In this situation there is potential conflict between creditors (those to whom money is owed), as there will be insufficient assets for all creditors to be paid in full.
The law attempts to maintain an equality between creditors, so the assets are distributed proportionately according to the size of each creditor's claim.
The court will require proof of solvency or insolvency to determine this matter.
This process starts with an application to the court alleging that one or more of the required grounds exist.
The application may be brought by the company or a majority of its directors, or by the Registrar of Companies, or by a creditor.
Applications by creditors are by far the most important and common.
Applications may be brought on a number of grounds, the most important being that the company is unable to pay its debts.
There are a number of factors that the court will take into account when deciding whether or not to make a compulsory liquidation order.
The court has a discretion as to whether or not to make the order.
However, these distributions can have unforeseen capital gains tax consequences for the shareholder receiving the distribution.
Distributions to shareholders excluded from the definition of “dividend” in section 1 of the Income Tax Act No.
The portion of the base cost attributable to the part-disposal is (R9/R12 x R10), or R7,50 —the capital distribution is R9, the market value of the share is R12 (the Act provides that the market value prior to the deemed part-disposal must be used for the calculation), and the original basecost of the share is R10.