When making the statement, ‘I need help | my business is drowning in debt’ it’s a really serious situation that needs to be addressed immediately. You really can’t afford to make mistakes, because even a small one can complicate things before the financial situation starts to improve.
What kind of debt relief solutions are available for businesses struggling financially?
It’s important to remember that just because a debt relief solution is out there for a business and its owners, it doesn’t automatically mean it’s the best fit for your unique situation. Let’s explore the various debt relief options available for businesses that are struggling with debt and see how you can take advantage of them.
If your business is drowning in debt, you cannot ignore the problem and try to hide away from it. It’s always better to deal with it head-on.
BUSINESS RESCUE
What is Business Rescue, and how can this process help me save my business?
Upon a thorough examination of this process, one may discover that a straightforward explanation can be encapsulated in the following statement. Business Rescue can be understood as a form of debt review designed especially for businesses.
This solution may not be the best business debt solution you would follow if your business is drowning in debt. If you need help to deal with the over-indebtedness of your business and there’s no possibility of settling this debt in a timeous manner, this solution might not be the solution you’re looking for.
This process is specifically designed for businesses, and while it shares similarities with individual debt review, the steps that must be followed are very different.
This business debt solution is perfect for companies that are experiencing cash flow challenges but have contracts and incoming funds expected within six months to facilitate recovery from the process. If there is no assurance of funding or new business opportunities within the next six months, this will merely become a financial burden that could lead to the liquidation of the company.
In light of the information presented, I recommend engaging with a business debt expert to assist you in exploring the various debt relief options that are accessible for businesses struggling financially in South Africa.
BANKRUPTCY / LIQUIDATION OF A BUSINESS
Liquidation of a business is certainly a significant action, yet it can serve as a viable solution for business debt when recovery from over-indebtedness is not feasible.
Because this debt solution, if handled incorrectly, could hurt the company’s directors and shareholders, an expert in business and personal debt will need to conduct such an evaluation.
This is the most effective debt relief solution if you did not sign a surety for any of the company’s debts, as the company debt will be written off.
If there are assets, it will be sold, and the proceeds will be used to settle the company’s debts proportionally in terms of whatever amount remains after paying the curator and liquidator fees and disbursements from the proceeds of the sale of the company’s assets.
However, if there are no assets, it is not an issue because, according to the Companies Act, it is considered reckless to continue trading if the company cannot meet its monthly obligations. Directors and shareholders may face charges of reckless trading, which is a criminal offence. Therefore, it is not advisable to continue doing business if you are unable to meet your monthly obligations.
It is important to be open and honest with the business debt expert to ascertain the severity of the business debt and to provide advice based on the information provided in this instance.
Therefore, based on the above, it is recommended that you appoint a debt relief expert who specialises in business and personal debt solutions to ensure that all the different scenarios are played out and explained in detail before making any final decisions.
It is crucial to consider personal debt relief solutions when business owners and directors have signed surety for debt in their personal capacity, such as lease agreements, overdrafts, credit cards, and business loans.
This process involves a comprehensive examination of the business finances along with the personal impact it will have on the directors and shareholders of the company while seeking agreeable solutions tailored to the situation.
Therefore, it’s advisable to have a discussion with the debt expert regarding this particular scenario to grasp their needs and to evaluate how liquidation as a business debt relief solution will affect the company, its directors, and shareholders. Ultimately, this will determine if it is the right solution for your specific needs.
DEBT MEDIATION PROCESS FOR BUSINESS DEBT
In many instances this is a viable solution rather than business rescue. However, this solution will not stop legal action.
If the debt’s not in arrears yet, this can be a way of getting ahead of the situation before it transpires to a point where mediation is no longer an option.
Considering all the above, it is evident that reaching out to a debt relief expert, who can provide guidance on the best course of action, is crucial if your business is overwhelmed by debt. This will include the pros and cons of every process and a recommendation of the best way forward and the reasoning behind it.
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Disclaimer: The article is for informative purposes only. It does not serve as legal advice, nor is it intended as such. Please speak to our attorneys before relying solely on the information herein to make any decisions.