The Regulations promulgated in order to deal with Covid-19 have severely impacted my business to the extent that we are considering liquidation. Do I have any other options available?
22 May 2020
The
Companies Act 71 of 2008 (“Companies Act”) provides the framework to liquidate
a company, but also introduced an alternative... to liquidation, namely business
rescue proceedings – the biggest advantage of a successful business rescue
being that the company continues to exist and employees are retained. However,
the disadvantage of both of these mechanisms is that the control of the company
no longer lies with the directors and is relinquished to an outsider, namely
the liquidator or the business rescue practitioner. Furthermore, the fees and
costs payable to the liquidator or the business rescue practitioner are also
considerable.
If
it is intended to secure the continued existence of the business but in a
restructured form, section 155 of the Companies Act provides an alternative to
both of the above mechanisms: the framework for a company (or a close
corporation) to enter into a compromise with its creditors, the result of which
is largely the same as a successful business rescue. Given the effect on the
economy of the Regulations promulgated to address Covid-19, coupled with the
fact that it is illegal for companies to trade when insolvent, the section 155
compromise is an attractive alternative solution to relieve companies of their
financial obligations towards creditors and to assist companies in recovering
from financial distress.