It’s no secret that business is tough, and while it’s every entrepreneur’s objective to have a thriving business, it’s not easy in today’s volatile economy. Did you know that in today’s competitive world of business, up to 80% of businesses fail each year? Measured and forecasted against a worldwide average of one out of two businesses that fail within the first year, it is a recognised fact that five out of seven new businesses will fold within their very first year in South Africa.

Reasons vary from poor management, and weak products and technology, to lack of communication skills and infrastructure, as well as the inability to nail a profitable business model with proven revenue streams.

It’s never easy watching a company that you’ve spent many years building fail, but the worst thing that you can do is to postpone the process. Not only is this irresponsible, but it can also get you and your shareholders into greater debt.

If you’re a company or a close corporation with debt that has become too impossible to manage, or if your liabilities exceed your assets, then voluntary liquidation is going to be the best way forward for you. If you’re new to the liquidation process, then below you’ll find a quick guide to liquidation, so that you may have a better understanding of the process.

What is Liquidation?

Often confused with voluntary sequestration, liquidation is the process by which a company or close corporation declares itself insolvent. When it is foreseeable that your company will not be able to pay its creditors and is already 6 months in arrears, there is a legal obligation on the owner and shareholders to liquidate the company. Categorised into two types: voluntary (which is by a shareholder’s resolution) or compulsory (by a court order), liquidation is considered as the very last resort and is classified as the winding up of a company’s affairs.

A process that involves realising the company’s assets, cessation or sale of its operations, and distributing the proceeds among its creditors and shareholders – voluntary liquidation ensures that the company’s affairs with relation to assets, contracts, employees, liabilities and legal disputes are dealt with correctly and legally. At the end of the liquidation process, the company will cease to exist.

What is the Process for Voluntary Liquidation?

First and foremost, it must be understood that although the process for liquidation is set and managed by the High Court, the outcomes desired are unique to each business. An official process whereby the company and its affairs are placed under the control of a liquidator, voluntary liquidation is a speedy and fairly straightforward process.

Once a liquidation application has been processed, a professional liquidator will be appointed to investigate the company’s financial affairs, and as soon as the reasons for failure and offences have been established, the company’s liquidation will be advertised to the public on the Insolvency and Trustee Service website. The company will then be closed, the creditors will be contacted, and the assets will be sold and distributed accordingly. Once the liquidation process is complete, the director will be free to strategise and implement a new business plan.