People do not start businesses with the idea to fail, but unforeseen circumstances and a challenging economic environment can cause business failure. Small businesses are especially vulnerable in a highly competitive market. The question of “How long does liquidation take in South Africa?”, certainly is one that thousands of struggling business owners want answered. Although the answer is not straightforward, we will answer it in the article below, along with other questions related to it.
Many factors contribute to the eventual closure of a business. The restriction on movement, business hours, number of customers in a store, and the types of products to be sold under lockdown regulations have severely affected businesses in the country. For many business owners, an answer to the question of “How long does liquidation take in South Africa?”, has become important to determine if they can start over or if they will be able to recoup debts owed to them. So, let us get started.
HOW LONG DOES LIQUIDATION TAKE IN SOUTH AFRICA IN TERMS OF A SOLVENT COMPANY?
A solvent company is a business entity that is still able to pay its debts when due, also the debts up to six months from date and where the entity’s liabilities do not exceed its assets. In this instance, the company directors by means of a special resolution decide to close the doors and to deregister the company at CIPC. To make sure creditors do not put forward claims against the company after deregistration, they liquidate the company’s assets.
This entails selling the assets, paying all the creditors, including SARS, and making sure the financials are up to date. The company is deregistered at CIPC and seizes to exist. The length of the process depends on how quickly the winding up process is completed. It can take anything from a few weeks to two years to complete.
THE LIQUIDATION MAY BECOME NECESSARY FOR THE FOLLOWING REASONS:
- The company does not trade and has not traded for a while (it is dormant).
- The business owners have other interests and no longer wish to trade in the goods or services of the company.
- The business environment has changed considerably, making the services or products of the company obsolete.
In any of these instances, it makes sense to deregister the solvent company.
HOW LONG DOES LIQUIDATION TAKE IN SOUTH AFRICA IN TERMS OF AN INSOLVENT COMPANY?
It takes anything from six months to two years to finalise, but this is mostly due to the administration involved. For the most part, the directors are not directly involved since the process is handled by the insolvency attorneys. In some instances, the finalisation can take several years, depending on the complexity of the business organisation and its assets.
The process entails an application to court for the liquidation of the company’s assets. The company does not have to prove that it is insolvent. By law, it must stop trading if its liabilities exceed its assets and it is unable to pay its debts when due or is likely not to be able to pay the debts when due in the next six months. It can enter business rescue if the requirements are met. View more information about the business rescue process here and reach out for immediate professional help to determine if your company qualifies.
HOW LONG DOES IT TAKE TO GET PROTECTION FROM CREDITORS?
When people ask, “How long does liquidation take in South Africa?”, they often actually want to know how long it takes before they are protected from creditors. The moment the last day of trading is announced and the liquidation process starts, the company may no longer pay its creditors. This is to avoid a situation of one creditor to benefit more than the others. If a business continues trading after the agreed last day of trading, then the income is to the benefit of the creditors and cannot be used by the company.
The assets cannot be sold during this period. All creditors must wait for the winding up process to be completed. They put in their claims and work only with the insolvency attorneys and the appointed liquidator. Protection is thus almost immediate .
WHAT HAPPENS IF YOU CONTINUE WITH AN INSOLVENT BUSINESS?
It is considered reckless trading. The creditors are put at risk. As such, you can be personally held responsible for the debts of the company. Do not risk it. Rather complete the free online assessment form to determine whether your firm is insolvent. If it is the case, it is time to prepare for liquidation. Once the business entity is liquidated, the creditors cannot bring claims against you.
HOW TO PREPARE FOR LIQUIDATION IN SOUTH AFRICA
Start with the completion of the online assessment form. Work with the insolvency attorneys to determine the last day of trading. If you wish to keep on trading, consult with our attorneys who can help you restructure operations and take the necessary steps to enable you to continue with business. Our attorneys will also help you with the preparation for liquidation, which entails, but is not limited to:
SURETY
Determine if you or any of the directors/CC members have signed surety for the company on debts. Identify the debts and amounts owed. You do not want the risk of liquidating the firm with the notion that the debt has been dealt with, just to find out that you and the other directors are responsible for debts on which you have signed surety. If you have signed surety, you must either sequestrate as well or take responsibility for the particular debt. Consult with our attorneys on the matter.
LIST THE CREDITORS
Make a list of all the creditors, the principal debts, outstanding amounts, interest payable, and when the debts are due.
LEASE INFORMATION
What amount is outstanding on the lease? If you wish to continue the business operations, you will need to find new premises as the landlord may decide to lock you out after having obtained an interdict. If you have signed surety on the lease, you will be responsible for the money owed. In this instance, negotiate on payment terms and leave the business premises as soon as legally possible after cancellation of the lease agreement. Note that every situation is different, and this is thus not legal advice. Consult with our attorneys on the best and legally valid route to follow to minimise damages for you and the landlord.
LAST DAY OF TRADING
If you wish to continue the business, it is imperative to take the necessary steps beforehand to make it possible. Once again, seek legal guidance on the matter. If not, decide on the last day of trading and keep to it.
COLLECT THE NECESSARY DOCUMENTS
The liquidator will require certain documents. The faster you get everything together, the sooner the process can be completed. These include the bank statements for a minimum twelve months to date, up-to-date financial statements, a list and value of the assets, and the creditor information. Keep in mind that the employees are also creditors and have preferent claims for up to a certain amount each. Consult with our attorneys regarding retrenchment processes and the claims payable for each of the employees.
WHERE TO START?
With the liquidation process highly dependent on factors, such as the complexity of the company’s assets and operations, the number of employees, the debts owed, and more, it is not possible to give a straightforward answer on how long it takes. Find out where your firm stands and how long the liquidation will take for your company in South Africa by completing the online assessment form.
Disclaimer: This article is for informational purposes only and does not constitute legal advice. Call on 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.