The answer is no, notwithstanding the possibility of certain exceptions. Stopping trade and ending all commercial activities are the major goals of corporate liquidation. This aids in protecting creditors and preventing the corporate entity from accruing further debt.
However, we must look more closely at what liquidation is and how the process works in order to comprehend why a firm in liquidation cannot continue to operate as the current entity.
A firm becomes insolvent and must cease operations if its obligations outweigh its assets and the organization is unable to pay bills as they become due. If a corporation is both capital and cash flow insolvent, it must be liquidated. The process of ceasing operations for a financially troubled corporation is called liquidation. A court order, a request from creditors, or a voluntary liquidation are all possible scenarios.
The directors, using a special resolution, a creditor, or another party may choose to voluntarily liquidate a solvent corporate company. A resolution is presented for the winding-up procedure once the security has been established before the Master of the High Court for the business entity’s debts no later than a year after the winding-up process has started.
In the latter situation, a sworn declaration that has been authorized by the board of a company must be submitted by a director of the company or a member of the close corporation. According to the statement, the company has no debts. The assertion that the firm has no debts must also be supported by a certificate from the auditor of the company. Other paperwork and processes could be requested by the Master of the High Court.
A business that is going through liquidation may only do business insofar as it is directly connected to the tasks required for the winding-up process. The entity is dissolved after the company name is taken off the CIPC registry; as a result, it is no longer active and cannot do business using the dissolved company’s name and registration number. However, this does not exclude the previous directors from being held accountable for their deeds prior to the company’s name being removed from the CIPC registry.
After the company has been dissolved, a liquidator or party with an interest in the firm may request a court order declaring the liquidation of the business entity to be invalid. If such an order is issued, legal proceedings that were halted due to the corporate entity’s dissolution may continue as if it had not. Until it is dissolved, the corporation remains a valid legal entity.
To wind up and dissolve the firm or close the corporation in accordance with the provisions of the Companies Act of 2008, liquidation is the procedure that must be followed. As previously mentioned, a solvent company may also be liquidated. However, the law mandates that a company entity cease operations if it becomes bankrupt. Therefore, apart from the operations required to complete the winding-up process, a firm in liquidation cannot continue to do business.
Compulsory or Voluntary Liquidation
Whether a company is solvent or bankrupt, a creditor or shareholder may file a court application to have the debtor company liquidated. This is liquidation without consent. The corporate entity is granted the option to contest the provisional liquidation order. The liquidation order becomes final and a liquidator is appointed to sell the company’s assets in order to settle debts due if the firm does not object by the deadline. Once the provisional order has been issued, the business in liquidation cannot operate under the same entity for any longer than is necessary for the winding-up procedure to be completed. In this situation, it is crucial to object to the application by the deadline specified by the court in order to prevent the temporary decision from becoming binding.
Consequences of a Company in Liquidation Operating During Liquidation
The directors of the firm or the shareholders of the close corporation are responsible for ensuring that all trading ceases on the last day of trade after it has been established. If the business is to continue, all profits will go to the creditors as they are a component of the bankrupt estate.
The directors are responsible for taking the required actions to restore financial stability to the company if it is experiencing problems. If they are unable to accomplish this, they must have it put under business rescue, where a professional is chosen to assume managerial responsibilities and reorganize the firm to restore its viability. The practitioner is required to inform the court and the entity’s creditors when it is impossible for the entity to go back to a solvent position so that the entity may be liquidated.
The board of directors also has the option to elect to willingly liquidate the company. Liquidation may be requested by a court filing. Directors may be held liable for the obligations of the bankrupt business organization if they don’t take the appropriate steps mentioned.
Therefore, it is crucial to get legal advice on what to do should a firm run into financial difficulties.