Insolvencies and Liquidations
When an entity cannot pay the debts they owe as and when they become due, or where their liabilities exceed their assets, such party is considered insolvent in South African law.
In the latter case this effectively means, even if the party were to liquidate all their assets to settle liabilities, it would still not be enough.
Declaration of insolvency status is done by the Courts.
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While in most cases it suffices to refer a party as insolvent where they are unable to pay their liabilities as and when they become due, it becomes necessary at times to distinguish and specify the state of such insolvency especially when it comes to companies. In that case the difference between factual and commercial insolvency becomes an important one.
Liquidation, Business Rescue, or Compromise? This needs to be answered in the clearest of terms to avoid any confusion. While the circumstances that invite any of these procedures are the same, the actual situation determines which option is suitable to be implemented.
There are various reasons why a business may not perform well, and this will likely have an impact on its financial soundness. In this time of the COVID-19 pandemic there are indeed a lot of unprecedented challenges being faced by businesses the world over, necessitating the need to adopt and adapt to the new normal.
Most insurance products are designed in such a way that whilst they provide cover for loss, the insurance company itself remains viable as a business. To attain this balance, most insurance products have a list of strict requirements and exclusions which are consulted whenever a claim is processed.
While the business rescue procedure is aimed at rehabilitating financially distressed companies so that they can return to solvency, liquidation is aimed at winding the company upon realisation that the situation is so dire, and liquidation is the only option left.
Where one of the spouses in a marriage becomes sequestrated, the system that governs their matrimonial property is important in the determination of consequences on the estate of the other spouse.
Liquidation is whereby a debtor entity, after the realisation that its liabilities exceed assets (factual insolvency) or inability to settle the liabilities as and when they become due and payable (commercial insolvency) is wound up.
The Business Rescue procedure was introduced into the South African legal discourse by Chapter 6 of the Companies Act 71 of 2008. The main purpose of business rescue proceedings is to maximize the likelihood of restoring the business to solvency.
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