HOW TO DEAL WITH LEGAL PROCEEDINGS AGAINST THE ARREAR AMOUNTS

Demand letters

THE IMPACT OF COVID-19 PANDEMIC

The pandemic forced businesses to enter unforeseeable and unplanned borrowings to keep the boat afloat and to settle burdensome overheads. Creditors are now implementing legal proceedings against their debtors to save their own businesses. 

A creditor will institute legal proceedings if the money owing is long overdue in the form of a letter of Summons, s345 demand letter and a liquidation application.

HOW DO YOU SAVE YOUR COMPANY FROM THE LEGAL PROCEEDINGS?

The section 345 demand is based on an amount that is allegedly due and payable, the options of a company are limited. The Company has 21 days to either pay, secure or settle the amount claimed to the satisfaction of the creditor or alternatively, show on a balance of probability that the alleged indebtedness is disputed on bona fide and reasonable grounds. 

If the company neglects to adequately respond to a section 345 demand within 21 days it will run the risk of being deemed to be unable to pay its debts and ultimately face a liquidation application based on its deemed commercial insolvency. 

If a company elects to dispute the alleged indebtedness it must send a detailed response within the three weeks allowed for under section 345 of the Act recording the basis upon which the alleged liability to pay is disputed, mindful also of the legal principles that will apply if a liquidation application is to follow. 

An application for liquidation will fail if the alleged liability to pay is disputed on bona fide and reasonable grounds. 

It is imperative to ascertain and address the facts in dispute and the grounds upon which the dispute is founded. 

To circumvent liquidation, proactive engagement with creditors at the early stages of financial distress is imperative. An open line of communication and the right legal team to provide advice and guidance are key. 

Companies should immediately obtain legal assistance when faced with an application for liquidation in terms of Section 345 of the Companies Act. 

The legal representative will identify if the application is a misuse of legal process or may even recommend alternatives like business rescue proceedings to save your business. 

Contact Indalo business Consulting for further advise:

Tel: 010 615 0031/2

Email: lebo@indalobc.co.za/admin@indalobc.co.za

Address: 1 Humber Street, Woodview office Park, Woodmead.

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