Is Your Ship Sinking? When to Consider Liquidation?

Considering liquidation, wondering if it’s the right process for your business? It’s no secret that business is tough in South Africa, and while it’s the aim of every entrepreneur to succeed in an over-crowded marketplace such as ours, things don’t always go according to plan.

Today, liquidation is common in South Africa, so much so that the latest liquidation statistics released by Stats SA paint a very bleak picture. Although liquidation has decreased by 10, 8% since 2015, this doesn’t mean much for all the other entrepreneurs sailing stormy seas. Today, there are hundreds of businesses struggling to survive, which is exactly why you’re reading this article. You want to know whether you should because you’re in the same boat.

So how do you know if liquidation is for you?

The New South African Companies Act of 2008 compels all insolvent businesses to consider the process of voluntary liquidation rather than wait for a court order. The Act also stipulates that if a company conducts business while insolvent, then the directors will be liable for all debt incurred. So how do you know if liquidation is for you? If you’re a company or a close corporation that owes between R50 000 and R80 000 and you’re able to pay back your debts over time, then the best solution would be to sequestrate. But if you’re a company that owes way over R80 000, your liabilities exceed your assets, and you’re unable to pay back your debts, then the best solution would be to liquidate.

What you need to know about the liquidation process

The umbrella term for insolvency, liquidation is a process by which a company’s existence is brought to an end. Basically, there are two types of liquidations in South Africa: voluntary and compulsory. Whereas compulsory liquidation (forced liquidation) occurs because of a court order, voluntary liquidation occurs when the company cuts their losses and cease all operations. Regardless of the fact that liquidation is not an easy decision to make, what’s even worse is having the court make it for you, or getting deeper into debt and ending up with a criminal record.

Liquidation can be tough, which is why it’s always best to partner with a private Insolvency Company that can assist you through the process step-by-step. A legal process where a business and its affairs are placed under the control of a liquidator, voluntary liquidation is a fairly straightforward process that involves realising the company’s assets, cessation or sale of its operations, and distributing the proceeds among creditors and shareholders.

While no business wants to liquidate, one of the greatest advantages of liquidation is that once the process is complete and the company ceases to exist, the director will be free to strategise and implement a new business plan once again.