IMAGINE A SITUATION where you, through no fault of your own, are faced with a major lawsuit because one of your contractor suppliers has let you down and has gone into bankruptcy.
Let’s look at a case study:
You have a successful Pty Ltd Company that has a contract of supply with another company. The supply could be anything from construction, wholesale or services etc.
There is a non-performance component in your contract that can quickly escalate into company destroying amounts if non-performance occurs. You have also sub-contracted part of the required supply out to an external entity.
However, this sub-contracted entity has hugely let you down, leaving you suffering with the consequences, as they promised and couldn’t deliver.
Even worse, perhaps they delivered faulty goods and now you cannot fulfil the original contract and are subsequently being sued for it.
The company you own has taken years to generate goodwill; it is a successful business, and it is now facing ruin and the prospect of making loyal dependent staff redundant.
To add insult to injury, you also have the added headaches of costly and lengthy litigation processes, consequently impairing your ability to be able to run the business successfully, if at all.
At this point, you?should consider selling the parts of the business (get it valued) that operate profitably.
This will allow a new fresh entity to continue on in a new form and begin the fight with what is left over in the old entity; or place it in the independent receivership/liquidation process.
In all likelihood, this will be a win-win situation, as the creditors of the old company are likely to receive a significantly higher return than they would have received by dragging the business into ruin.
This is achieved by receiving a fair value for it through a sale prior to ruin.
Bottom Line: ‘Liquidate don’t litigate’ should be a major consideration when facing significant legal issues.