Lawyers sound alarm to directors

Johannesburg - When directors analyse the state of the economy, together with the financial crisis being experienced in overseas jurisdictions, it is becoming evident that they are going to have to keep a careful watch on the financial status of their companies, particularly when one considers whether or not a company is trading in insolvent circumstances, says Eric Levenstein, director at Werksmans Attorneys.

"Directors need to be aware of the circumstances in which they can be held personally liable for the debts of the company should such company be placed into liquidation," continues Levenstein.

"Directors who allow companies to continue to trade in insolvent circumstances must recognise that this may become assessed at insolvency enquiries in the post liquidation period.

"In current local and world financial markets, a frank and realistic review by directors of the manner in which companies trade will be essential to survival and for the avoidance of personal liability."

Werksmans notes that the most recent liquidation figures "clearly indicate" that the South African economy is going to be placed under considerable pressure in the months ahead.

"The total number of insolvencies recorded has increased by 58.3% and directors need to become increasingly aware of the circumstances in which they can be held personally liable for the debts of the company if it is placed into liquidation."

According to Stats SA, when comparing January 2008 and January 2009 figures, there were increases of 113.7% in close corporations liquidations and 31.0% in company liquidations.

"Expectations by senior economists for 2009 could see a 25% increase in liquidations as payment defaults were likely to rise 50% in the current interest rate environment," says Werksmans.

- I-Net Bridge