Liquidation as One of the Debt Solutions for Small Businesses

In a time when political uncertainty causes investor panic, small businesses are often the first to suffer. South Africa is once again in a time of political and economic confusion. With investor confidence low, small businesses in building, construction, and property industries may experience a decrease in their business activities. Perhaps, your business falls in the above category, or maybe it is doing well. However, should debt become unmanageable, you should seek workable debt solutions for small businesses.

Unlike with individuals, small businesses do not require assets to liquidate. Indeed, voluntary liquidation is one of the workable debt solutions for small businesses, because the law provides the option for businesses that are unable to pay their debts to become insolvent. If there is more money flowing out of the business than there is coming in, and the debts, together with liabilities that exceed the business assets, then the business is insolvent and should liquidate. Voluntary liquidation is a legal process whereby small businesses, seeking debt solutions, can apply to court to be liquidated.

The business estate is surrendered, and all assets are sold on auction. The proceeds of sale are distributed among the creditors, and the business seizes to exist. In order to apply for voluntary liquidation or winding up as a debt solution, all the members of the CC, or the directors of the company, must sign the resolution. The business can apply for winding up if it is unable to pay its debts. A provisional winding up order is issued.

Creditors and interested parties can oppose the final order for liquidation. If no opposition is received, the court will proceed with awarding the final liquidation order. To apply for liquidation, an application is submitted to the Master of the High Court, together with a certificate to indicate security of costs until the provisional liquidator has been appointed.

A copy of the application to liquidate must be submitted to SARS, employees of the business, registered unions as relevant, and the Master of the High Court. The business is placed under the control of the Master of the High Court, and thereafter under management of the court-appointed liquidators.

Upon liquidation, as debt solution for the small business, the shares cannot be transferred after the liquidation. Also note that all legal processes in and against the business are suspended. The assets of the company are sold and liquidated to ensure sufficient benefit for payment of the liquidation administration costs, in addition to the payment of dividends to relevant creditors. The creditors must be able to prove their claims. The funds realised from the liquidation process are kept in an estate bank account, managed by the appointed liquidator. It is possible to convert the liquidation to a business rescue, should the business seek it as a debt solution.

If you signed surety for the business, then you become liable for payment of the debts incurred, according to the surety. You will, as such, also be sequestrated, unless you are able to cover the debts owed. Avoid the various pitfalls associated with winding up as one of the debt solutions for small businesses by making use of our legal services.

 


Disclaimer: This article is for informational purposes only and does not constitute legal advice. Call our attorneys for legal advice, rather than relying on the information herein to make any decisions. The information is relevant to the date of publishing.

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