Can You Be a Company Director After Sequestration or Liquidation?
If you’ve been through sequestration or liquidation, you may be wondering whether you can start afresh in the business world, especially in a leadership role. Can you register a new company? Are you allowed to serve as a director? In South Africa, both sequestration (for individuals) and liquidation (for companies) carry serious consequences, but they don’t necessarily mark the end of your entrepreneurship. There are, however, important legal restrictions you need to understand.
Sequestration and Directorship: What the Law Says
Under Section 69 of the Insolvency Act 24 of 1936, a person who has been sequestrated is disqualified from being a company director while they remain under sequestration.
This means that if you’ve been declared insolvent and your estate has been sequestrated:
- You cannot serve as a company director.
- You cannot be a member of a close corporation.
- You cannot register a new business in your own name or act as a founding member.
These restrictions stay in place until you are officially rehabilitated, either by court order or automatically after a certain period (typically 10 years if no application is made sooner).
Why Are Sequestrated Persons Disqualified?
The law aims to protect creditors and ensure responsible governance. A person whose estate is under sequestration is seen as lacking the financial standing or solvency to manage a company’s affairs. It’s not a moral judgement, but rather a practical safeguard to avoid further risk to the individual and creditors.
How to Restore Your Eligibility: The Role of Rehabilitation
Once you are rehabilitated, either through a court application or automatically in terms of Section 127A of the Insolvency Act, the disqualification falls away.
Rehabilitation means:
- You are no longer considered insolvent.
- You regain full control over your estate.
- You are legally permitted to serve as a company director again.
However, keep in mind that rehabilitation does not automatically clear your credit record, and creditors may still consider your financial history during business transactions.
What About Liquidated Companies and Their Directors?
When a company is liquidated, the directors themselves are not declared insolvent, unless they’ve signed personal sureties for company debts or the liquidation resulted from mismanagement on their part.
If you were a director of a company that went into liquidation:
- You can typically still act as a director of another company.
- However, if you were found guilty of reckless or fraudulent trading, you may be declared delinquent or disqualified under the Companies Act 71 of 2008.
Being declared a delinquent director can result in a ban of up to seven years, or even for life, from holding a directorship in any company.
Can You Register a New Company After Sequestration or Liquidation?
If you are currently under sequestration, you cannot register a business or act as a founding member of a company. After rehabilitation, this restriction is lifted.
In the case of a liquidated business, you may still register a new entity, unless a court has specifically barred you from doing so.
That said, financial institutions and potential partners may still assess your prior insolvency when deciding to extend credit or enter into agreements. Rebuilding trust and a strong financial track record is key to successfully starting over.
Need Guidance After Insolvency?
At Cawood Attorneys, we help individuals and business owners navigate the complex aftermath of sequestration and liquidation. Whether you need help with rehabilitation or understanding your rights, our experienced legal team is here to guide you every step of the way. Contact us today for expert advice and practical support as you work towards financial recovery.