Liquidation or Business Rescue? What is the Difference? Which is Better given my circumstances?
Liquidation is when a company which owes money to creditors and cannot repay it. The company (or its creditors) would usually approach Court for an Order. The Court would then appoint a liquidator to sell the assets of the company and pay any money received over to the Creditors, in the Order as per the law.
The Company is effectively wound up, creditors paid whatever can be salvaged from the sale of its assets and the company no longer trades. Its trading stops and the business is no more.
It is important to note that Directors or others who signed Sureties, may be in for a legal battle if the Company does not pay their debts in total. The creditors may then sue the sureties for the balance owing.
It is highly advisable to consult with your attorney when your company finds itself in debt it cannot repay or when it becomes clear that it will not be able to pay all it’s debts in the foreseeable future. Your attorney may advise you on your options as well as the consequences thereof.
Business Rescue (voluntary) is aimed at rehabilitating a company or business that is financially distressed ie it finds itself in a position where it cannot pay all its debts as they fall due. The Business would approach a Business Rescue Practitioner and the Practitioner will apply for a license from CIPC (previously CIPRO). The Business Rescue Practitioner will then place the company affairs under temporary supervision while the Practitioner develops a plan to take the business out of its current position and placed in a position where it can trade normally again and pay its debts as they become due.
The Business Rescue Practitioner will be in contact with the Employees and Creditors in a series of meetings and report thereon to CIPC. The Business Rescue Plan may involve, amongst others, the restructuring of debts and the employees due to new operational requirements.
The Creditors will vote on a prospective Business Rescue Plan as put forward by the Practitioner. If voted in, the Business Rescue Practitioner will implement the Plan and report on the progress. Once the Business is functioning and has been properly restructured, the Business Rescue Practitioner will file his report with CIPC and the Business will continue to function as per the implemented plan.
It is important to note that during Business Rescue Proceedings, many of the Company’s creditors cannot enforce their debts against the Business. However, they can still enforce their Debts via any Suretyships etc. It is therefore very important to consult with your attorney on the various options, their advantages and disadvantages as well as the consequences of any given action, in order to make an informed decision regarding the way forward with your business.
This article is aimed at Businesses, Companies and Close Corporations and not at individuals.
For more information on personal Sequestration or Debt Rescue please see our blog at https://www.hamelattorneys.co.za/debt-rescue-or-sequestration-which-is-better/
For more information on collecting debts owed to your Company please see our blog at https://www.hamelattorneys.co.za/collecting-debts-owed-to-you-or-your-company/
For more information about personal asset protection, please see our blog at https://www.hamelattorneys.co.za/trusts-in-south-africa-ensure-your-assets-are-safe/
For more information on Being Sued please see our blog at https://www.hamelattorneys.co.za/being-sued-what-should-i-do/
For more information on Suing for Debts owed to you please see our blog at https://www.hamelattorneys.co.za/suing-someone-what-and-how/
Creditors may also approach the Court for an Order as to Business Rescue, but this is beyond the scope of this article.
Contact us today to set up your consultation at https://www.hamelattorneys.co.za/contact/ or 012 754 3385. Our consultations may be done in person (after lock-down) or online via Skype.