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INSOLVENCY AND BUSINESS TURN-AROUND SPECIALISTS

INSOLVENCY AND BUSINESS TURN-AROUND SPECIALISTS

010 286 1966 | [email protected]

15 options if a company cant pay its debts

Under South African law there are 15 options. If your Company  is indebted 

 

15 options if a company cant pay its debts

Under South African law there are 15 options. If your Company  is indebted 

 

15 options for company debts

Under South African law there are 15 options. If your Company / Close Corporation is indebted the options are the following:

option 1

Pay the Company Debt

option 2

Consolidate Company Debt

option 3

Moratorium Agreement

option 4

Negotiate Extended Repayment Period

option 5

Do nothing about it (Sit back and Wait)

option 6

Get investors on board 

option 7

Sell some company shares

option 8

Borrow even more money

option 9

Privately Liquidate the company

option 10

Voluntary distribution

option 11

Voluntary Liquidation

option 12

Trade out of the problem

option 13

Deregistrate the company

option 14

Compromise Agreement

option 15

Start a Business Rescue

Option 1

PAY YOUR COMPANY’S DEBT!

If your Company owes money to your creditors, the first and logical option is to pay the debt. Payment can take many different forms, like for example rescheduling of payments, extension of the repayment period, etc.

Option 2

CONSOLIDATION

Consolidation is a simple commercial option in terms whereof your Company borrow more money to pay its debt. Your company’s should be very careful when considering consolidation, because it could end your company’s up in deeper trouble. The only instance where consolidation really works is if your company’s consolidate short term debt into a long term loan (for example if your company’s take a further bond on a property to pay off credit cards, motor vehicles and loans). The normal problem with consolidation is that, by the time the debtor tries to consolidate his debt, he is already listed on the credit bureaus and he does therefore not qualify for further loans. Be careful to not bail out your company if your company’s are not sure it will be able to pay you back.

Option 3

WHAT DOES “MORATORIUM” MEAN?

A Moratorium is where your Company enter into a agreement with its creditors in terms whereof they allow your Company a grace period during which your company’s it is allowed to to skip monthly a number of instalments. This process only succeeds if you can dangle a very nice fat carrot in front of the donkey, for example where you proof that a policy will pay out in the near future and the funds in the policy will be enough to cover the debt. The creditors will normally only enter into a moratorium agreement if they are absolutely sure that they will get paid. Keep in mind that when you negotiate with a creditor, the creditor only wants two questions answered, namely: When will you pay them and how much?

Option 4

NEGOTIATE EXTENDED REPAYMENT PERIODS

It is possible to negotiate extended repayment periods for company debt. Note that this will increase the facility cost of the debt. 

Option 5

WHAT HAPPENS IF I SIT BACK AND WAIT?

Creditors will issue a summons. The summons becomes a judgment where after the Sheriff of the Court will be sent out by the creditor to attach your assets. Should your company does not have enough assets which can be sold to cover the debt, then a garnishee Order can be issued against terms whereof the creditor takes any money due to your Company. If this does not fulfill the debt, You, in your representative capacity will be summonsed to appear in front of a Magistrate.

When you are subpoenaed to appear in front of the Magistrate, you will have to take along your Companies/CC’s banking statements and any other documents that pertain to its financial situation. The Magistrate then holds an inquiry to determine whether there are any assets or income which can be attached to the benefit of your creditor.

Option 6

GET INVESTORS ON BOARD

You can generate cash flow by getting investors to invest. Note this can lead to a situation where you work for your investors and the business does not work for you. 

Option 7

SELL SHARES

You can generate funds by selling shares. Keep in mind that if you sell shares this will not save the business. You need to address the reason the business is falling. (Unless of course, you sell the complete business)

Option 8

BORROW MORE MONEY

If the problem is temporary you can bridge the cash flow issues by raising debts, but this can quickly lead to a debt snowball effect.

Option 9

WHAT DOES “PRIVATE LIQUIDATION” MEAN?

A Private Liquidation is a process by which you sell of your assets in an effort to bring your monthly expenditure under control. This is not a “Court process”.

Option 10

WHAT DOES “VOLUNTARY DISTRIBUTION” MEAN?

Without making use of a court of law, your company can negotiate a deal with your creditors in terms whereof it voluntarily distributes a certain amount amongst them. In our experience, it is very difficult to reach such an agreement.

Option 11

LIQUIDATION

The liquidation of a Company / Close Corporation is a legal process whereby the Company and its affairs are placed under the control of a liquidator who must realize the assets and divide the assets amongst creditors according to the stipulations in the Companies Act. The main aim of liquidation is to divide the yield from the sale of assets amongst creditors fairly and to dissolve the Company in an orderly manner.

Option 12

TRADE OUT OF THE PROBLEM

If it is possible to lift prices, increase production or restructure the business to make it profitable, you can trade out of the problem. 

Option 13

DEREGISTRATION

If your company / close corporation is unable to pay its debt, deregistration is the exact wrong procedure to follow because, if your company / close corporation gets deregistered, the Directors become liable in person for all the debt that the company had before date of deregistration.

Another effect of deregistration is that all the assets of the company immediately becomes the property of the State. Cipro is using this to their advantage because, if your company does not pay the annual Cipro fee, they then deregister your company.

Option 14

COMPROMISE

The purpose of a Section 311 compromise is to reach a binding agreement between the shareholders and creditors of the company with a view to modify their claims against the company in the common interest of all parties concerned. Section 311, therefore, creates the machinery which enables the company to negotiate with members of a group of shareholders and/or creditors collectively and combine all the members of that group to the agreement reached by the majority of members of that group. The main aim is to rearrange a company’s liabilities. This mechanism is normally used by rather big companies.

The compromise must be agreed upon by a majority in a number of creditors who must represent at least 75% in value of the debt owed by the company. Furthermore, at least 75% of the shareholders must agree to the arrangement. A scheme can take many forms. Even companies who are not insolvent can apply for Section 311 if this would help the company to become more profitable. It is a rather involved process and we will advise you on this.

Option 15

BUSINESS RESCUE

Business Rescue aims to do exactly what the name says; to rescue or rehabilitate a Company which is under financial duress. A rescue plan must be drawn up by the Business Rescue Practitioner (in consultation with certain parties), which must be implemented in an attempt to save the Company.

Choose US

Liquidation Attorneys has been involved with some of the biggest liquidations in the country. Liquidations are highly specialized and we trust we will have the expertise to assist you.