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072 855 8106 nanika@nanikalaw.co.za

When your company is in financial distress your life becomes extremely stressful. There is a way to get your company out of debt, the proper way.

You have probably heard of businesses that have liquidated before, only to find them doing business the next day again. Like those businesses, your business too can liquidate, yet continue the next day. Liquidation is provided by the law for businesses to “fight” for their survival, otherwise, if the business owner takes “flight” or implodes, the business will not survive. Liquidation is a great tool to use to help your business to get out of debt the proper way if the business cannot pay its debt.

Liquidating is the way to get out of debt the proper way and can help get rid of many problems

Liquidation can also be used to get rid of “other” problems, like a deadlock between directors/members; like SARS debt, like inability to finish work and to iron out problems in the business.

Like with anything that doesn’t work well, when a business experiences problems, it must be dealt with because if you don’t, the situation can lead to poor business conditions, poor cash flow, inability to keep the business going and “freezing up” the business making trade hard if not impossible. The key is to liquidate sooner rather than later when the problems start – especially problems with SARS. Too many business owners carry on too long, pump in too much of their own personal money into the business, take too long to liquidate, protect assets and restructure the business. This causes the business to grind to a halt when cash flow and the inability to proceed freezes everything up – the owner included.

What Is Liquidation?

Liquidation falls under the umbrella of insolvency. A business must liquidate when its liabilities exceed its assets or when the business cannot pay its debt.

As a solution, liquidation works because it gets rid of the problems while the business owner continues with the business if they wanted to. This causes life to return to the business because it is not being drained or over-burdened with overheads or debts, other losses or deadlocks between directors or members.

How is liquidation used by companies with financial difficulties to get out of debt the proper way?

1. Liquidation arrests the problem immediately

When the business is liquidated, the problems and the debt fall within the insolvent estate of the business. This means the core business can continue without the business being burdened by these problems. The business owner can put his/her focus back to where it needs to be namely growing and running the business. A liquidation application can be lodged at the High Court and the moment a liquidation order is granted, no creditor can take any legal action against the business and any legal action that was started is suspended. The business can also be liquidated at the CIPC offices and the liquidation has the same effect as that of a court order.

The High Court application takes about 2 months and the CIPC liquidation takes about 3 weeks. After liquidation (either in the High Court or at CIPC) the Master of the High Court appoints a liquidator and the liquidator will take the necessary steps to wind up the insolvent estate of the company. This happens while the business owner continues with the business without the burdens that the business suffered before and without having to deal with creditors.

2. The proper way to liquidate

The proper way to liquidate is to get rid of the debt of a business where the business cannot pay its debt or where the liabilities exceed the assets is to liquidate the business. It is the proper way because the Companies Act and the Close Corporation Act place a duty on a director/member to liquidate the business when its debt exceeds its assets. If you don’t do it, then the director can be held personally liable for the debt of the business.

Business rescue is also an option, but in my opinion, it will not easily get a business out of debt – it is merely a plan to postpone the inevitable. Liquidation is quick, clinical and it takes care of the problems almost immediately.

3. Liquidation improves business

Believe it or not, liquidation is a great tool to improve business. Since liquidation is available in law for the purpose of getting rid of debt, it makes sense that a business owner must use this option as soon as is possible and not try and trade out of the problem or put more and more of his/her own money into the business. Trading out rarely works. It is the shortest route to the quickest solution to liquidate the business as soon as is possible and start over.

Liquidation removes the problems which make a business get stuck, it removes the stress and fear of the business owner so that after liquidation, if the business owner wants to, the business can continue. Of course, we will restructure everything first so that you can continue, but the bottom line is that the option of liquidation is available to walk away from the problem.

How to use liquidation to get out of debt the proper way

To increase the chances of success of your business, move it out of harm’s way. You move it out of harm’s way by stepping away from the problems that burden or implode it by liquidating the business. We then restructure your business and life goes on. Business can become bigger and better because you, as the owner, will be more focused on your business and not side-tracked by having to put out fires all the time. The restructuring process is unique for every business, but in general, it will involve the protection of assets, buying assets back from the insolvent estate, dealing with intellectual property and contracts. We cannot give a general description of the restructuring process here because we will have to advise you specifically about your situation.

Once liquidated, the liquidator will take over and deal with creditors so that you don’t have to. The debt is written off and creditors must take what they get out of the insolvent estate. If there is nothing, they get nothing. If there is something, they get paid if they prove a claim against the insolvent estate after liquidation. Creditors share in the proceeds of a business in a certain order. If some get paid and some not, or if only a part of the claims get settled, they must write the balances off.

You just need to look out for any personal sureties that you have signed for the business and either make payment arrangements or we have to sequestrate you. It all depends on the situation which we will advise on.

Contact us for a discussion so that we can help you get your company with financial difficulties out of debt the proper way.