Kruger & Co – Page 39

Jul 29

0

How to Stop Vital Evidence Being Destroyed

By Kruger & Co | Litigation

“Surprise the enemy” (Sun Tzu in ‘Art of War’)

You suspect that someone you are suing (or about to sue) will destroy or hide vital evidence in their possession. Perhaps by shredding documents or deleting electronic records supporting your case, or perhaps by spiriting away computer hard drives full of incriminating information. You fear that if they get away with it your case will be dead, or at least compromised.

Fortunately our law has a strong and quick remedy for you – the “Anton Piller” order, by means of which the High Court can authorise a search for, and a seizure into safekeeping of, the relevant evidence until trial.

Surprise raids and fishing expeditions

This is a drastic and draconian remedy. For obvious reasons this is a “surprise raid” on the other party – giving advance notice to the other party of your court application would defeat the whole object.

Which means that the other party suffers an unannounced and substantial invasion of its privacy, leading to all sorts of disruption and potential damage to its business.

Which is why our courts have laid down strict requirements that you must comply with before you will be granted an order. A recent Supreme Court of Appeal (SCA) decision illustrates –

A developer and seller of computer software wanted to sue a company it had dealt with for damages on the basis of alleged breaches of contract and for unlawful competition. It obtained in the High Court an Anton Piller order giving access to the Deputy Sheriff, independent attorneys and forensic specialists to search and seize “documents specified in the order, computer equipment or any other storage devices”. This order was subsequently set aside and the developer, attempting to have the order re-instated, approached the SCA for leave to appeal.
The Court in refusing leave to appeal analysed and applied the requirements for an order to preserve evidence under three main headings. You must establish (prima facie, in other words “on first appearance” but not definitively at this stage) the following –
- That you have a cause of action against the other party, which you intend to pursue. The developer had, said the Court, established this.
- That the other party has in its possession “specific documents or things which constitute vital evidence in substantiation of [your] cause of action…” This, said the Court, required the developer to “identify the documents it sought to preserve with the necessary degree of specificity”. A “blanket search for unspecified documents or evidence, which may or may not exist, is not permitted”. You have to be specific.
  The major flaw in the developer’s case was, said the Court, its failure in its affidavits to identify or specify which vital information was in possession of [the other party] that needed to be preserved. It proposed a “keyword” search to be used in searching the whole of the other party’s data base that was “invasive and a trawling expedition through every aspect of [the other party]’s business” including sensitive and confidential information to which it could not be entitled.
- That you have a “well-founded apprehension that this evidence may be hidden or destroyed or in some manner spirited away by the time the case comes to trial…” But in this case, said the Court, the developer had failed to show that the other party was untrustworthy or dishonest, plus it had “failed to set out any factual basis for an objective conclusion to be reached of the well-founded and reasonable apprehension that evidence would be concealed.”
This particular order, held the Court, “involves a departure from the basic premise upon which Anton Piller orders are granted, namely that they are to preserve evidence, not search for it”, whilst its execution was “nothing but a fishing expedition” (emphasis added). The software developer could not succeed in re-instating its Anton Piller order.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

Jul 29

0

Unlawful Occupiers: Eviction Is Possible, but Neither Quick nor Easy

By Kruger & Co | Property

“It is only once the court concludes that there is no defence to the claim for eviction and that it would be just and equitable to grant an eviction order that it is obliged to grant that order” (Extract from judgment below)

“Buy land” said Mark Twain, “they’re not making it anymore.” With the first green shoots of a property market recovery supposedly now showing through perhaps this is indeed the time to take his advice.

Just be sure, if the property you have your eye on is occupied by anyone, to seek proper legal advice on the occupiers’ legal position before you put pen to paper.

We all know that unlawful property occupiers enjoy substantial constitutional and statutory rights, and a recent High Court case provides a good example of the fact that whilst it is certainly possible to evict unlawful occupiers, it could well be neither quick nor easy.

The family that lived rent free for two years

A buyer bought an apartment from the previous owner’s liquidators and took transfer on 31 March 2017.
The new owner advised the family occupying the apartment that it must vacate by 14 April or face eviction proceedings.
The family refused to budge, and the owner, after complying with the many formalities required of it by PIE (the Prevention of Illegal Eviction From and Unlawful Occupation of Land Act), applied to the High Court for an eviction order.
The family defended the application, firstly on the basis that it was, it said, in lawful occupation in the form of a lease agreement. The Court rejected this defence, finding that the family was in unlawful occupation even on its own version of the facts, because the “lease” (which the owner denied was ever validly entered into) had lapsed at the end of May 2017. The family’s attempt to persuade the Court that the lease had been “tacitly” renewed was doomed to failure because of the owner’s unrelenting insistence that the family’s continued occupation was unlawful.
Secondly the Court considered the all-important question “Is it just and equitable to evict?”
Per a 2017 Constitutional Court judgment which dealt extensively with the constitutional and statutory rights of unlawful occupiers, the High Court’s starting point was this: “that no one may be evicted from their home without an order of court made, after considering all the relevant circumstances”, having regard to the interests and circumstances of the occupier/s, and paying “due regard to broader considerations of fairness and other constitutional values, so as to produce a just and equitable result” (emphasis added).

This is where questions of indigence and the risk of homelessness arise, and this is the hurdle at which many a property owner has stumbled in the past.

In this case however, the owner triumphed, the Court finding on the facts that the family was financially able to pay rental but had paid nothing whilst enjoying free occupation for over two years. It had also had legal representation and could not be regarded as economically vulnerable or unable to obtain alternate accommodation.

Critically, perhaps, the Court commented that the father (in whose name the eviction application was brought and fought) “has known of the real risk of eviction for a period in excess of two years and as such, he ought reasonably and responsibly to have made contingent plans in the event that an eviction order is granted … The professed risk of homelessness is not borne out by the undisputed facts of the matter and [the father] cannot be characterised as indigent by any means”.
Finally, the Court, having decided to grant the eviction order, had to consider when to make the order effective from. It’s an important enquiry because as an owner you could find yourself successfully holding an eviction order, but with an expensive delay before being able to implement it. The Court must consider “what justice and equity demand in relation to the date of implementation of that order and it must consider what conditions must be attached to that order. In that second enquiry it must consider the impact of an eviction order on the occupiers and whether they may be rendered homeless thereby or need emergency assistance to relocate elsewhere.”
Fortunately for the property owner in this case the Court did not provide for too long a delay, giving the family eight weeks to vacate (slightly longer than requested because a minor child’s interests were involved).

The family also has to pick up the tab for all the legal costs.

Buyers – some final advice

First prize is always to have a solid agreement in place with any occupiers before you buy an occupied property.

So sign nothing – not an offer to purchase, nor a lease, nor any form of occupier contract – until you have your lawyer’s advice!

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

Jul 29

0

Your Website of the Month: Left Money in a South African Will But Living Overseas?

By Kruger & Co | Website of the Month, Wills and Estate Planning

What happens if you want to access a South African bequest overseas?

BizNews gives you a step-by-step breakdown of how to go about it, depending on whether you are –

Non-resident,
Financially emigrated, or
A South African resident temporarily abroad.

Property Transfers and Trust Account Theft: A R720,000 Warning

By Kruger & Co | Property

“The issue of whether a conveyancing attorney receives the money as the agent of the seller, or of the purchaser, or of both, or as trustee for both to await the event, is a somewhat vexed question … and each case must be considered in the light of its own facts and the particular contractual terms under which the conveyancer received payment” (Extract from judgment below)

A lot of money changes hands in property sales, and for many of us buying or selling a house is the largest single financial transaction of our lives.

A recent High Court judgment involving a theft of R720,000 by a dishonest conveyancer (transferring attorney) provides a timely warning to both buyers and sellers to proceed with extreme caution. And as always, the core message to both is this: Sign nothing without your lawyer’s advice!

The conveyancer who stole from her trust account

A seller sold a sectional title unit to a buyer for R720,000. The sale agreement provided for payment in full by the buyer to the conveyancer, the funds to be held in trust in an interest-bearing account until transfer, interest to accrue for the buyer’s benefit.
The conveyancer had, as is usual unless otherwise negotiated, been nominated by the seller. In this case the buyer asked to use her own attorneys but the seller “vehemently” insisted on nominating his attorney.
On request from the conveyancer, the buyer paid the R720,000 (plus R16,700 towards the transfer costs payable by her) into the conveyancer’s trust account.
When later it became clear that the conveyancer had stolen these funds, the buyer demanded transfer from the seller. The seller refused – the money was gone and he wasn’t prepared to lose both his property and the purchase price.
At the same time however he (the seller) lodged a claim with the Legal Practitioners Fidelity Fund, which was at that time still called the Attorneys Fidelity Fund and is referred to below as “the Fund”. In the event of such a theft, the Fund will in its own words “assist you with the reimbursement of your monies if your claim is valid.”
However, the Fund refused to pay the seller’s claim because of its view that the loss was sustained by the buyer, not by the seller.
The buyer disagreed. It wasn’t, she said, her loss, it was the seller’s. She wasn’t going to now pay the purchase price over again and then have to claim from the Fund. So she asked the High Court to order the seller to pass transfer to her.
What the Court had to decide is whether or not the conveyancer was the seller’s agent to receive payment of the purchase price from the buyer. If so, the buyer had paid and was entitled to transfer. If not, the buyer had not paid and had no right to transfer.
The danger for both seller and buyer here is that as the Court put it “the issue of whether a conveyancing attorney receives the money as the agent of the seller, or of the purchaser, or of both, or as trustee for both to await the event, is a somewhat vexed question … and each case must be considered in the light of its own facts and the particular contractual terms under which the conveyancer received payment.”

So whose agent was the conveyancer?

In the end the Court ordered the seller to pass transfer to the buyer, finding on the facts and on the Court’s interpretation of this particular payment clause that –

The conveyancer in this matter had acted as agent for both the buyer and the seller – as agent for the buyer in investing the funds pending transfer, but as agent for the seller in receiving payment of the purchase price.
Accordingly the buyer “complied with her obligation in terms of the deed of sale by making payment of the purchase price to the [conveyancer] who was nominated by the [seller] to receive payment of the purchase price on the latter’s behalf”.
“In addition, the Deed of Sale provided for the mode of actual payment of the purchase price and once this was done, the [buyer] had discharged her obligations. She did what was required contractually in respect of the purchase price and had no control of the process thereafter.”

The seller is therefore down R720,000 plus costs, and will be hoping that the Fund will now pay out his claim without further ado.

Sellers

Choose a competent and trustworthy conveyancer. Don’t ever be railroaded by anyone into appointing someone else! And if your attorney isn’t also an admitted conveyancer, ask him/her for a referral to a trusted colleague who is.

Buyers

As we saw above, the wording of the sale agreement is central to the level of risk you run – it should be clear that in paying the purchase price to the conveyancer you are paying the seller in complete discharge of your obligations under the sale agreement.

Bottom line – as always, ask your attorney for advice and assistance before you sign anything!

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

Jun 26

0

Your Last Will: The Dire Consequences of Neglecting Formalities

By Kruger & Co | Wills and Estate Planning

“It is not intended for the Court to make a will for the deceased based on what his intentions may have been” (Quoted in the judgment below)

As a general rule our law holds us to our agreements and statements, whether we express them verbally, electronically or in written form.

But there are exceptions – some things just have to be in writing and signed before the law will recognise them. One of those exceptions is quite possibly the most important document you will ever sign – your “Last Will and Testament”. Ultimately it’s your final gift to your loved ones – a gift that ensures they are properly provided for when (not “if”) you die.

Don’t neglect this or procrastinate – without a will you have forfeited your right to choose who inherits your assets and who is appointed as executor. And it’s equally vital to validly update or replace your will after a significant “life event” (marriage, birth, death, divorce etc) – we’ll consider below the sad case of an accountant who intended to change his will but just never got around to it.

But first, what must you do for your will to be valid?

The formalities

To be valid, a South African will must comply with a list of formalities. There are several of them and they require strict compliance, so getting specific legal help is a no-brainer here. But in general terms your will should be in writing and signed by you in the presence of two “competent” witnesses.

The question arises whether in this age of electronic contracts and signatures an “electronic will” (perhaps in an email, a video, a Social Media post or the like) might suffice. In short, the answer is almost certainly no, it won’t. The Master of the High Court (who accepts your will as valid or not) needs to see a piece of paper and physical signatures. And the same applies to any subsequent amendments to your will.

An escape route

There is however a possible escape route – our Wills Act provides that a Court may order the Master to accept an otherwise invalid will when satisfied that it was intended by the deceased to be his/her last will. That’s a great tool which has often enabled our courts to avoid situations of “injustice through formality”, but there is still absolutely no safe substitute for a properly-executed will.

As this recent High Court judgment illustrates all too clearly…

The accountant who emailed his “Final will” to his fiancée

In 2006, a “very meticulous” accountant drew up a written will, properly drawn and formalised. In it he left everything to his then wife, from whom he was divorced in 2011.
In 2014 he became engaged to another woman with whom he had been in a “romantic relationship”.
On 4 January 2016 he emailed his new fiancée, under the subject line “Final will”, recording in part that “This serves as my final will and testament … If I die, all my assets and investments go to [my fiancée] … “My life policies must all go to [my fiancée]”.
Subsequent emails made it clear that both the accountant and his fiancée were aware that there could potentially be disputes regarding the validity of the emailed “will”, and accordingly an “Action” list that the fiancée then sent to the accountant included an action item “Will”. In the end however he never got around to actually making and signing a written will.
When the accountant died on 14 September 2016, the Master appointed as executor the bank nominated in his 2006 will.
The fiancée approached the High Court for an order recognising the 2016 email as the true will, alternatively revoking the part of his 2006 will leaving the estate to his ex-wife. Unsurprisingly, the ex-wife opposed this application.
Firstly, the Court accepted on the facts that the accountant had indeed drafted the email, but it then turned to the second leg of its enquiry – “Whether the deceased intended the disputed Will to be his Last Will and Testament”.
Commenting that “it is not intended for the Court to make a will for the deceased based on what his intentions may have been”, the Court found that it was “improbable that he would have intended the disputed Will to be his Last Will and Testament”, and that – this is the critical part – his email was “nothing more than an email in which he was assuring the applicant that he will make her a beneficiary of his estate”.
The end result – the accountant clearly intended to leave his estate to his fiancée. But he never got around to drawing up a formal written will to that effect, so the 2006 will stands, the ex-wife takes all and the fiancée leaves with nothing.

The bottom line – “intention” is not enough!

Whatever you intend should become of your worldly goods, and no matter how you may have recorded your wishes, the only safe way to ensure that they are honoured is to execute a valid written will.

This is a vital document and there are dire consequences to not getting it 100% right so ask your lawyer for help!

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

Jun 26

0

Employers: What is Your Duty to Accommodate Religious Beliefs?

By Kruger & Co | Employment and Labour Law

“The employer has a duty to reasonably accommodate an employee’s religious freedom unless it is impossible to do so without causing itself undue hardship. It is not enough that it may have a legitimate commercial rationale. The duty of reasonable accommodation imposed on the employer is one of modification or adjustment to a job or the working environment that will enable an employee operating under the constraining tenets of her religion to continue to participate or advance in employment” (Extract from judgment below)

Our law makes a dismissal automatically unfair if ‘… the reason for the dismissal is that the employer … unfairly discriminated against an employee, directly or indirectly, on any arbitrary ground, including, but not limited to race, gender, sex, ethnic or social origin, colour, sexual orientation, age, disability, religion, conscience, belief, political opinion, culture, language, marital status or family responsibility” (emphasis added).

Employers need to tread with extreme caution here, as a recent Labour Appeal Court decision once again warns…

Dismissed for refusing to work on Saturdays

A manager was required, along with all other managers, to work on Saturdays doing stock-taking.
She refused on the basis that she was a Seventh Day Adventist, a religion requiring her to observe the period between sundown on Friday and sundown on Saturday evening as the holy Sabbath, during which time she was not permitted to work. Her various suggestions on how she could be accommodated were rejected by her employer.
She was dismissed for “incapacity” and her dispute over the fairness of that dismissal eventually reached the Labour Appeal Court.
The Court held her dismissal to have been automatically unfair, and ordered her employer to pay her 12 months’ remuneration plus costs.

Who must prove what?

The actual outcome of this particular case was largely dependent on its specific facts, so as always take legal advice on your own situation.

But the Court’s findings provide a good example of how our laws on automatic discrimination are applied in practice –

Firstly, it was for the employee to show that her religion was the “true or real or dominant reason for her dismissal and that a sufficient [connection] exists between her dismissal and her religion”. She had to produce evidence “which is sufficient to raise a credible possibility that an automatically unfair dismissal has taken place”, whereupon the employer could “prove the contrary by producing evidence to show that the reason for the dismissal did not fall within the circumstances envisaged … for constituting an automatically unfair dismissal”.
The Court rejected the employer’s claim that the employee’s refusal to do the stock take was the dominant reason for the dismissal rather than her “personal convictions that underlay it”. She was, it held, “dismissed and discriminated against for complying with and practicing the tenets of her religion”.
Next, said the Court, “the decisive enquiry … is whether the discrimination is fair, rationally connected to a legitimate purpose and does not unduly impair or impact on [the employee’s] dignity”, it being up to the employer to prove such a defence.
In particular, a dismissal “may be fair if the reason for the dismissal is based on an inherent requirement of the particular job”, but then the employer would also have to prove “that it is impossible to accommodate the individual employee without imposing undue hardship or insurmountable operational difficulty”.
On the basis of the evidence available to it, the Court found that the employer did not “reasonably accommodate” the employee. The dismissal was accordingly automatically unfair.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

Jun 26

0

Airbnb Owners and Buyers – Should You Be Worried About the New Regulations?

By Kruger & Co | Property

“While travel on our platform accounts for less than 1 in 8 visitors to South Africa, those guests boosted the economy by R8.7 billion and helped create 22,000 jobs last year alone” and “Regulation is a useful and necessary tool of good policy, but policy comes first. Sadly, the current wording of the draft Bill is very vague and unclear. It indicates the creation of specific regulatory approaches without any explanation of what they are trying to encourage or solve.” (Airbnb)

Firstly, there is no doubt that Airbnb can be highly profitable for you if you have – or buy – the right property in the right place at the right time.

Just be sure to comply with all municipal zoning and other by-laws and (if you are in a community housing scheme) any Body Corporate or Home Owners Association requirements. There is also a host of other legal, tax, financial and practical concerns to consider – proper legal advice (and a short-term letting contract tailored to meet your particular needs) will pay handsome dividends.

A new factor to take into account now is government’s proposed new regulation of short-term rental schemes like Airbnb and its accommodation booking platform. The news has sent shivers down the spines of both existing and prospective Airbnb owners.

But is there actually anything to worry about? It’s much too soon to be sure but there may be grounds for optimism. Let’s start with a look at what has actually happened to date.

Here are the facts so far

Government’s declared intention is to regulate short-term home rentals because, it says, of perceptions that it may be hurting the tourism sector. Like other digital disruptors – Uber springs to mind – Airbnb has literally thrown a cat among the pigeons, and we are no doubt now seeing the fallout.
The proposal is contained in the Tourism Amendment Bill, published on 15 April 2019 with a 60 day window for public comment which has now been extended to 15 July. The Bill includes a provision for “the determination of thresholds for short-term home sharing”.
The relevant new definition in the Bill is: “‘short-term home rental’ means the renting or leasing on a temporary basis, for reward, of a dwelling or a part thereof, to a visitor.”
Reaction from stakeholders has been varied to say the least, with media reports suggesting a heady mix of both strong support for, and bitter opposition to, the new proposals. Perhaps most pertinently Airbnb has met with the Minister of Tourism and reportedly supports “fair and proportional rules that are evidence-based, benefit local people, and distinguish between professional and non-professional activity taking into account local conditions.”

So where to from here?

Time alone will tell what the final Amendment Act will actually look like, but the majority opinion does seem to be that in the end result a fair and workable balance will be struck between the need to regulate the industry on the one hand, and the need to encourage entrepreneurship and grow tourism on the other.

Expect an outcry and court challenges if that doesn’t happen.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

Jun 26

0

Your Website of the Month: Business Email Dos and Don’ts

By Kruger & Co | Business, Website of the Month

“The email of the species is deadlier than the mail” (Stephen Fry)

Do your business emails enhance your brand or tarnish it? It’s a critical question, particularly for businesses with high email volumes (that’s most of us these days) and it’s entirely up to you what the answer is.

On the one hand it’s all too easy to jeopardise an entire business relationship by hitting the “Send” button on a badly considered, written or configured email. On the other, it’s easy to turn every email you send into a powerful projection of all the good things you want everyone to know about your business and about you personally.

Get started with “The dos and don’ts when sending a business email” on BusinessTech, a 13-point checklist of things to watch for, from “Subject Line” to “Conversation Closer”.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

May 29

0

You Signed a Property Sale Agreement, Can You Still Accept a Better Offer?

By Kruger & Co | Property

You put your property on the market and an acceptable but not-perfect offer comes in. On the “a bird in the hand is worth two in the bush” principle you want to accept the offer even though it’s not ideal.

Perhaps it’s not perfect because it’s subject to a suspensive condition – common ones give the buyer time to sell his/her current house or to obtain a bond. In both scenarios your sale will fall through if the buyer is unsuccessful within the stated time, and if that happens you are back to square one after a long and fruitless delay. Bear in mind that that delay could be a protracted one depending on what your sale agreement actually provides – normally no less than 30 days to get a bond, sometimes several months to sell an existing house. That’s a lot of very valuable marketing time lost – and you’ll never know for sure whether you just missed out on that “perfect offer”.

The “72-hour clause” and what it does

This is where the “72-hour”, “continued marketing” or “escape” clause comes in handy.

In a nutshell, it allows you to continue marketing your property until suspensive conditions are met. If your marketing pays off and an unconditional offer does come in, you can give your existing buyer 72 hours’ notice to match it. So the buyer would have an opportunity to make the sale unconditional – either by waiving (abandoning) the condition or by fulfilling it.

If the buyer fails to do whatever the clause requires within the 72 hours, you are clear to accept the new offer. If on the other hand the buyer does perform in time, the existing sale immediately becomes fully binding and the transfer process can get underway.

A note for buyers

The clause is usually there for the seller’s benefit so perhaps avoid it when you can. But if it’s a choice between your offer being accepted or not, bear in mind that having a signed sale agreement at least gives you a solid base for a full bond application and/or a concerted effort to finalise your own house sale.

Just be ready to react quickly if the seller does indeed give you the 72 hour notice – you don’t want to be rushing around in a last-minute panic.

Buyers and sellers – check the wording!

Although 72-hour clauses are common in standard sale agreements, the exact wording can vary substantially, and may need tailoring to meet your specific needs. You might for example want to be given proof of availability of funds together with a bond clause waiver, or proof that the sale of the buyer’s house is a viable one – every situation will be different.

Apart from everything else, make sure that –

The 72 hour period specifically excludes Saturdays, Sundays and Public Holidays (religious holidays too if important to you),
You can extend the 72 hours by mutual agreement if you want to,
There are clear requirements for the method and timing of giving notice and of waiving conditions, and
You aren’t binding yourself to anything else that could turn around and bite you down the line.

Delete the clause if it doesn’t apply.

As always, have your lawyer check it all for you before you sign anything!

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

May 29

0

Directors at War and the Liquidation Option – A Tale of Sibling Rivalry

By Kruger & Co | Company / Corporate / Compliance, Insolvency / Liquidation

“Family quarrels are bitter things. They don’t go according to any rules” (F. Scott Fitzgerald)

A company’s directors have both the power and the duty to manage the company’s affairs for its benefit.

When two or more directors are in place, it’s perhaps natural for the occasional disagreement to arise between them. Indeed, regular expression of a variety of different viewpoints and ideas can make for a strong, dynamic board and business. Provided, that is, that the directors are in the end result still able to agree on the decisions vital to their company’s continued operations.

What happens though when disagreements and disputes escalate and make it impossible to continue running the business? Typically, communications break down to the extent that decision-making is paralysed. First prize will of course always be an amicable settlement – through formal mediation perhaps, or negotiation to buy out a dissenting director’s shareholding. But if these attempts fail, the company is in big trouble.

Fortunately our law offers you an effective remedy in the form of the “just and equitable” liquidation. It comes with its own risks and can be costly, so it’s often regarded as a last-resort option (ask your lawyer for advice on the various other remedies that may be available to you), but it works. A recent High Court decision illustrates…

Sister v brothers in a deadlocked development company

A sister and her two brothers owned, through their trusts, equal shares in a farm (partially inherited from their father and partially purchased from their uncle’s deceased estate).
They were also the three directors (and, again through trusts, the equal shareholders) of a company formed to subdivide, develop and sell residential plots on parts of the farm.
The company operated successfully and profitably for many years, paying substantial dividends to the shareholders, and has always been and remains solvent.
Trouble began brewing it seems several years ago, primarily between the sister and the brother in charge of the day-to-day running of the company’s business. Serious disagreements arose around an unhappy saga of sibling fallout – including the disputed existence of a partnership, alleged fraudulent stripping of over R6m by the brothers, and a litany of purported personal and familial abuse.
All these allegations were hotly denied, although an undertaking by the brothers to not “emotionally abuse” their sister in a settlement agreement at one point clearly indicated to the Court that the relationship breakdown was not confined to the siblings’ professional affairs. The relationship between the directors and shareholders was, said the Court, “that of partners in a family context”.
The sister applied for the liquidation of the company on the grounds that it was “just and equitable”. This is a procedure provided in the Companies Act for a court to have the discretion – even though a company is solvent – to liquidate it in order that an independent liquidator can take over.
The brothers opposed the application, claiming that there was no deadlock in the functioning of the company or between the directors and shareholders, but the Court disagreed. Its order liquidating the company, and its reasons for doing so, provide a useful summary of how this particular law works in practice…

3 grounds on which to wind up a solvent company

The Companies Act allows a court to liquidate a solvent company on application by director/s or shareholder/s on any of three grounds –

“The directors are deadlocked in the management of the company, and the shareholders are unable to break the deadlock, and
- Irreparable injury to the company is resulting, or may result, from the deadlock; or
- The company’s business cannot be conducted to the advantage of shareholders generally, as a result of the deadlock;
The shareholders are deadlocked in voting power, and have failed for a period that includes at least two consecutive annual general meeting dates, to elect successors to directors whose terms have expired; or
It is otherwise just and equitable for the company to be wound up.”

That last “just and equitable” ground gives courts a wide discretion to reach a decision based on all the facts of each particular case. The Court in this matter found that the involvement of all the directors in the business had effectively come to a standstill and took into account the facts that there had not been a directors’ meeting since 2014 plus the sister had refused to sign the latest financial statements.

It concluded that “the directors do not communicate and there is clearly immense personal animosity between them, and a lack of trust and confidence”, making it difficult to see how the company could continue its business. The lack of substantiation provided by the sister to back up some of her disputed allegations did not, said the Court, detract “from the fact of the breakdown in their relationship, and the lack of trust and confidence”.

It was therefore just and equitable that the company be wound up.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.