Why and When to Liquidate a Company in South Africa

If your business struggles to pay debts when due and the liabilities exceed the assets, then by law, you must liquidate the company. However, you can also liquidate a company when it is not in debt. This is done when the business no longer trades and to prevent claims in the future against it, you then apply to have it removed from the company register at CIPC. As an added measure of safety, you liquidate the assets.

For the purpose of this article, we look at when and why you might liquidate a company that is in financial trouble. Voluntary liquidation makes it possible to get rid of the business debt and helps you to avoid a situation of becoming personally liable for the business debts for which you have not signed surety.

To liquidate a company does not mean the debts for which the directors have signed surety are written off. However, all other debts are written off, including debt owed to SARS.

Seek legal guidance on how to proceed and be able to carry on business in another entity. Of course, you do not want employees to lose their income. As such, planning the timing of the liquidation is essential. Keep in mind that the longer your company trades in the insolvent state, the higher the risk of the directors becoming liable for the business debts.

Our insolvency attorneys will guide you through the process of establishing an alternative company in which you can start to trade and thus ensure income for the employees. Note that you cannot move assets to the new entity. Once the decision has been made in favour of liquidation, the last trading day must be announced. It is imperative to keep to the date, as any trading after that will be to the benefit of the creditors. By taking the responsible route to have the business in trouble liquidated, you can stop legal action for the collection of tax from SARS, including PAYE and VAT tax due.

You can legally create another business entity to trade in because the law does not limit you in the number of companies you can register. It does require you to take the necessary steps in applying for liquidation of the entity if the business is in a capital and cash-flow insolvent state.

 

Where to Get Legal Help

Call our attorneys at Insolvency Care for legal help to liquidate a company in financial trouble.

 


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

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