Is your company solvent? What are a director’s responsibilities to ensure it is?
18 March 2013
We Build It (Pty) Ltd is a construction company managed and operated by its directors. The nature of the company’s... business frequently requires that its construction projects be well advanced before receipt of payment for services rendered. With subcontractors and suppliers to be paid, the company often finds itself in a situation where its debts could potentially not be paid if payment from a major client is delayed.
Should such a scenario arise, the business can be at risk of falling foul of the compliance requirements of the Companies Act, 2008 (the Companies Act) by not being able to pass the solvency and liquidity test prescribed by the Companies Act. As the business is being run by its directors, the following question then arises: If the company cannot pass the solvency and liquidity test, to what extent may the directors of the company incur liability for this situation?