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072 855 8106 nanika@nanikalaw.co.za

Your Plan to give new life to your business (A Guide for what to do with a business that cannot pay its debt but that you want to keep)

If your business is under financial pressure or owes SARS and other creditors, you probably know how important it is to find the right legal solution when it comes to keeping the business going. However, keeping your business going while you get rid of the debt requires good legal advice and assistance. We have just that experience and legal knowledge and know-how in helping you do just that.

Are you wondering what the recipe is to follow to legally get rid of debt while you continue to trade in your business? Do you fear that SARS will hold you personally liable for the debt of the business? Keep reading to find out more about how to set your plans in motion to take the steps to free your business from its burdens that paralyze your business.

What Is liquidation?

When your company cannot pay its debt, or when the liabilities exceed the assets, it is insolvent. The Companies Act (and the Close Corporations Act) places a duty on the directors of a company (or members of a Close Corporation) to liquidate the business when it is insolvent. If you don’t, then you can be held personally liable for the debt of the business even if you did not sign surety.

When your company runs into financial problems, it is hardly ever in my experience a good thing to try and “trade out of it”, or to compromise with creditors, or to go under business rescue. I believe in taking the shortest route to the fastest and cheapest solution. Liquidation gives you just that route.

Liquidation is just one of the tools that you can use to get rid of a failing company. We will restructure your business in such a manner that you can get rid of the problem and continue with the business. Herein lies our expertise – we know how to shift your business away from its burdens while you continue to trade.

Companies under financial pressure are often misread by its owners. By putting more money into the business, or close your eyes and hope for the best, or ignore the problem, can be the worst mistake as it can push the company deeper into its problems and then it gets more difficult to get out. Timing is everything. The longer you wait to restructure and then liquidate the unhappy business, the more expensive it gets, the more the toll of the stress affects your health which in turn affects your ability to do business. Most of the time it is not time that the business needs, or more money, but a fresh start.

One cannot run a marathon with shackles around your feet. Well, you can do it, but you will most definitely be exhausted by the time you reach the end, if you reach the end and by that time you have spent all your wonderful energy, which you could have saved when you rather got rid of the shackles or hire a wheelchair while you are still wearing the shackles.

With this I mean rather get help fast, before your business fails completely and you spent all your valuable energy in trying to save it. Or get our help as soon as possible so that we can advise you how to restructure so that you can get rid of the problem sooner.

Obtaining our legal advice not only will give you the correct information so that you can make an informed decision, but it will also help you to make the shift much quicker so that you can build your business and wealth sooner. Plus, after we have assisted you, you will know that you are protected for the future and you will be able to do fierce business.

The Liquidation Plan as part of the Restructuring Process

Following a plan to pro-actively change the situation, will improve your business, your focus and reduce your stress levels almost immediately. If you have solutions and you work with a plan, doing business is so much easier.

Step number one for liquidation

Determine whether your business is insolvent or not. Let the balance sheet speak for itself. Think with your head not with your mind. Be very honest. “Hopes” and “maybes” are not business principles, you cannot use them when you do your determination.

What to avoid when liquidating

Just as important it is to determine the true status of your business and act fast to rectify the problem, one should also know what to avoid to not to exacerbate the problem. Here are some don’ts:

  • Don’t put in more money into the business unless there is definite, confirmed and paid for work on the table that will solve the problem;
  • Don’t make arrangements with creditors just to “get them off your back”, and
  • Don’t ignore calls from creditors. Rather deal with them head-on and explain the problem.

Do not, EVER, sign an Acknowledgment of Debt which binds you in your personal capacity for the debt of the company. Ever. Never. Never do that, as you then create “new” debt and even if you liquidate the company, you will remain personally liable for the debt based on the Acknowledgement of Debt that you signed.

What to do when liquidating

  • Once you have determined that your business is in trouble, contact us, fast, so that we can explain your options to you so that you can make an informed decision
  • Get tax returns up to date, even if you are going to liquidate the company
  • Decide on the time of your plan: when are you going to start the liquidation process, when will you be ready to shift your business. We can assist you with this decision during our consultation. Each situation is unique and we will give you the best plan forward so that you can liquidate with ease while you continue with trading.
  • Contact Nanika Prinsloo at 072 8558 106 so that she can give you the legal solutions.