Liquidation: The Great Escape
When a business is overwhelmed by debt it can be liquidated to get rid of debt, meaning once the company was liquidated, the debt does not have to be paid unless the directors signed personal surety for the debt. The stress of managing creditors can distract from daily operations. However, liquidation offers a powerful way to eliminate debt and pave the way for a fresh start. This guide outlines six essential steps to help you liquidate your business, eliminate debt, and explore options for continued trading.
How To Make The Decision
The most challenging aspect of liquidation is often making the initial decision to proceed. It is essential to approach this decision objectively and clinically, focusing on your company’s balance sheet rather than emotional attachments or fears. If your business cannot pay its debts and has little to no cash flow, it is likely insolvent and should be liquidated. Taking proactive steps towards a solution is crucial to breaking free from the debt spiral.
Key considerations:
– Assess your company’s ability to pay its debts, especially if there is bad debts and SARS bad debts that need to be written off.
– Evaluate current and projected cash flow
– Determine if the company is insolvent (unable to pay debts as they fall due)
No “ifs” and “buts” and “maybe” and “perhaps” or “if only”. If the company cannot pay its debt and there is no definite immediate solution ahead, then wishing it was different will not change facts.
Steps After the Decision Was Made
Once you have made the decision to follow the liquidation procedure, it is important to set a clear timeline for the process. This step puts you back in control of your business and provides a framework for managing the transition. By setting a clear end date, you transition from being paralyzed by inaction and fear to taking an active role in shaping your business’s future.
Actions to take:
– Choose a specific date for when your company will cease trading under its current structure
– Use this deadline to guide your planning and decision-making
– Begin to manage creditors proactively rather than reactively
– Make informed decisions regarding clients, contracts, bank accounts, cash flow, and staff
Consider the Following:
Liquidation does not necessarily mean the end of your business activities. With proper planning, you can restructure your operations to continue trading. This restructuring process allows you to continue your business operations with a clean slate (if you want to continue with the same business), deciding how to allocate your cash flow without the burden of previous debts.
Consider the following:
– Identify which assets you want to retain post-liquidation
– Plan to buy back necessary assets after the liquidation process
– Determine which staff members you wish to retain
– Negotiate with your landlord for continued use of premises (if applicable)
– Set up a new entity to generate cash flow, free from the old company’s debts
Determine Your Company's Financial Status
To effectively manage the liquidation process, you need a clear understanding of your company’s financial situation. Facing these facts head-on empowers you to make informed decisions and take control of the situation. This overview will give you the true picture. This will force you to look at the situation instead of hiding bills in the drawer…
Steps to take:
– Compile a comprehensive list of all creditors
– Gather detailed information about each creditor
– Review financial statements for any debit loan accounts
– Assess the overall financial situation of the company
What to Do if You Want To Continue To Trade After Liquidation
If you plan to continue trading after liquidation and you need suppliers, it matters that you communicate with them before and during liquidation so that you don’t lose them. Of course, if you are simply closing the business down this does not apply.
Actions to consider:
– Identify suppliers you wish to retain
– Arrange for these suppliers to start invoicing your new company
– Negotiate payment arrangements for historical debts from your new entity (the ones you want to keep)
– Communicate with clients about the restructuring process if you want to keep them
Start with the Process
Talk to us if you have not already to start the Liquidation Process. We will send you a form to complete to gather the information. We will draft the documtation and arrange signature with you. You will email and courier the signed documents to us. We will lodge the copies with the CIPC and the originals with the Master. It takes about 3 – 5 days to liquidate the company and about 30 days for a liquidator to be appointed. As soon as the company is liquidated no creditor may take any legal action agains the company. We work very fast so it will be over before you know it and you will be rid of company debt.
