Financial managers will be inundated over the next few months, prioritising payments, hopefully keeping people in their jobs, and managing the expected financial fallout created by Covid-19.<\/p>\n
The country’s financial institutions have moved to offer payment holidays for clients who may be struggling over the current lockdown period, and beyond.<\/p>\n
In negotiations with landlords, banks, financial institutions and creditors, PJ Veldhuizen of attorney firm Gillan and Veldhuizen Incorporated warns that getting the wording wrong in your
\nnotices to landlords and suppliers can have severe consequences and open your business up to insolvency, liquidation or business rescue petitions and proceedings.<\/p>\n
Most businesses, other than those providing essential services, are faced with a complete lockdown, i.e. will not be permitted by law to operate.<\/p>\n
“This will affect each business\u2019s ability to fund current and ongoing supplier and other commercial costs,” he said.<\/p>\n
Veldhuizen defines this (particularly in lease agreements) as a situation where both parties are unable to perform reciprocally in terms of the agreement, but warns that there\u2019s a big difference between requesting a payment moratorium and admitting that you are unable to honour payments.<\/p>\n
The Companies and Intellectual Property Commission (CIPC), in its recent practice notice, stated that in light of Covid-19, it will not invoke its powers to issue compliance notices in
\naccordance with Section 22 of the Companies Act to companies who are \u2018temporarily trading in insolvent circumstances\u2019 if it believes that this is due to conditions caused by the pandemic.<\/p>\n
However, according to Section 8 (e) of The Insolvency Act, a debtor commits an act of insolvency if he \u201cmakes or offers to make any arrangement with any of his creditors for releasing him wholly or partially from his debts,\u201d or (g) \u201cgives notice in writing to any one of his creditors that he is unable to pay any of his debts.\u201d<\/p>\n
\u201cSending a notice of your inability to pay your debt is an admission of liability and is going to leave you vulnerable,\u201d said Veldhuizen, no matter what the CIPC assures.<\/p>\n
\u201cThese disclosures entitle your creditors to institute winding-up proceedings against you.\u201d It is a little known fact that these communications are NOT privileged even if marked \u201cwithout prejudice\u201d and can be used in Court proceedings.<\/p>\n
Veldhuizen advises that businesses must acknowledge the amount owed to a supplier and undertake to make the payment in due course. \u201cWe are advising our clients not to request a release from any indebtedness but simply to apply for a moratorium until regular trade re-commences.\u201d<\/p>\n