Liquidation may not necessarily be your first choice when it comes to dealing with business debt, but it may be the only viable option left if the creditors are not willing to enter into a compromise agreement. However, it is best to work with experienced insolvency practitioners, should you decide on liquidation.

If your business is in financial trouble, you have the options of business rescue, compromise agreement with the creditors, or liquidation. Legislation regulates business rescue operations, credit agreements, and liquidation. Experienced insolvency practitioners will be able to determine which road to follow regarding your business’s debt situation.

The law stipulates that the directors/members must voluntarily liquidate the business as soon as its liabilities exceed its assets and the business is unable to pay its debts. Legislation is thus in place to prevent an insolvent company from operating in the insolvent state for too long. It thereby protects creditors from a business that runs up extensive debt, while the directors know that the business is unable to pay the debt.

One benefit of liquidation, as experienced insolvency practitioners will explain, is that it provides for a way to get rid of all the company debt, without the directors being held personally responsible for it. That said, if the directors have been irresponsible with the company’s finances, they could still be held accountable. In addition, if a director has signed any type of surety for the company, the director also becomes liable for the debt owed by the company.

If the liquidation is done in a timely manner, no directors can be held responsible, even for company taxes owed to SARS. Only if the directors fail to liquidate the business when its liabilities exceed its assets does the liability shift to them.

Even the company’s tax debt is written off through the liquidation process. The only taxes that cannot form part of the liquidation process are custom and excise taxes. Be sure to discuss the issue with our insolvency attorneys to minimise risks during the liquidation process.

The directors can still operate a business if they register another business. It is thus possible to continue with business and secure jobs while the assets of the insolvent business are sold as part of the liquidation process. We recommend working with experienced insolvency practitioners in this regard to plan the liquidation process. It is essential to refrain from signing surety for the business. The new business entity is only protected and able to operate if it is not linked to the insolvent business by means of surety.

Get professional legal assistance with the liquidation of your business. Speak to our experienced insolvency practitioners about the available options.

Disclaimer: This article is for informational purposes only and does not constitute legal advice. You are advised to consult with us before using/relying on this information. Information is relevant to the date of publishing – February 2018.