What does insolvency mean?
According to the Companies Act 71 of 2008, a company or corporation satisfies the solvency and liquidity test, if the aggregate assets of the company, fairly valued, equal or exceed the liabilities of the company at any given time.
What is the difference between Liquidations & Sequestrations?
Sequestrations are only applicable where the surrender of estates would occur by Natural persons. Liquidation Proceedings on the other hand are instituted against Legal Entities as in Companies & Closed Corporation’s.
The third wheel to the wagon.
It is important to take note that there exists another process which does not serve as an alternative to Liquidation proceedings, although it is utilized, in lay man’s language to save a sinking ship. This is called Business Rescue.
What is the Purpose of Business rescue?
The purpose of this remedy purely consist out of the fact that as soon as a Company or Closed Corporation enters business rescue proceedings, a moratorium is granted against the creditors and any / or all legal proceedings against the particular entity are brought to a halt. A business rescue practitioner will then be appointed and time is granted to the particular entity to trade itself through the financial distressed period in by the restructuring of the entity’s affairs.
What is the test to make the decision whether or if the company or Closed Corporation should institute business rescue?
The test for this particular remedy is when one ask the question whether it appears to be reasonably unlikely that the company will be able to pay all of its debts as they become due and payable within the immediately ensuing six months or alternatively thereto, if it appears to be reasonably likely that the company will become insolvent within the immediately ensuing six months. If the answer to the latter questions would be yes, then you should give serious consideration to this remedy.
For any further queries regarding the above, or to schedule a consultation contact us:
SD NEL 082 3038 303