Insolvency

When is a Company insolvent?

• Commercial Insolvency – cash flow problems
• Factual Insolvency – liabilities more than the assets

How is a Company liquidated?

Liquidation proceedings can be started by way of a High Court Application, alternatively, by way of a Voluntary Liquidation (Often referred to as Bankruptcy).

Disadvantages of liquidation

• Once a Company/Close Corporation is liquidated it can, in the majority of instances, no longer trade. The ability to generate an income is therefore lost. Shareholder and Directors who have invested not only money, but also time, will most likely lose their investment.
• If the proceeds from the sale of the assets are not sufficient to repay creditors, they will have to write off debt, which in an already struggling economic climate, could have a detrimental ripple effect.
• Employees will lose their jobs and income and the Company/Close Corporation and industry may lose valuable skills, know-how and abilities.
• Where Directors/Shareholders have signed personal sureties, or offered their personal assets as security for the debts of the Company/Close Corporation, they may also be sequestrated of unable to pay the debt.
• Subcontractors and service providers to a business that is liquidated will also lose income.
• The winding-up process can be costly and time consuming.

Advantages of liquidation

• During the winding-up proceedings, after a Company/Close Corporation has been placed in liquidation, a liquidator is appointed by the Master of the High Court. The liquidator will dispose of all assets and the proceeds from the sale of the assets will be utilised to repay creditors.
•  Generally, creditors will no longer be in the position to proceed with Summons/Application against the Company under liquidation and unless directors/shareholder have signed personal sureties they will not be liable for the debt incurred by the Company/Close Corporation.

Alternatives

Corporate Business Rescue offers services that are specifically aimed at rescuing financially distressed Companies/Close Corporation within the parameters of the Companies Act, Act 71 of 2008.  Through tried and tested methods; such as new management strategies, company restructuring, debt management, corporate restructuring, lean company management and financial restructure, we offer financially distressed businesses the opportunity to recover from its financial hardships and become stable, sustainable and profitable. A business Rescue Practitioner is appointed by the CIPC to assume temporary management control over the financially distressed business.