[Question] business debt

[jojo17]

Due to a really bad cash flow, our company is seriously in arrears with a creditor. We owe them R2m and have been trying our hardest to pay it back. (We have paid R1m in one month.) However they are not happy and are threatening to close us down and take our personal houses. Can they do that?

[AndyD]

You haven't given too many details so it's difficult to comment on your particular circumstances. . If you owe then 2 million and you've paid 1 million in the last month then I'm doubting it's in the creditor's best interest to get you in court just yet. From a business owner's point of view I wouldn't take a debtor to court if I thought I was going to recover the debt owed to me in a sensible time frame. Court action is usually a last resort, it's a fairly lengthy and expensive process, especially if a default judgment is unlikely, so I would imagine they would try all other avenues first.

[Neville Bailey]

Are you trading as a sole proprietor, or are you a cc or (pty) ltd? If you are a sole proprietor, then there is no legal distinction between business and personal assets, and the creditor can sue you in your personal capacity.

If you are not a sole proprietor, have you signed any personal suretyships with the creditor? If you have, then your personal assets are potentially at risk.

Posted from my BlackBerry using BerryBlab

[jojo17]

Thanks for this.

I am in a cc with three other partners - we have all signed personal surety.

[Dave A]

I am in a cc with three other partners - we have all signed personal surety.

However they are not happy and are threatening to close us down and take our personal houses. Can they do that?

If you're in default, probably yes. Typical sureties tend to favour the creditor in a pretty big way.

There are all sorts of kinks that could be in play here though. With that kind of money in play and if I thought it was more than sabre rattling, I'd find good legal counsel - not just to deal with possible litigation but to do some negotiating on your behalf.

There are two things I'd be focusing on:

• Implimenting a viable turnaround strategy. You've got cashflow problems for a reason - how are you going to solve it.
• Making sure it's not in the creditor's best interests to foreclose/litigate.

Probably in that order - unless there is no viable turnaround strategy.

[Justloadit]

Do also remember that sureties also have a clause which says 'jointly and severely", basically it means that the creditor will target one of the members who may have the funds to cover the outstanding amount, and sue him for the full amount owing, and leave this member to sue his partners for their share of the outstanding amount. In no way does it imply that they sue everyone individually for their supposedly share of the outstanding amount.