In part 2 of this set of articles, we’re going to have a brief look at the Insolvency Act as well as the Labour Relations Act. We'll examine how this process works and how it affects company employees and directors.
In business, a company can voluntarily declare itself insolvent through a director's resolutions or high court applications.
By winding up the business, it means that there’s no other alternative solution to the company’s financial situation. The company cannot recover financially in the near future, and to prevent reckless trading, it can declare bankruptcy through a director's resolution or a high court application, whichever is the quickest and most cost-effective method.
Important to remember: Only companies registered with the Companies and Intellectual Commission (CIPC) are eligible for voluntary liquidation.
Therefore, if the company is a sole proprietor, the owner(s) of the company will have to consider voluntary surrender of his/her/their estate to declare the company insolvent.
Christine, one of our senior consultants, will provide further details on this process in Part Three of this series of articles.
Clearly, this is the last option for any business experiencing financial difficulties.
What happens to Employee Remunerations when a company is liquidated?A director(s) will inform all employees of the liquidation process prior to the liquidation application once they have made the final decision to liquidate the company.
The probability of employees receiving a severance package together with the liquidation notice from the director(s) is very little. However, if the employer made contributions to the unemployment insurance fund during the employee's employment, the employees will be eligible to claim UIF from the fund.
Additionally, all employees are eligible to claim any outstanding remuneration and leave from the liquidated company.
If there are sufficient assets to cover any form of payment towards outstanding salaries, employees are preferred creditors and will be first in line to receive a payment after the liquidator and masters' fees and disbursements.
This does not guarantee that company employees will receive full compensation; if the company has assets, they may receive partial compensation.
If there aren’t any assets in the company, chances of receiving any form of compensation are quite rare, and should a claim be proven against the liquidated company.
The individuals and businesses that proved claims against the liquidated company will end up paying the liquidator fees and disbursement for dealing with the claims process while there were no assets in the company when it was liquidated.
This same rule applies for any creditor that wishes to claim against the liquidated business. If there are no or insufficient assets, the creditor submitting the claim against the liquidated company will be liable for the liquidator's and masters' fees and disbursements.
When liquidating your company, the most crucial thing to remember is...Find business debt experts that can help you with knowledgeable advice on the process, including all its advantages and disadvantages.
Seek the guidance of a liquidation specialist who will accompany you throughout the process to guarantee the timely and efficient completion thereof.
Even after the liquidation order's been granted, you don't want to be unprepared and uninformed without professional assistance and guidance.
