Effect on uncompleted contracts
In general terms, the Liquidation of a Company does not automatically suspend or put an end to the contracts concluded by the Company prior to being placed in Liquidation. However, the Liquidator steps into the shoes of the Company and must, within a reasonable period, decide whether he/she intends to perform in terms of the contract or not. If the Liquidator fails to decide within a reasonable time, it will be assumed that he/she has no intention of performing in terms of the contract. Where the Liquidator elects to not abide by the contract, the other contracting party will have a concurrent claim for any damages suffered as a result of the breach of contract.
Effect on employment contracts
The Liquidation of a Company will suspend the employment contracts between the Company and its Employees with immediate effect. During the period of suspension, the Employees are not obliged to render any services to the Company and are also not entitled to receive their salaries or wages, nor do any of their employment benefits accrue to them. The Employees may however be entitled to receive unemployment benefits from the date of suspension of their employment contracts.
The Liquidator may elect to terminate the employment contracts but only after he/she has consulted with the Employees and/or any of the Employees’ representatives in an effort to reach consensus on appropriate measures to rescue the whole or part of the Company and consequently avoid retrenchments.
All suspended employment contracts, not already terminated by the Liquidator, will automatically terminate 45 days after the date of the final appointment of the Liquidator.
Employees will have a limited preferential claim for a portion of their salary and wages due, as well as for any contributions which were to be made by the Company on the Employees’ behalf. Any amounts which remain due to the Employees over and above their preferential claim, will be treated as a concurrent claim.
Effect on leases
Where the Company is a lessee of assets (movable or immovable) in terms of a lease agreement at the time of being placed in Liquidation, the lease is not immediately terminated by the Liquidation. The Liquidator must within a period of three months of his/her appointment decide on whether he/she wishes to cancel or continue with the lease and must notify the lessor of his/her intentions by giving the lessor written notice to that effect. If the Liquidator does not notify the lessor of his/her intentions within that period, the Liquidator will be deemed to have cancelled the lease at the end of the three-month period.
Until such time as the Liquidator has made an election, the lease remains in operation and any rental amounts which become due after Liquidation must be paid by the Liquidator. Any rentals that became due from the date of Liquidation to the date of cancellation of the lease will be treated as preferential claims and paid out of the administration costs. Any other claims that the lessor has as a result of the breach of the lease will be treated as a concurrent claim.
Effect on existing Companies or New Companies
Each company is viewed as a separate entity. Therefore the Liquidation of one company should not affect the others.
The exception is where one company has borrowed money to another company within the group or where they have provided start up capital for new company. If you have a group of companies, it is common to lend money from one company to another for various reasons. Whilst there is nothing wrong with this, when one of the companies liquidates, this loan will have to be recovered.
In the event of liquidation, the company that borrowed the money could be forced to pay it back. If that company is unable to do so, they could also be forced into liquidation. Talk to your Insolvency Practitioner about your other companies before considering Liquidation.
Effect on Personal Credit Worthiness
If the Directors of a Company have not signed personal surety for business debt then their personal credit worthiness is not affected by the Liquidation. If the Directors have signed personal surety for business debt and are unable to pay this debt back to the creditor, then they may have to consider voluntary surrender. Voluntary Surrender has a negative impact on your credit worthiness. You will be unable to apply for personal credit for 3-5 years depending on the type of surrender your choose. Talk to your Insolvency Practitioner about voluntary surrender.