liquidated by the Court, and such entity is unable to pay its debts.

Allen West

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