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Avoid 1Time's route if your business has tax liabilities and needs business rescue

by , 30 January 2013
Doomed 1time Holdings subsidiary 1Time Airline is still trading under the protection of business rescue. But SARS is expected to oppose more business rescues and go in favour of liquidation instead. So what do you do if your business flies into financial distress, like 1Time did?

Business rescue is a process providing for the rescue and recovery of financially distressed companies in a manner that balances the rights and interest of all relevant stakeholders. SARS has participated as a creditor in business rescue proceedings and has exercised the rights afforded to it by the Companies Act in respect of such proceedings.
 
But there could be an increase in liquidations during the course of this year as SARS becomes less inclined to vote for a business rescue plan, Legalbrief reports.
 
Two benefits of the Companies Act's business rescue

When it comes to business rescue and how it's implemented, the new Companies Act implies:
  1. The interests of the creditors must prevail over the interests of the company; and
  2. The court application for a business rescue must also be delivered to all creditors, shareholders and employees of the distressed company, the Tax Bulletin states.
Obviously, many businesses in financial distress also have tax liabilities. So although SARS isn't pleased with a recent court decision to treat them as ordinary creditors during business rescue, it's inconceivable that it won't participate as a creditor in the business rescue process
 
This would prevent the business rescue of many financially distressed companies, resulting in their liquidation and rendering the business rescue process ineffectual.
 
There may be instances when SARS would be justified in relying on the exception, such as tax evasion cases where the taxpayer has deliberately concealed its true state of affairs or where there has been dishonest tax reporting. 
 
But in most cases, where companies have accumulated tax liabilities in the ordinary course of business, it won't be appropriate for SARS to rely on the exception. In those cases, SARS will have to be content with participating as an ordinary creditor in the business rescue process, adds Moneyweb Tax.
 
If your business is financially distressed, here are six steps you should follow to ensure business rescue and avoid liquidation, according to the Business Day's BDLive website.
 
Six steps to follow if your business is financially distressed
  1. Business rescue proceedings begin when the board passes a resolution that the company is voluntarily beginning business rescue proceedings.
  2. Complete a one-page form called the Notice of Beginning of Business Rescue Proceedings and file it with the Companies and Intellectual Property Commission (CIPC). You'll have to attach a sworn statement of the relevant facts upon which the resolution was founded by a director representing the board and set out the reasonable prospects of being rescued.
  3. Send a letter to the Business Rescue Department for advice on a recommended practitioner, who will be accredited and issued with an interim conditional licence.
  4. Within five days of filing a business rescue resolution, your company must appoint a business rescue practitioner, conditionally licensed for the project.
  5. You must file and publish the notice of appointment within two days of the appointment and inform all affected parties of the appointment.
  6. No liquidation proceedings must have commenced against the company when a decision is taken.
 
Make sure you follow these steps so you have a chance of qualifying for business rescue instead of liquidation.

To sat up-to-date with the latest accounting reporting standards simply sign-up to the Tax Bulletin newsletter.
 
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