When it is foreseeable that your company / close corporation will not be able to pay its creditors as they fall due in the ensuing 6 months, there is a legal obligation on you to liquidate the company.
You have already tried the following:
- Renegotiate Payment to Creditors
- Refinance Debt Obligations
- Trade out of the Problem
- Get Investors on Board
- Sell Shares
- Default on Taxes
- Downsize the Company
- Sell-off Personal & Businesses Assets
- Borrow from Family & Friends
WILL THE COMPANY OR CC LIQUIDATION BE SUCCESSFUL
His Honorable Appellate Judge Zullman has made the statement that if a company is not successful, you have the obligation to ‘take it to the grave’. The Court will consider the position of employees, creditors, shareholders, as well as the benefit/disadvantages that would hold for the trading environment when considering if a company should be liquidated. Furthermore, certain formalities need to be complied with. Creditors obviously have a right to oppose the liquidation.
Our firm has handled more than a three thousand liquidations and each application was successful.
LIABILITY OF MEMBERS AND DIRECTORS
Liability under Companies Act
Liability under Tax Administration Act
The new Companies Act No. 71 of 2008 came into effect on May 1, 2011. Before the New Law came into effect, the Old Companies act placed no direct obligation on directors and members when a company / CC were in financial problems.
Section 129(7) of the New Act (As amended by Section 82 of Act 3 of 2011) provides that if the directors of a company has reasonable grounds to believe that the company is in financial distress, they must either:
- place the company under “Business Rescue”, or;
- Liquidate the company, or;
- send a notice to all shareholders, creditors, employees and trade unions that the company is in financial problems and give reasons why the company is not liquidated or placed under Business Rescue.
If the above are not met, it is a criminal offense. Directors / Members may no longer “just wait and see”, they must do something about it.
On 1 October 2012, the Tax Administration Act was promulgated. Referred to the TAA for short.
Under the TAA, Directors, Members, Internal Bookkeepers, External Auditors are all liable for the companies outstanding taxes. Sars can issue civil and criminal summons in this instance.
Should you be behind on your taxes it is a serious matter and will need to be dealt with rather urgently to try and mitigate these risks.
Please consult with us to find out what legal recourses are to your disposal.