Liquidating implies that your Company or Close Corporation is not able to pay its debts
The liquidating process helps to get rid of business debt and is part of a “make-over”so that you can do business fearlessly and without burden.
Liquidation is obligatory when the business can’t pay its debt.
The Companies Act, Act 71 of 2008, as well as the Close Corporations Act, Act 69 of 1984, place and obligation on the directors of a Company or the members of a Close Corporation to liquidate the entity as soon as the liabilities exceed the assets. Not only does a voluntary liquidation get rid of the debt, but the liquidation process also works in such a way that it prevents the directors/members to be personally liable for the debt of the company that they did not sign surety for. That is why liquidation can be a good thing and a blessing. The reason for this is because of the obligation to liquidate so that Companies and Close Corporations do not trade for too long in an insolvent position to the detriment of staff and creditors.
How to avoid personal liability of the debt a Company/Close Corporation
Liquidating does not write off any sureties that the directors or members signed for, but it does write off all other debt. The business owner can continue with the business if so wanted. Any tax debt (SARS – Receiver of Revenue debt) is also written off in the liquidating process.
Will the liquidation of a Company or Close Corporation stop you from continuing with business?
It will not. On the contrary, if the liquidation of a Company/Close Corporation is managed and timed well, you can continue with your business but without the debt of the old entity. We have helped hundreds of business owners to stay on their feet with this process.
The new entity will not be affected by the debt of the old entity (unless the new entity has signed surety for the debt of the old entity. The directors/members are also not blacklisted because of a liquidation. (Unless of course, the directors/members are sued in their personal capacities because of any sureties that they have signed for the Company or Close Corporation). One can own 50 companies that all liquidate and own 50 more that trade successfully and are up and running. There is no limitation on the number of entities that one can manage and own and liquidate.
The liquidation of a Company or Close Corporation timed well, can stop SARS in their tracks.
It is a myth that SARS (and other creditors that the directors/members did not sign surety for) can hold a director/member personally liable for the debt of the Company or Close Corporation AFTER liquidation. If the liquidation is done timeously, then no creditor can hold a director/member liable for the debt of a Close Corporation that the director/member did NOT sign surety for. Once the director/member has signed surety, the only way to get rid of the debt for the director/member would be to sequestrate or pay the debt. If the entity is liquidated timeously and the director/member did not sign surety, then the director/members cannot be held liable for the debt, including any SARS debt. This includes VAT, PAYE and Income Tax. It does NOT include customs taxes, as a liquidation does not write off taxes that are owed in terms of the Customs and Excise Act, Act 91 of 1964. So timing of the liquidating of a Company or Close Corporation is everything.
How can I carry on with business after the liquidation of a Company or Close Corporation?
The Insolvency Act, Act 24 of 1936 and the Companies Act gives you the right, no, the obligation to liquidate the entity. The Companies Act also gives you the right to own as many Companies as you can handle. You can therefore legally liquidate one entity while you start trading in another. It is important though that you do it right and the process is well structured. We can assist with this.
Fulfilling an obligation
We cannot stress enough that there is an obligation on directors/members to liquidate an entity when the liabilities exceed the assets. If the directors/members does not liquidate the entity at this point, the liability shifts to the directors/members automatically. This does not mean that you wake up one morning and you are now liable for the debt of the Company/Close Corporation, but it does mean that any creditor of the entity can issue summons against a director/member of an entity that does trade on an insolvent basis. Once the summons was issued, it will not help to liquidate the entity any longer.
Any director/member who then liquidates an insolvent Company or Close Corporation, is fulfilling an obligation to do so.