Is your business being liquidated?

SRA — Tue, 12 Nov 2019 05:23:01 +0000

Many businesses fail and consequently have to face financial crises that few recover from and in most instances, results in business owners shutting doors for good. If your business has no assets or liabilities, the simpler process of deregistration takes place. The liquidation process needs to be followed if your business has assets, liabilities or both.

The liquidation of your business

Liquidation is the process by which your company or close corporation effectively declares itself insolvent. Your business can undergo voluntary liquidation, where you choose to voluntarily liquidate it, or when you undergo compulsory liquidation through action by your creditors.

Once your business has been placed under liquidation, it will stop all of its business activities in so far as may be required for the “winding-up”, i.e. the process of selling all the assets of your business, paying off your creditors, distributing any remaining assets to the partners or shareholders and then dissolving your business. A liquidator will be appointed to perform all these tasks.

The consequences of liquidation

When your business gets liquidated, all contracts concluded with the business remain in effect. The liquidator has to make the decision whether or not he/she intends to abide by the contract or to terminate it, which will depend on what would be the most beneficial decision to the creditors. However, if the liquidator chooses to terminate the contract, the other contracting parties have a monetary claim against the insolvent estate as a concurrent creditor, i.e. creditors who do not hold any security.

If you are a director and/or shareholder of your business, then you should be especially cautious when your business gets liquidated, since you will still be liable for debt for which you have signed surety, i.e. taking responsibility for another’s performance of an undertaking. If a director acted negligent or fraudulent in his/her capacity as the director, he/she can also be rendered personally liable.

The liquidation of your business does not terminate employment contracts; it is up to the liquidator to decide whether to do so or not, and this decision must be in line with the Labour Relations Act 66 of 1995, Basic Conditions of Employment Act 75 of 1997, and the Insolvency Act 24 of 1936. However, employment contracts are suspended upon liquidation of the employer; during this suspension period, the employee is not obliged to render any services to the employer, and he/she is not entitled to receive any payment or employment benefits that arise from the contract. An employee whose services have been terminated because of liquidation, is entitled to claim losses suffered from the employer’s liquidated estate.

Dealing with your taxes

SARS has a preferent claim in the business’s insolvent estate, meaning that SARS will be paid before the business’s concurrent creditors. If the business is liquidated voluntarily and there is still debt owed to SARS after the winding-up of the business, the shareholders may, in terms of the Tax Administration Act 28 of 2011, be held personally liable in certain circumstances. The Value Added Tax Act 89 of 1991 places you as a member or a director of the business, who has regularly partaken in the management of the company, in the position of a trustee of the government’s money and you will be held liable for the business’s VAT.

Other taxes are deemed to be civil debt, and money owed to SARS simply gets written off if SARS does not get a dividend from your business’s insolvent estate, or if your business is deregistered. However, SARS may issue criminal summons against business owners in this regard.

References:

co.za. (2017).When you have to liquidate your biz – 5 considerations you shouldn’t overlook. [online] Available at: http://www.smesouthafrica.co.za/16586/When-you-have-to-liquidate-your-biz-5-considerations-you-shouldnt-overlook/ [Accessed 23 Jun. 2017].
Investopedia Staff. (2017). Winding Up. [online] Investopedia. Available at: http://www.investopedia.com/terms/w/windingup.asp [Accessed 23 Jun. 2017].

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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THE CONSUMER’S RIGHTS UNDER THE CONSUMER PROTECTION ACT

SRA — Fri, 29 Aug 2014 07:44:29 +0000

Can a consumer take you, the service provider, to court because they did not understand some of the terms and conditions of your signed contract? Beware, the answer is Yes!

From April 2011 the Consumer Protection Act came into full effect with the result that it is now against the law to use difficult-to-understand language in any business document or contract.

Business usually comes with some kind of paperwork, whether it’s a contract, a letter of agreement or even an instruction booklet. These vital documents are often written in language that is hard to understand for the average consumer, which is why there are specific Plain Language regulations in The Consumer Protection Act to prevent consumers signing documents they do not understand.

Protecting the consumer

The Act’s express purpose is to make sure consumers are not treated unfairly – intentionally or not. This means that using plain language is more crucial than ever. From now on, using obscure and confusing wording, especially in binding contracts, is not allowed. Quite simply, it’s illegal!

Too many consumers have landed in big trouble, especially financial trouble, because they haven’t understood what they’ve signed. Sometimes contracts are written in bloated, bureaucratic jargon just because that’s the way it has always been, or because the people writing the contracts don’t know any other way to do it. Often, though, unscrupulous businesses have used complicated language on purpose, as a way to trick consumers into paying for something they can’t afford, to sign away their rights, or to agree to unfair terms and conditions.

Defining plain language

The Consumer Protection Act defines plain language in Part D, Section 22 as follows:

“For the purposes of this Act, a notice, document or visual representation is in plain language if it is reasonable to conclude that an ordinary consumer of the class of persons for whom the notice, document or visual representation is intended, with average literacy skills and minimal experience as a consumer of the relevant goods or services, could be expected to understand the content, significance, and import of the document without undue effort, having regard to:

The context, comprehensiveness and consistency of the notice, document or visual representation;
The organisation, form and style of the notice, document or visual representation;
The vocabulary, usage and sentence structure of the notice, document or visual representation; and
The use of any illustrations, examples, headings, or other aids to reading and understanding.”

This means that one won’t be permitted to word things so widely that they can be understood in several ways. The Act states that if there is any doubt about the meaning of certain words or terms and conditions, the benefit will go to the consumer.

Even advertising and marketing may no longer contain any ambiguity. Advertisements won’t be allowed to exaggerate and they will have to be easy to understand, fair and honest. The Act states that service providers will have to spell out everything in words that consumers can understand, alternatively the consumers have the right to full disclosure and information in plain and understandable language.

So, don’t delay. If you have a business document or contract that has been used for generations you might have to take a second look at it to edit or reword it so that it complies with the Consumer Protection Act.

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Is your business being liquidated?

THE CONSUMER’S RIGHTS UNDER THE CONSUMER PROTECTION ACT