Liquidation & Other Debt Options
When your company is financial difficulties, you have a few options..
Under South African law there are 14 options when your company or close corporation is in debt.
- Pay the debt – (option 1)
- Consolidate debt – (option 2)
- Moratorium- (option 3)
- Negotiate Extended repayment period – (option 4)
- Do nothing about it (Sit back and Wait) (option 5)
- Get investors on board- (option 6)
- Sell shares- (option 7)
- Borrow more money- (option 8)
- Private Liquidation – (option 9)
- Voluntary distribution – (option 10)
- Liquidation- (option 11)
- Trade out of the problem – (option 12)
- Deregistration- (option 13)
- Compromise (Section 311) – (option 14)
- Company Rescue Procedure for Companies & Close Corporations (option 16b)
The new companies act’s profound influence on the liability of Members and Directors:
The new Companies Act No. 71 of 2008 came into effect on May 1, 2011. Before the New Law came into effect, the Old Companies act placed no direct obligation on directors and members when a company / CC were in financial problems.
Section 129(7) of the New Act (As amended by Section 82 of Act 3 of 2011) provides that if the directors of a company has reasonable grounds to believe that the company is in financial distress, they must either:
- place the company under “Business Rescue”, or;
- liquidate the company, or;
- send a notice to all shareholders, creditors, employees and trade unions that the company is in financial problems and give reasons why the company is not liquidated or placed under Business Rescue.
If the above are not met, it is a criminal offense.
Under the new Act, a director / member may no longer “just wait and see”, he must do something about it.
Will my company / CC liquidation be successful?
His Honourable Appellate Judge Zullman has made the statement that if a company is not successful, you have the obligation to ‘take it to the grave’. The Court will consider the position of employees, creditors, shareholders, as well as the benefit / disadvantages that would hold for the trading environment, when considering if a company should be liquidated. Furthermore certain formalities need to be complied with.
Creditors obviously a right to oppose the liquidation.
Our firm has handled more than a thousand liquidations and each application was successful.
Read More about Liquidation