What happens to my creditors during liquidation?

The first thing that changes

The moment creditors are formally notified of the liquidation — typically in the first few weeks after filing — they must direct their claims to the liquidator, not to you. The phone calls, the letters of demand, the threats of legal action against the company — all of it must stop. Continuing to pursue the company directly is a breach of the process.

For most directors, this is the single biggest source of relief. The constant pressure ends.

How creditors participate

Creditors who want to recover money lodge a formal claim with the liquidator. The liquidator reviews and verifies the claims. Creditors meetings may be held, where the liquidator reports and creditors can raise questions.

The legal priority order

Creditors are paid in a specific legal order from whatever the liquidator raises by selling assets:

1. Secured creditors — those with specific security like a bond over property or a notarial bond over equipment — are paid first from the proceeds of their security
2. Preferent creditors — the costs of the liquidation itself, employees' unpaid wages and certain entitlements, and SARS for certain tax claims
3. Concurrent (unsecured) creditors — ordinary suppliers, trade creditors, and any unsecured lenders share whatever remains, proportionally

When there isn't enough money

In most insolvent liquidations, there isn't enough to pay every creditor in full. Creditors lower down the order receive a reduced amount, or sometimes nothing. The unpaid balance is written off when the company is dissolved. The creditor's claim against the company ends.

What creditors cannot do

• Continue to demand payment directly from the company after notification
• Take new legal action against the company
• Seize company assets outside the liquidator's process
• Pursue you personally for ordinary company debt (unless you signed surety)

What creditors can still do

• Lodge a claim with the liquidator
• Attend creditors' meetings
• Pursue you personally on any debt where you signed personal surety
• Apply to have the matter investigated if they suspect wrongdoing

The shift in your relationship with creditors

Pre-liquidation, you and the creditors are in direct, often adversarial contact. Post-filing, all communication routes through the liquidator. For directors, this is the moment of decompression — a period of pressure ends. The company moves into orderly winding-up, and you're no longer the one taking the phone calls.