HOW TO DECLARE BUSINESS BANKRUPTCY | LIQUIDATION PROCESS | PART-1-EXPERT ADVICE!
In Part 1 of ‘How to Declare Business Bankruptcy,’ we’re taking a closer look at the company’s Acts’ rules and regulations regarding the liquidation process and how this will impact the director(s) of the company.
Declaring business bankruptcy is a huge decision and, as a result, not one to be taken lightly.
Understanding the liquidation process.
To understand the liquidation process and its’ implications to you as business owner(s), director(s), and /or shareholder(s), one needs to take into consideration three different laws, namely.
1.
Companies Act.2.
Labour Relations Act. 3.
Insolvency Act.Let’s have a quick look at the Companies Act, and its stance on companies unable to service its obligations:In accordance with Section 22(1) of the Companies Act, a company cannot continue conducting business recklessly with the intention of defrauding any party; this constitutes gross negligence on the part of the company owner(s), director(s), or shareholder(s).
Furthermore, Section 77(3)(b) of the Companies Act clearly states that if a company owner, director, or shareholder engages in reckless trading, they are personally liable for any resulting loss or damages, whether directly or indirectly, due to the gross negligence to keep trading while the company is unable to service its’ obligations.
Director(s) Liability and Liquidation of a Company:
This raises the question: What would happen to a company owner, director, or shareholder if they decided to declare the company bankrupt due to its inability to meet its obligations?
According to Section 22(1) of the Companies Act, if a company liquidates because it can no longer meet its obligations, the director(s) did not commit reckless trading and are therefore not personally liable for any losses incurred.
PERSONAL SURETY AND COMPANY LIQUIDATION
If any director(s) signed surety for debt incurred in the company, the director(s) in question can be held liable for the debt in their personal capacity, as per the surety agreement.
The decision to hold the director(s) liable for any sureties signed on behalf of the liquidated company is at the sole discretion of the creditor(s) involved.
However, the creditors will first need to submit their claim to the liquidated company prior to pursuing the surety. This process guarantees the proper documentation and assessment of all claims in the context of the company's liquidation.
If the liquidated company's assets are insufficient to cover the outstanding debts, the creditors may then seek to enforce the surety agreements against the director(s) personally.
What to expect when declaring your business bankrupt?When anticipating the liquidation of your business, it's crucial to remember the following:
Locate a business debt specialist who can offer expert guidance on the process. The impact of declaring your business bankruptcy on a business owner, director, or shareholder should be carefully considered prior to deciding to continue with the process.
