Voluntary Liquidation with SARS debt
All business owners should know how to deal with SARS debt that a business cannot pay. If your business is one of the unfortunate ones targeted by SARS, you understand the pain and stress of being threatened by them. The relentless pressure from SARS can cause sleepless nights, constant worry, and an overwhelming sense of dread. It is not necessary to live in fear. It is possible to liquidate and get rid of SARS (and other) debt.
The Nightmare of SARS Debt
SARS is an expensive and tough creditor. SARS can garnish your bank accounts, seize your assets, and leave you with nothing – and they often do. The pressure they apply can be unbearable, and the legal battles can drain your resources. Facing SARS without a clear plan can feel like trying to fend off a pack of wolves with your bare hands…. and loose.
But you do not have to let SARS ruin your business. There is a way out.
Liquidation as a Solution
Voluntary liquidation offers a way to stop SARS in their tracks. By voluntarily liquidating your company, you can effectively remove the burden of SARS debt. This step is not just about financial survival; it is about the fact that any historical SARS debt is too expensive because of penalties and interest. So high, in fact, that it mostly becomes impossible to pay and catch up, even if you want to. Often, SARS will not compromise even if you try to. If there is a dispute, SARS will also mostly not concede even if they are wrong. The only other way to get rid of SARS debt if the company cannot pay it is to get rid of debt.
How Liquidation Works in South Africa
When you liquidate your company, SARS and other creditors are required to participate in the structured winding-up process. No creditor can take independent legal action against the company once the liquidation has begun. Liquidation halts all aggressive collection efforts and legal actions, even SARS. SARS is forced like any other creditor to take part in the winding up process of the insolvent company and do not stand above it. SARS is only a preferent creditor, meaning they stand behind the bank if there is a bond on a property, they stand behind a landlord who claims rent and the even stand behind a pledge. If there are assets in the company that can be sold, the proceed will be distributed amongst creditors. The bank for the bond, the landlord and the pledge will be paid first – in that order. If there are funds left, SARS and wages will be paid. If there are no funds left after the bank/landlord/pledge was paid, SARS will not get paid and cannot claim any shortfall from the company.
The liquidator, who takes over from the directors, will manage the company’s assets and deal with all creditor claims. This includes negotiating with SARS on your behalf. The liquidator’s duty is to ensure that the affairs of the company is wound up in terms of the Insolvency Act and SARS is obliged to take part in this process.
The only taxes that are not written off in a liquidation is taxes under the Customs and Excise Act. The reason for this is because there is a clause in the aforementioned Act that holds the manager of the premises (not even the director of the company) liable for the customs and excise taxes of the company. For that reason, any customs and excise taxes are not written off in a liquidation.
Dealing with SARS Aggression
SARS is known for its aggressive tactics. Some debt collectors have been appointed to collect SARS taxes and they can be relentless. SARS can also freeze your company’s bank accounts, sending in auditors, and applying continuous pressure through their debt collectors. The constant threat of SARS can make everyday business operations feel impossible. Voluntary liquidation takes SARS out of the equation. By entering into liquidation, you shield your business from their aggressive tactics and allow the liquidator to handle all interactions with SARS.
The Relief of Liquidation
Imagine waking up without the constant fear of SARS knocking at your door or freezing your assets. Liquidation provides that relief. It gives you the opportunity to eliminate the debt that has been causing so much stress and to start fresh. You will no longer have to deal with the relentless pressure from SARS, and you can begin to rebuild your life and business without the weight of insurmountable debt.
Directors’ Personal Liability
Directors are not liable for the debt of a company unless they signed personal surety for it. In terms of the Income Tax Act though, SARS CAN (not shall/will/must) hold directors personally liable for the debt of the company. In our experience they do not often do so, but it is possible that they can do so. We have stressed the word “can” because for SARS to hold a director personally liable, they must prove that the director was negligent in allowing the company to not pay its taxes. SARS cannot automatically hold the director personally liable for the debt of the company, they must be able to prove that the director was negligent. If they cannot prove it, then they cannot hold the director personally liable.
Manage the debt versus getting rid of the debt
When it comes to debt, whether it is debt owed to SARS or not, there are some options. Once you have determined whether you want to MANAGE the debt or whether you want to GET RID of the debt, you know what to do next.
You can only manage the debt if the company can pay the debt. If the company cannot pay the debt you must get rid of the debt.
Liquidation as a solution
It is possible to get rid of SARS (and other) debt. If you liquidate the company the debt is written off for the company. You can trade in another company where there is no debt and you will have your life back. The sooner you liquidate the sooner the problem stops.
Conclusion
Voluntary liquidation is a viable solution for businesses struggling with the overwhelming pressure of SARS debt. By understanding the process and seeking professional advice, business owners can ensure that their companies are liquidated efficiently and fairly, allowing them to start anew without the constant fear of SARS looming over them.
