When should I liquidate my company?

The legal test

Under South African law, a company is insolvent when either (a) it can't pay its debts as they fall due — the commercial insolvency test, or (b) its liabilities exceed its assets — the factual insolvency test. If either is true and the situation isn't recoverable, liquidation is on the table.

The warning signs directors recognise

From thousands of South African cases, these are the recurring patterns:

• You can't pay SARS — VAT, PAYE, or income tax — and the penalties keep growing
• You're using personal funds or a personal credit card to cover business expenses
• You're behind on rent, salaries, or both, with no realistic catch-up plan
• Suppliers are demanding cash up front or refusing to deliver
• You're getting letters of demand, summonses, or third-party appointments from SARS
• You're avoiding phone calls and emails because they're all creditors
• You've been trading at a loss for several months with no turnaround in sight

If two or more of these apply, it's worth getting honest advice immediately.

Why timing matters — the reckless-trading risk

Under the Companies Act, directors who continue to operate a company while it's insolvent — taking on new debt or obligations they know it can't pay — can be held personally liable for those debts. This is called reckless trading.

Acting voluntarily as soon as you realise the company can't recover is itself protection. It shows you stopped responsibly. Delaying further to "try one more month" can convert protected company debt into personal exposure.

The hardest part is admitting it

Most directors who eventually liquidate say afterwards that they wish they'd done it six months earlier. The pressure builds, the personal injections grow, the SARS debt compounds. Getting an honest assessment doesn't commit you to anything — but waiting often closes off the cleaner options.

What if you're not sure?

You don't have to know. A free, confidential assessment is the right starting point — specialists can look at your actual numbers and tell you honestly whether liquidation is the right route, whether business rescue might work, or whether the company is salvageable.