Business Liquidation
Most companies face a tremendous backlog of debt, and naturally, as any bona fide Director would think, “things will get better.”
This isn’t always the case, especially with the recent downgrading of South Africa’s financial status and the financial crisis due to the effects of the Covid-19 pandemic. Small business owners are going to feel the pinch more than ever.
It is not always possible to fund a business from your pocket, and the time comes when your personal capacity will not support the business’s shortfall. The debt of the business and financial obligations such as salaries and VAT will eventually fall behind.
What is business liquidation?
Liquidation is a legal process where a company (PTY LTD) or close corporation (CC) is wound up, and creditors are prevented from attaching and executing assets.
A company (PTY LTD) or close corporation (CC) are legal entities separate from their shareholders/directors or members.
This means that, in the event of a Liquidation, unless the shareholders/directors or members have signed personal security or signed personal surety ships, they will not be personally liable for the business’s debts. This includes all SARS debts.
Liquidation is a legal process in which a liquidator is appointed to ‘wind up’ the affairs of a company (PTY LTD) or close corporation (CC).
At the end of the process, the company ceases to exist. Liquidation does not mean that the creditors of the company will get paid.
The purpose of Liquidation is to ensure that all the company’s affairs have been dealt with properly.
Taking the first steps to liquidate your company (PTY LTD) or close corporation (CC) is not an easy decision.
The consequences of making incorrect choices regarding handling the process up to Liquidation can be severe.
Liquidation and deregistration are not the same processes. Liquidation implies that the company (PTY LTD) or close corporation (CC) cannot pay its debts. Liquidation further implies that the company (PTY LTD) or close corporation (CC) will cease to operate (generally as a result of financial problems).
The Liquidation may come about as a result of a legal court process, by the creditors’ request, the company or close corporation may voluntarily decide to be liquidated or SARS debt.
We can help you
Rehabilitation / Withdrawal
When to apply?
A business entity whose liabilities exceed its assets is usually described as being insolvent. However, the legal test for insolvency is whether the debtor can pay its debts as and when they are due.
The usual route for Liquidation is a court application, but this can be timely and expensive.
When 75% of the shareholders of a company, or all the members of a close corporation, agree the business should be liquidated, there is the option of a Voluntary Liquidation.
This route allows for a quicker, less costly, and less messy means of voluntarily liquidating a company or close corporation. This also means that you can get a Liquidation order and a liquidator appointed much faster and much easier than going via the courts.
Voluntary Liquidation is the fastest way to get a company out of debt; consultation with us is strongly advised beforehand to assess the company’s condition as it stands today so that we may assist in giving the best advice and guidance in all matters.
Our consulting process is simple
1
We get to know each other. To determine whether your business will qualify for Liquidation, we will first ask you several questions to understand your financial situation.
We need to thoroughly understand your unique situation and needs as you consider applying for Liquidation. It is also essential that you also fully understand the entire legal process you will be a part of.
2
If Liquidation is an option, then we will send you an assessment form to complete.
The form gives us more information on your debt situation so we can come up with a comprehensive plan and start to discuss costs and affordability.
3
An attorney will provide the costs for the Business Liquidation.
4
We will set up a meeting with you to discuss the legal process and costs.
We prefer to meet our clients in person, and if you can travel to our offices in Centurion, we will set up a meeting that will last roughly an hour.
It is important for us to fully understand your unique situation and needs, as you consider applying for Liquidation. It is also important that you fully understand the entire process you will be a part of.
If it is not possible for you to attend a meeting at our offices, we will set up a telephone call or use an online platform.
During this meeting the Liquidation legal process, applicable to your individual situation, will be explained to you as well as the payment plan that we can help you with.
5
When you decide that Liquidation is the process you want to follow, Ursula Gouws and her team will be with you from start to finish to support you and ensure that your needs are also met.
The Legal Process
1
An Ability statement is drafted by the attorney and you have to sign it before a Commissioner of Oath.
Any and all legal application documentation will be handled by the attorney.
2
Your case is presented for approval.
3
Once the application has been approved and granted, a Curator/Trustee is appointed to handle all the financial matters concerning the Liquidation, and the credit settlement process starts.
Their tasks include:
- Ensuring all company contracts (including employee contracts) are completed, transferred or otherwise brought to an end Ceasing the company’s business
- Settling any legal disputes
- Selling any assets
- Collection of money owed to the company
- Distributing any funds to creditors and returning share capital to the shareholders (any surplus after repayment of all debts and share capital can be distributed to shareholders)
This legal process can take anywhere from a couple of months to many years.
