Most companies today 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 once more and the looming financial crisis to come 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 simply not be able to fund the businesses shortfall anymore. 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 debts of the business. 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 liquidating your company (PTY LTD) or close corporation (CC) is not an easy decision and the consequences of making incorrect choices with regards to the handling of the process up to liquidation, can be severe.
Liquidation and deregistration are not the same process.
Liquidation implies that the company (PTY LTD) or close corporation (CC) is not able to 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, or
- by a request of the creditors, or
- the company or close corporation may voluntary decide to be liquidated or
- SARS debt.
When to voluntarily liquidate a company (PTY LTD) or close corporation (CC)
A business entity whose liabilities exceed their assets is usually described as being insolvent. However, the legal test for insolvency is whether the debtor is able to pay its debts, as and when, they are due.
The usual route for liquidation is by way of a court application, but this can be timely and expensive. In the case of 75% of the shareholders of a company, or all the members of a close corporation, agreeing that the business should be liquidated, there is the option of a creditors’ 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 are able to 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 condition of the company as it stands today so that we may assist in giving the best advice and guidance in all matters.