Can the liquidation (winding-up) of a close corporation be set aside in appropriate circumstances?
20/12/2010

In the matter of Klass vs Contract Interiors CC (in liquidation) and Others the Johannesburg High Court recently listed the principles to be considered when application is made to set aside the winding-up of a Close Corporation (CC).

The facts of the matter which led to the CC being wound-up are not relevant, suffice to state that in the course of the winding-up of the CC all creditors of the CC (including the South African Revenue Service) and the members were paid and the liquidator supported the application.

It is generally accepted that it is in the court’s discretion to set aside a winding-up proceeding under Section 354 of the Companies Act as read with Section 66 of the Close Corporation’s Act, which is the relevant section which applies to the winding-up of a CC.

In this matter the court held inter alia that:

1. The court’s discretion is practically unlimited, although it must take into account surrounding circumstances and the wishes of interested parties such as the liquidator, creditor and members.

2. The court should ordinarily not set aside a winding-up where creditors or the liquidators remain unpaid or inadequate provision has been made for the payment of their claims.

3. Where the claims of the liquidator and all creditors have been satisfied, the court should have regard to the wishes of the members of the CC.

As no party was likely to be prejudiced by the order, the court accordingly granted an order setting aside the winding-up of the CC.

The effect of the order was that the CC could continue business in the same name and, in effect, as the same entity in which it conducted its business prior to winding-up thereof.

Clients are reminded that the purpose of winding-up is to ensure that creditors are all treated equally. It is therefore not a given that winding-up of the CC means the end of the CC, as it existed prior to winding-up. The proviso to this is that all claims of all creditors as well as of the liquidators and the members be satisfied. In practice, this does not occur often and there is more often than not a shortfall leading to creditors not being paid.

Leander Opperman
Partner
leander-o@adamsadams.co.za