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Mike Otis
Mike Otis, Legal Advisor
Category: South Africa Law
Satisfied Customers: 2094
Experience:  B.Comm; LL.B; LL.M.
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if I declare my business insolvent,ie more liabilities than

Resolved Question:

if I declare my business insolvent,ie more liabilities than assets, what does this mean long term.
I ot divirced in Dec 2009 after 18 months seperation and on the 1st April, my ex wife, was accused of stealing R2m during this 18 month period. As we were still legally married, on ICP, all my personal and business assets have been frozen.
I have a Rhinolining franchise and they have issued summons for material/stock , I owe a private invester R105k, office rental and SARS about R30k
Submitted: 4 years ago.
Category: South Africa Law
Expert:  Mike Otis replied 4 years ago.
Dear Sir,

Thank you for your question. In order to advise you on this matter, I shall require further information on a number of issues:

1. Was your business conducted in a separate entity? If so, what is the nature of the entity?
2. Did you bind yourself as surety to any of the business creditors that are suing or threatening to sue?
3. Is your ex wife being prosecuted criminally for the alleged theft? What are the chances of recovering any of the lost monies?
4. The liabilities to the private investor, rental and SARS that you refer to, are they personal liabilities, or liabilities of the business?
5. What is the status of your personal financial affairs?

I trust you find the above in order.

Yours faithfully,
Customer: replied 4 years ago.

Hi there

1. Rhinolining Franchise is a seperate cc. The company suing my ex-wife has traced a possible R352k that was laundered through my business accounts (she was the FD) and until the forensic auditors clear my name in the process and claim against her - my business assets were frozen - there was only aboout R48k in there but this was for stock when I had jobs to do.

2. I don't understand - SARS, Rhinolinings main Franschisor, my rental argreement at my premises as well as Private investor that has tried to 'float' the business are all normal creditors?

3. The ex-wife has none of the money left - we don't know- she had her own legal defence lawyer and we do not know the facts. I left her for a younger lady in March 2008 and moved out 1 August 2008. She laundered money from January 2008 unbeknown to any of us. It was not like she suddenly drove new cars or anything...

4. Business

5. My business has come to a standstill - I do not have cash to draw money for stock and hence cannot do any work. My car registered in the name of the business also 17k in arrears.

My personal bank account, my property that I live in (which by divorce decree was to be my responsibility) is also frozen so I have no income other than hand-outs from my parents to keep going. I have been going for interviews for a normal job again and I am waiting for two companies for replies after my interviews.

I approached Wesbank and SA Homeloans for 6 month extention on my personal bond but due to my ex-wife's property being in arrears (hers by decree of divorce) Nedbank has now attached any activity on my SA home-loans account.

I have received a summons from Rhinolinings Head office to pay the R90k stock account by next week.

Expert:  Mike Otis replied 4 years ago.
Dear Sir,

Thank you for the further information. Usually, if a business that is run as a separate entity, such as in your case, is liquidated it is the business only that is affected. Therefore, if you were to liquidate the Close Corporation, it should be only the business that closes down and under normal circumstances, the creditors of the business will have no claims against you in your personal capacity.

However, there are circumstances where the members of a Close Corporation can be held liable in their personal capacities for some or all of the debts of the business. The most common example is where the members bound themselves as sureties to the creditors for the liabilities of the business. That was what I tried to establish with my second question above. If you did in fact bind yourself as a surety for some or all of the Close Corporation's liabilities, those creditors will be able to institute their claims against you personally.

Other examples of where the members of a Close Corporation can be held liable for the debts of the business, are when they permitted the business to trade under insolvent circumstances or where they conducted the business of the Close Corporation in a reckless or fraudulent manner.

Unfortunately, from the circumstances referred to above, a number of these factors might count against you. Depending on the outcome of the investigation of your ex wife's conduct, and whether any findings are made regarding your handling of the matter, a situation can arise where creditors of the business may attempt to claim their losses from you personally, especially if they cannot recover their claims elsewhere.

Regarding the long term consequences if the Close Corporation alone is liquidated and the creditors not being able to pursue their claims against you, then the only consequences to you will be the immediate loss suffered as a result of having lost your business. On the other hand, if the liquidation of the Close Corporation results in the creditors pursuing their claims against you, the long term consequences may be severe as you could face sequestration yourself if you are unable to settle any claims that are validly brought against you. If you are sequestrated, your credit record will be severely affected.

In circumstances like yours, it may be prudent to instruct an attorney to go through all the contracts and the entire business of the Close Corporation in order to establish whether you have actually incurred any personal liability in the manner.

I trust you find the above in order.

Yours faithfully,
Customer: replied 4 years ago.

I bought to company with my pension money so there was no surety required at the time.

I have lost the business - as it is not trading and no financial results available for the past 3 months, it is deemed worthless. I have even tried to sell the business in junkmail.

 

What I cannot understand about the law is that it is infirred that I am guilty by marriage - even though according to her company auditors she may have laundered only R352K via my business - i stand to lose EVERYTHING due to the ICP? The fact that we were seperated (and no love lost from her side I can promise you) I am now held accountable for the full R2m that she has stolen?

Why can't I be liable for 50% of the R352K only - even if this was done without my knowledge or consent - I can lose my house for his but the REST?

I do not know how bad - BAD is going to be. Should I look at debt counselling rather - but in my personal capacity it is maintenance for my two kids, credit card (I live off right now), my bond, a motor cycle (which I acquired after my divorce) and the little bit of furniture I have left after she cleaned me out (because I wanted out so badly)If I find a job I can manage this. But the business liabilties are growing each day....

If I did apply for debt counselling, how long would it take to be able to clear my name, and if I apply for liquadation of the business,how long will it take to clear my name>

Expert:  Mike Otis replied 4 years ago.
Dear Sir,

The freezing of your accounts was a precautionary measure, in the event that you were involved in the fraud, to prevent you from trying to cover your tracks. This was done because of the marriage that existed at the time. The mere fact that your accounts were frozen, or that you were married to the perpetrator of the crimes, does not automatically make you guilty of anything or liable for anything. Whether or not you are actually to be held liable will depend on the outcome of the investigation.

Since you did not sign any sureties, the only recourse that creditors could have against you are therefore if:
1. you are somehow implicated in the losses that resulted from you ex wife's conduct;
2. it is established that you were reckless in the conduct of the business; or
3. you traded under insolvent circumstances.

I trust you find the above in order.

Yours faithfully,
Mike Otis, Legal Advisor
Category: South Africa Law
Satisfied Customers: 2094
Experience: B.Comm; LL.B; LL.M.
Mike Otis and other South Africa Law Specialists are ready to help you

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Mike Otis
Mike Otis
Legal Advisor
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B.Comm; LL.B; LL.M.