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Thread: Closing down a business

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    Closing down a business

    I'm looking for some advice please.

    I own a 15 year old business registered as a cc.
    For some time now the effort involved in running the business has exceeded the benefits. There are numerous reasons for this. Mainly the abilty to manage the major expenses like wages and other labour costs has been removed from my control by our Industrial Council that has been awarding double digit increases for years now. Last year I was forced to pay bonuses equivalent to 3 weeks wages when the company really couldnt afford it.

    The chronic skills shortage in our industry (average age of an artisan is now 46) has also driven up the cost of the skilled portion of our labour. We also battle to retain skills as the bigger concerns poach our in house trained staff.

    Anyway back to the point......I am now considering closing the business.
    Hopefully I can sub let the premises for the balance of my lease. If I am really lucky I could sell the business out of the cc with the balance of the lease.
    I'd probably be lucky to fetch nett asset value. I'm in a hurry to take up an offer of employment.

    Needless to say I cant see anyone taking the staff as part of the package.
    If I plan things carefully and trade to the right point in time I am sure I will be able to settle all outstanding creditors. What I will not be able to afford to do is pay out a retrenchment package.

    The question I have is : What recourse would my staff have? I assume they would have to sue the cc. Can I be held personally responsible?
    Hell I'd also like a retrenchment package. I'm the longest serving member of staff ;>)

    Any input appreciated!

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    Site Caretaker Dave A's Avatar
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    Obviously not enough info to understand your exact position, but based on what you've said so far, it sounds like you might be in a bit of a tough spot.

    Employees are preferred creditors nowadays.

    The last 6 months of trading is open to close scrutiny when you wind up an enterprise. If you were to settle the ordinary trade creditors and stiff the employees on their retrenchment packages, you might end up being held personally responsible for "unfairly" giving the trade creditors preferential treatment. The question is whether anyone would aggressively pursue such a case.

    From what I've heard, the most agressive creditors in rough order would be SARS for VAT, banks holding personal sureties and creditors holding personal sureties. If there isn't much money to chase, pretty much anyone else isn't likely to invest much in legal fees to pursue a meagre return.

    Some questions:
    What sort of timeline are you looking at? (How soon do you need to take up this employment offer)
    Is membership of the cc in your own name?
    Are you aware of all the personal sureties you have signed?
    The trouble with opportunity is it normally comes dressed up as work.

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    Platinum Member sterne.law@gmail.com's Avatar
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    Morals and ethics aside - It is unlikely the employees would pursue the issue. Particulalry as there is more than 1 employee, unfair retrenchments become Labour Court issues and not CCMA. Thus it is more expensive and is at least a year before it gets there. Take these problems and the cost and factor in against whom they will claim, and the risk is too high.

    Of course, the issue of a sale will bring other implications, such as the staff cannot just be removed, and the buyer and purchaser remain liable for retrenchment and claims, depending on the wording of the sales contract - BE CAREFUL.

    As Dave points out in a liquidation the order of preference is Employees, SARS, Accountants and Lawyers(no one said life is fair) - I raise this issue in that you can make settlement agreements with the creditors, which does not ahve any judgement implications. From your statement that you can trade out of it, I presume the creditors are not owed much. If a creditor is owed R40 000 and you offer R30 000 to settle, they will in all likely hood take the deal. This depends on the cash available from a sale.

    I suppose some other strategy could be a management buy out?
    Is retrenchments in some form not an option? This will reduce your running costs for now(helping reduce debt quicker) and at teh same time reducing the running costs thus making it more attractive to a perspective buyer. Short time can ease cash flow, running costs and often employees tehn get other work, removing the retrenchment package cost.

    Quite a few options, each with their own complications.
    Are you in the motor industry by any chance?
    Anthony Sterne

    www.acumenholdings.co.za
    DISCLAIMER The above is merely a comment in discussion form and an open public arena. It does not constitute a legal opinion or professional advice in any manner or form.

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    Hi Dave and thanks for the input.
    I have no problem with anyone looking at my business post winding up.
    I am not hiding a retrenchment package amount away in a Swiss Bank account.

    I trade at a break even point month after month so if I stopped trading everyone would be settled but I just dont have a few hundred thousand to pay retrenchment packages and thats the honest truth!

    I know exactly where I have signed personal sureties 4 suppliers and the bank for an overdraft facility that I am not using) and I am the sole member of the cc.
    I probably need to resolve this in the next two months.

    Thanks again

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    >Morals and ethics aside - It is unlikely the employees would pursue the issue. >Particulalry as there is more than 1 employee, unfair retrenchments become >Labour Court issues and not CCMA.

    In this event would their recourse be to the cc or me personally?
    I'm confidant that liquidation will not be necessary in that I can trade to a conclusion not owing anyone anything, but I just do not have a couple of hundred thousand to spend on retrenchment payouts. I would cover accumulated leave pay and all company pension contributions are up to date as are all the other statutory deductions.

    Fact is I could probably remain in business indefinetly but as I said I could sit on the wall and be in the same situation so its just not worth it anymore.

    Thanks again!

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    Site Caretaker Dave A's Avatar
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    Quote Originally Posted by rattrap View Post
    I am the sole member of the cc.
    A pity. It's handy to have some sort of third party firewall like an independant trust in situations like these. And your timeline is too short to restructure.

    Anthony (or any other labour lawyer handy), can staff come together in a joint action for retrenchment payouts? That total figure estimate looks like it would make legal action viable under those circumstances.

    rattrap, no chance of restucturing so that you trade at a profit?
    The trouble with opportunity is it normally comes dressed up as work.

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    Platinum Member desA's Avatar
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    Quote Originally Posted by rattrap View Post
    I probably need to resolve this in the next two months.
    Then do what your mind is telling you.

    A few thoughts along your journey (I'm sure not everyone will agree):
    1. Get the advice of an inexpensive attorney - friend/family;
    2. Decide the point you want to close - fix this in stone - no turning back;
    3. Keep this final date to yourself;
    4. Cease active day-to-day trading - find a reason;
    5. Pay off your creditors - clear personal sureties - one by one;
    6. Sign up to the new job - give 1-2 months grace before start (not cast in stone).
    7. Close the doors one quiet day - with a sign directing staff to your attorney, for final settlement arrangements.

    The reasoning for this is that if the employees, within the wind-up period, do not read the writing on the wall, then they are in it purely for the final wind-up cheque. This could take time to settle, if at all - life is tough - they'll get over it. Let the attorney advise & assist along the way - take the direct heat off you.

    Some further advice:
    a. Do not accept direct contact - leave that to your attorney;
    b. Do not read your mail on a Friday - wait until Monday.
    c. Take a short holiday before starting your new position - you will need a fresh mind.
    d. Try to relax - it is not the end of the earth - things will eventually improve.
    e. Remember - you have done your very best - the run is over - kill the donkey in a humane way.

    All the very best.
    In search of South African Technology Nuggets(R), for sale & trading in South East Asia.

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    Dave A (24-Feb-10)

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    Platinum Member sterne.law@gmail.com's Avatar
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    7. Close the doors one quiet day - with a sign directing staff to your attorney, for final settlement arrangements.


    Some further advice:
    a. Do not accept direct contact - leave that to your attorney;
    b. Do not read your mail on a Friday - wait until Monday.

    Many, particularly those who have not been there, will say this is wrong. unfortunately this is always a difficult and emotional journey. Yes, the staff deserve to know, but quite correctly they often stick around just to get the package, morale is low, theft increases, discipline becomes erratic etc,etc. There is also the negative word in the market, which can see creditors force a COD basis and that hampers cash flow.
    Once you call it, if you can have some handle the issues that will crop up, it really helps, especially as it is emotionally draining and you will be trying to settle into the new job, which in turn has some strain.
    I went through winding up a business of my own, about 2 years ago. It was such a strain that, even though i could have handled all the paperwork and nitty gritty, I did not even bother. Even the simple task of signing over the lease, I got an attorney to do for me, obviously at a cost..
    Anthony Sterne

    www.acumenholdings.co.za
    DISCLAIMER The above is merely a comment in discussion form and an open public arena. It does not constitute a legal opinion or professional advice in any manner or form.

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    desA (24-Feb-10)

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    Platinum Member sterne.law@gmail.com's Avatar
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    Anthony (or any other labour lawyer handy), can staff come together in a joint action for retrenchment payouts? That total figure estimate looks like it would make legal action viable under those circumstances.

    Parties can join actions. In retrenching it is anyway a joint action because a retrenchment process is not aimed at individuals, per se.
    Anthony Sterne

    www.acumenholdings.co.za
    DISCLAIMER The above is merely a comment in discussion form and an open public arena. It does not constitute a legal opinion or professional advice in any manner or form.

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    Dave A (24-Feb-10)

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    Site Caretaker Dave A's Avatar
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    You may or may not know that there are a few sites that take the TFSA feed. Here's a comment that came up on one of them:
    Tell the staff the truth and see if they want to buy the place from you with their "retrenchment" money.
    That's a win win...they get to keep their jobs, the good will with suppliers you have created and you get to pursue your next opportunity without legal baggage.
    Hell many people have received financing for this as its considered broad based BEE.
    Maybe without your salary(assuming you still pay yourself one) the company can scrape through.
    The tide has turned, you have made it 97% through, it seems sad to let it go now.
    If you have kept it going for 15 years there is a lot of history(and tenacity) and I would imagine some of the staff might have been lifers.Tell them first...they might actually care and offer fresh insight.
    The ones that don't care will probably leave on their own accord.
    Some interesting thoughts there.

    The only part that doesn't quite add up is the idea of the employees "buying the business out of their retrenchment money." That wouldn't solve the shortfall dilemma. However, if they're buying the business and everything carries on, there are no retrenchments and no need for retrenchment packages.
    The trouble with opportunity is it normally comes dressed up as work.

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