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Article by: Cape Town Insolvency Attorney - Nanika Prinsloo

Liquidation gets rid of business debt. Liquidation exists because the economy needs to keep going. If every business that goes insolvent does not get an opportunity to get rid of debt and start over, the economy will grind to a halt. Especially in the current economic climate.

In terms of Section 22 of the Companies Act, a director of a company or a member of a close corporation must liquidate the business as soon as it cannot pay its debt. If the director/member does not liquidate the business and continue to trade, the director can be held personally liable for the debt of the company even if no surety was signed.

Make a fresh start

One can do a restructure of the business so that after liquidation the business can continue debt-free and in a new form. A person can have many businesses that are liquidated and many that are doing well.

No penalty

A director or a member is not penalized if the business is liquidated. One is not blacklisted and you can have as many companies as you like, regardless of how many you have liquidated.


If the director/member signed personal surety for any of the debt of the business, then liquidation will not cancel the surety and one will remain personally liable for that particular debt after liquidation. One can always make a payment arrangement with those creditors one signed personal surety for. If one did not sign any personal sureties, then the debt will be written off.

SARS debt

Liquidation writes off SARS debt. SARS is in the business of intimidation, so they threaten a lot as soon as they notice you are scared of them. After liquidation they usually write off the debt and close their file. The only SARS debt that is not written off after a liquidation is any taxes owing in terms of the Customs and Excise Act and you will remain personally liable from the outset for these type of taxes. All other taxes (Income Tax, PAYE, VAT, UIF and SDL) are written off by liquidation.

When must a company/close corporation liquidate?

As soon as is possible. Payment arrangements, business rescue and “trading out” usually does not work. Liquidation arrests the problem immediately. We can restructure the business immediately and continue to trade without the debt and while you keep your assets.

Contact us on 072 8558 106 to talk to a lawyer today.