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How is a bondholder protected during company liquidation?

When a company is liquidated by order of the court, all the assets, including the immovable property (that is, the buildings) will almost always be sold to help pay the creditors’ debts.

How does it work? How is a bondholder protected during company liquidation?

how is a bondholder protected during company liquidationSometimes, those who have funded the company endeavor to protect themselves by having a bond on certain of the property registered in their name. They then sometimes also assume that this will mean that the property will not be regarded as part of the company’s assets.

Unfortunately, this is not the case. The company’s property will be included in the liquidated assets. The positive to holding a bond is that the bond holders will be first in a line for whatever payments are made. The negative, however, is that in most cases these payments are well below the true value of the property.

Unexpected liquidation of a company

Attorneys throughout South Africa have to deal with this sort of situation fairly regularly. Indeed, this has been our experience at Gunstons. Quite frequently, the bond holder is surprised to find that the organization that he or she has helped fund is being liquidated because they have significant assets and appear to be trading successfully. However, if their cash flow is poor and creditors end up having to wait too long for payment, they have every right to apply for a liquidation and if the company does have property this will, in fact, increase the risk of its being liquidated should it default on creditors payments.

For this reason, we recommend that, if you plan to fund a company and use a bond as security, you do your research first. Don’t allow yourself to be surprised by an unexpected liquidation.

Need help?

If you are a bond holder on a company’s property where that company is in the process of being liquidated and you want to know what your options are in the circumstances, if you would like to know how best to protect yourself, please do not hesitate to contact us at info@gunstons.com.

Images courtesy of worradmu and jscreationzs isolated images at FreeDigitalPhotos.net.

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