When a business fails, it is tough, but it is not the end of the world. It is not necessary to deal with emotions of shame, guilt or fear. It is not necessary to feel that there is no future or hope. If a business owner knew how to use the law to his/her benefit, he/she would avoid feelings of failure and the negative feelings that go with it. It can also assist with taking the next step with ease, because the owner would know there is hope.
Relevant knowledge will assist with making decisions that can get rid of a problem sooner and help one to move on to the next level quicker and easier. It would also enable the business owner to re-strategise the business to keep on going and grow even bigger and better.
Every business owner should understand how to protect assets - how the Companies Act works and when to liquidate a company. Most business owners are aware of the Companies Act (or the Close Corporations Act), but don't know how to apply it. They often make mistakes when they make decisions, because they are not aware of their options of a legit way out, or of obligations placed on them by the law that must be adhered to.
One of the obligations that are placed on a company by the Companies Act, is that the director(s) of a company must liquidate a company as soon as its liabilities exceed its assets, or if a company cannot pay its debt. The Companies Act takes such an obligation quite seriously: if a company is not liquidated when the liabilities exceed the assets, but continue to trade or is simply deregistered while it has debt, the liability for the debt shifts to the directors in their personal capacities, even if they did not sign surety for the debt of the company. This includes any monies owing to SARS.
One especially does not want to end up owing SARS any monies in one's personal capacity for the debt of the company. Liquidation will avoid this problem. There are many myths about liquidation which is generally viewed as a negative experience. This is wrong and stems from a lack of knowledge. On the contrary, liquidation is an excellent tool to use when the time is right with positive consequences for a business.
It is the same as a pilot that has to land a plane that is in trouble. The pilot hasn't got the time to focus on any emotions, or waste time, or hope for better days, and had better understand exactly how the equipment in the plane works, so that it can used to successfully land the plane. Liquidation works the same way and is merely one of the tools that a business owner can use to land his plane.
By liquidating a business when the liabilities exceed the assets or when the debt cannot be paid, one is first of all complying with the Companies Act. Secondly, liquidation is a fantastic tool to use to get rid of debt and continue with trade. There are many businesses that are viable, but because of some historic event are burdened with too much debt (an example is being audited by SARS that yielded unexpected disallowances and such, or VAT that wasn't paid over for some time or other debt that cannot be paid because of a drop in turnover.)
For these businesses liquidation is a great tool to use to help the business survive. It is a paradox but it is true. A consultation with an experienced attorney can tease out the problem and teach you how to use the process to your advantage.
Liquidation is thirdly used to get a business into a stronger position. At the right time, liquidation can be used as a strategy for the make-over of a business. Liquidation can immediately get rid of a problem and allow the owner to rather work with a positive mind-set without imploding because of having to deal with problems all the time.
Those who consider business rescue should also rather look at the advantages of using liquidation as a solution to continue with business. Liquidation will almost immediately get rid of the problem and with careful assistance and knowledge, the business can continue. Business rescue is very expensive, can take up to six months and unless very specific circumstances exist, most of the time just postpones the inevitable.
Liquidation is a simple legal process. A company does not have to have any assets to be able to liquidate. It doesn't matter how much debt the company has. As soon as the liabilities exceed the assets, the company can liquidate. If SARS is a creditor, SARS will only be a preferential creditor, but it won't prohibit the company to apply for liquidation. Preferential means that if, for example, there is property in the company that is bonded, the bank is a secured creditor and will get paid before SARS gets paid.
If there are no assets in the company, no creditor will get paid and all debt will be written off. Most importantly, liquidation will avoid that the liability for the debt shifts to the directors in their personal capacities. It is possible for a business to continue with trade after liquidation. Each case will have to be dealt with individually.
With proper assistance, liquidation is just one of the steps that can be used to help a business owner to shift from feelings of worry and fear, to having hope for the future and a renewed energy to build a great business.
