If your business is struggling with debt and you are considering liquidating your business, it is important to act quickly. With the right advice and support like we can give you, it is possible to save your business. It is possible to liquidate while you continue to trade.
Liquidation is a process by which a business is wound up and its assets (if any) are sold by an appointed liquidator in order to pay off its debts. If there are no assets then the debt will not be paid but written off. LIquidation is often seen as a last resort for struggling businesses that are unable to pay their debts and continue operating, but in fact should be the first step most failing businesses should take as soon as the financial problems start. In South Africa, the liquidation process is governed by the old Companies Act 61 of 1963 as well as the new Companies Act of 71 2008, and it is a complex process that requires the assistance of a qualified professional. There are many people advertising at the moment that they do liquidations but they are not attorneys. Be very careful of such businesses and rather use a specialiast commercial attorney who specialises in liquidations like us.
Why Would a Business Need to Liquidate?
There are a number of reasons why a business may need to liquidate. These include:
- Insolvency: When a business is unable to pay its debts as they become due, it is considered insolvent. In terms of the Companies Act a business must (not should or can) but must liquidate as soon as it cannot pay its debt.
- Business Rescue Fails: If a business rescue process fails to turnaround a struggling business, liquidation usually is the only option. In fact most businesses should not be put under Business Rescue in the first place but should rather liquidate immediately.
- No Prospects of Recovery: If the business is unable to recover from its financial difficulties, it is best to liquidate.
- Dispute Among Shareholders: A shareholder dispute can lead to a deadlock. It is better to liquidate such a company as soon as is possible because a deadlock means the company cannot function properly.
What Happens During the Liquidation Process?
When a business is liquidated, a liquidator is appointed to oversee the process. The liquidator’s role is to collect and sell the company’s assets (if any), settle its debts, and distribute any remaining funds to shareholders. If the proceeds of the assets are not sufficient to pay the debt, creditors must write any shortfalls owed by the company off and they cannot claim it from the company. If there are no assets or monies the creditors will not be paid anything, and all the debt of the company must be written off. The liquidator must act in the best interests of the creditors, and not the shareholders.
The liquidation process typically involves the following steps:
- Appointment of the Liquidator: The liquidator is appointed by the Master of the High Court. Employees, shareholders and creditors can nominate a liquidator. The Master has absolute discretion in the appointment but can take nominations into account it the consideration.
- Notification of Creditors: The liquidator must notify all creditors of the liquidation process.
- Sale of Assets: The liquidator must collect and sell the company’s assets in order to settle its debts. A company does not need to own any assets to be able to liquidate. Directors or interested parties can buy the company assets back from the liquidator.
- Distribution of Funds: If there are no assets, creditors will not be paid. If there assets to be sold, and it is sufficient to pay creditors in full, the liquidator must distribute any remaining funds to the shareholders.
- Deregistration: Once the liquidation process is complete, the company is deregistered at CIPC.
Speak to an attorney today
If your business is struggling with debt and you are considering liquidating your business, it is important to act quickly. With the right advice and support like we can give you, it is possible to save your business. It is possible to liquidate while you continue to trade.