Insolvency means your company isn't able to pay its debts.
EnsAfrica says this is defined in two different ways: 'Cash flow insolvency, where the business is unable to pay debts as they fall due and balance sheet insolvency where the business has negative net assets, or rather, their liabilities exceed their assets.'
There are three administrative requirements of insolvency. They are as follows:
Three administrative requirements of insolvency explained
#1: Section 2 of the Insolvency Act defines an insolvent estate as an estate under sequestration.
The Practical Tax Loose Leaf Service explains that the insolvent estate must be registered for income tax purposes, and SARS will allocate a new income tax reference number to the insolvent estate.
#2: Once the insolvent estate has been wound up, the insolvent is required to re-register with SARS as a taxpayer, unless the insolvent is a corporate taxpayer that has been wound up.
#3: If a partner in a partnership is declared insolvent, the partnership is dissolved.
According to the SME Toolkit South Africa, if a partnership is declared insolvent by a court, every partner (except an anonymous partner -a partner who gives security for the payment of debts) must also be sequestrated at the same time with the partnership.
Well there you have it. Knowing the administrative requirements of insolvency will help ensure you know what to expect from SARS if your business ever goes under.
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