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WHAT TO DO BEFORE LIQUIDATION

Liquidation is an excellent mechanism to use when a company cannot pay its debt. Liquidation gets rid of debt so that the business can continue debt free if the business owner wants to continue. Since most businesses are the livelihoods of their owners who cannot stop to trade, it is important to take the correct steps before a liquidation so that the business owner is affected as little as possible by the liquidation.

If you get your footwork right and you have a knowledgeable legal representative (like us), a liquidation should not affect you too much and you will be able to stay on your feet.

What are the steps to take before a liquidation?

Sureties

Determine for which of the debt of the company the director(s) have signed personal surety. You don’t want to liquidate thinking that the debt is gone and then get a nasty surprise from a creditor who addresses you in your personal capacity for a surety that you have signed. Liquidation does not write off company debt that the director(s) have signed personal surety for.

Creditor information

Gather all the information of creditors – full contact details. You will not need exact outstanding balances, but it will help you if you already have a list of creditors and their contact details by the time you proceed with liquidation because it must be completed on the documents that will be used.

Lease Agreement

If you are in arrear with rental and the landlord is not friendly, you need to find new premises to operate from (if you are going to continue with business) very soon, so that, if you need to trade, you do not end up in situation where the sheriff puts a lock on the front door after serving a rental interdict summons. Communicate with your landlord to keep relationships on a friendly level if possible. Double check if you signed personal surety for the lease agreement of the business (if there is a lease agreement). If you did sign personal surety, you will remain liable for the debt of the company after liquidation. My advice is that you then negotiate as best you can a deal with the landlord where the lease is cancelled and that you vacate the premises as soon as is possible. The reason for this is every month that you occupy the premises and the lease is not cancelled, you will remain liable for the rent and increase your own as well as the landlord’s damages. **This is general advice on the practicalities of leases and companies that are about to be liquidated and is not specific advice for a specific situation. Each situation is unique. Please consult with us so that we can give you applicable legal advice.

Rates and Taxes

If there is a property in the name of the company which is being used, pay rates and taxes up and until date of liquidation.

Continue to Trade

If you want to continue to trade, contact us so that we can assist you with a Restructuring process that can enable you to continue with business and keep your assets.

Bank statements

Get your bank statement for the last year of trading together. The liquidator is going to ask for this after liquidation.

Financial statements

It is preferable, but not obligatory for the company’s financial statements to be up to date. What usually happens is that by the time the company must liquidate there is no cash flow to pay accountants or auditors to prepare the financial statements.

Assets

Make a clear list of the assets of the company and try and determine some values. The values for the purposes of liquidation will be second-hand auction value. You can look on the internet for some auction values. The values are not the biggest problem because the liquidator will usually determine the values with a valuation. What is important is that there is complete list (preferably on an excel spreadsheet if possible) of the assets. If there are assets that are financed/leased, then it is important to determine whether the director(s) have signed personal surety for these agreements.

The liquidation process is not always black and white. With our experience we will be able to advise fully on the details of a liquidation and how we can help each client that suits the client’s circumstances.

Contact the writer Nanika Prinsloo on 072 8558 106 or visit our website www.empowerlaw.co.za.