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BUSINESS NEWS - I quote from a book written by Judge Davis and others: “A natural consequence of any market-based economy, is that some companies will fail."
This is not necessarily a bad thing, and most industrialised nations recognise that failed companies are part and parcel of a healthy economy. If companies cannot be competitive in the marketplace, then it is a satisfactory result that those companies are either taken over by other stronger companies, or wound-up and liquidated.
As the case with human beings, companies or close corporations (hereinafter jointly referred to as “companies”) also attract bad things which they must deal with. If the board of a company or the members of a CC have reasonable grounds to believe that the company is financially distressed or if the company does not pass the liquidity- or solvency tests, and there appears to be a reasonable prospect of rescuing the company, the board must either file for the business rescue of the company or deliver a written notice to each affected person explaining why they have decided not to adopt a business rescue resolution.
A company fails the liquidity test when it is reasonably unlikely that the company will be able to pay all of its debts as they become due and payable within the next six months (commercially insolvent) or will become insolvent (liabilities to exceed its assets) within the next six months.
Another possibility is to propose a compromise to its creditors in terms of which the creditors agree to accept less than their full claims against the company. The directors or liquidators of a company may propose a compromise to the companies’ creditors or to the members of any class of the companies’ creditors.
If everything fails, the company may be liquidated either by court or by filing a resolution after which a liquidator will be appointed to dispose of all the assets of the company and to distribute the proceeds amongst its creditors in a manner prescribed by the Insolvency Act.
The best way to ensure that a company does not fail, is to make sure that it is correctly structured for the purpose for which it exists, to have strategic plans with a vision and mission to which everyone in the business buys into, to have sales- or production targets, action plans, time lines, budgets, monitoring and evaluation processes. To measure is to know.
It is also important to ensure that financial statements are up to date, overdraft facilities and debt properly monitored and not always on the edge of the companies’ ability, to not fall in arrears with VAT, to pay taxes and creditors timeously, to properly and timeously collect debts, minimise and attend to staff problems, to control and restrict suretyships and additional security by directors or shareholders personally.
It is also of utmost importance to have effective control over the administration, finances and general management of your company.
The absence of the above measures, execution and plans are more than likely sure indicators that problems are looming in a company or business and that the company is set up for failure.
For any further enquiries, advice or to take your company to the next level of efficiency, please contact Danie Acker or Basson Piek at 044 601 9900 or by e-mail at office@rgprok.com ; www.rgprok.co.za.
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