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12 Questions to Ask Before You Sign That Deed of Sale

By | Property, Uncategorized
“Knowledge is power” (old proverb)
Whether you are buying or selling property, remember that it is too late to ask questions after you sign the Deed of Sale (often called a “Sale Agreement” or “Offer to Purchase”). “Knowledge is power” rings particularly true when it comes to any form of process with significant legal consequences, so here are some of the important questions you should ask upfront, before you commit to anything –
  1. What do all the terms and conditions (particularly the legal-speak bits) in the Deed of Sale mean in practice?
  2. Are my rights adequately protected and my risks minimised by the terms and conditions?
  3. What costs will I have to pay, and when?
  4. Is there anything in the Title Deed or local municipal laws and zoning restrictions that may impact me (as a buyer)?
  5. Do I (as buyer) have a copy of the plans, and have all extensions and alterations been authorised by the local authority?
  6. What defects have been disclosed in the Mandatory Disclosure Form, is a home inspection report worthwhile (and permitted by the deed of sale), what is the legal position around voetstoots clauses and patent and latent defects, and does the Consumer Protection Act apply to this sale?
  7. As a buyer, have I checked for practical issues like local fibre availability, crime levels, security, school feeder zones, fixtures and fittings to remain, work-from-home practicality, buy-to-let possibilities etc?
  8. Are there tenants (or other occupants) in the property, and if so what is their status and what does the deed of sale say about when they will vacate?
  9. When does the buyer take possession and occupation? (Careful here, possession and occupation are two different concepts in law)
  10. What arrangements have been made for date of transfer and payment of occupational interest, rates and taxes, levies, municipal service charges and the like?
  11. In a residential complex: As a buyer, what Rules and Regulations will I be bound to, is there a danger of a special levy being levied, and do the latest financial statements for the Body Corporate or Homeowners Association show a healthy financial situation?
  12. Have I as seller appointed my choice of conveyancer (transferring attorney)?
A final but vital thought here – whether you are buying or selling property, a lot of your money will be at stake here. Get professional advice before committing yourself to 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.

© LawDotNews

Directors – When Are They Personally Liable?

By | Company / Corporate / Compliance, Debt Recovery, Uncategorized
“… for the benefit of immunity from liability for its debts, those running the corporation may not use its formal identity to incur obligations recklessly, grossly negligently or fraudulently. If they do, they risk being made personally liable.” (Quoted in the judgment below)
Particularly in hard times, it is not at all uncommon to find yourself unable to recover a debt from a company in financial straits whilst at the same time you know that its directors hold assets in their own names. Can you attack them personally? The answer is founded in the centuries-old concept of companies as separate legal entities or “juristic persons”. They trade in their own names and have their own assets and liabilities, so as a rule directors will not be personally liable for a company’s debts unless either –
  1. They signed personal suretyship for them, or
  2. They fall foul of one of our law’s provisions entitling a court to declare them personally liable.
So, in the absence of personal suretyships, when in practice can you recover a company debt from its director/s? And when are you as director at risk of being sued personally? Let’s look at the facts and outcome of a recent High Court case for some insights –
The fraudulent car auction, the disappearing company and the director’s defence
  • The buyer of a car on auction subsequently discovered that it was a 2010 model despite being sold to her as a 2012 model.
  • She cancelled the sale, returned the car to the auction company that had sold it to her, and, when her demand for a refund of the purchase price was refused, took a default judgment against the company.
  • What followed was a saga of unsuccessful attempts to recover her money from the company, its address having changed and the director claiming to have resigned and sold the company, which he said had ceased trading and was awaiting deregistration.
  • The buyer eventually sued the director personally, asking the Court to “pierce the corporate veil”. The director’s defence boiled down to saying that he had not used the company “as a front”.
Piercing the corporate veil
“Piercing the corporate veil” in this context is, simply put, a court holding directors personally liable for a company’s debts by declaring that the company is to be “deemed not to be a juristic person” in respect of particular debt/s. On what grounds will a court make such a declaration? Per the High Court in this matter:
  • Where there is “fraud and the improper use of a company or conduct of the affairs of a company” or
  • “[W]here its incorporation, use or an act performed by or on its behalf [the Court’s underlining] constitutes an unconscionable abuse of the juristic personality of the company as a separate entity.”
The director’s misrepresentation and “cavalier disregard” for the company’s interests
  • On the facts, the Court found that the director had misrepresented the details of the motor vehicle to the buyer, that this misrepresentation was material and induced her to purchase the vehicle, and that it “was deliberate such that it amounted to fraud, alternatively dishonesty, further alternatively improper conduct.”
  • “Additionally, as the director and owner, he acted with cavalier disregard for the interests of the company … Such conduct is manifestly not in the best interest of the company and may be considered reckless and dishonest. This conduct was indubitably with callous disregard for its effect on the company as a separate legal entity and at a time when he describes its financial situation as being parlous.Therefore, whilst a director is entitled to resign at any time, his resignation cannot be used as a means of evading his fiduciary duties as a director.”
  • Concluding that “the conduct of the director adversely affected the [buyer] in a way that reasonably should not be countenanced and which constitutes an unconscionable abuse of the company’s juristic personality”, the Court declared him personally liable to repay her the purchase price, interest, and costs.
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.

© LawDotNews

The Trouble with Family Loans: A R540,000 Lesson

By | Credit Law, Debt Recovery, Uncategorized
“How sharper than a serpent’s tooth it is to have a thankless child!” (Shakespeare)
“Family helps family in times of need” – that’s been part of human culture since long before the dawn of history but be sure to observe all legal formalities. A recent High Court decision provides an excellent example of the risks of not doing so.
Parents lose R540,000
  • A daughter in the middle of a divorce borrowed R540,000 from her parents so that she could buy out her spouse’s 50% share in her house.
  • As far as her parents were concerned it was a repayable loan, but when they had to sue their daughter for repayment they were in for a rude shock.
  • Although their daughter had admitted asking to “borrow” the money, the Court held that the parents had failed to prove (the onus being on them to do so) “the existence of a loan agreement, its terms and consequent breach thereof on a balance of probabilities”. Nor had they proved “the material terms and conditions agreed upon including the amount of the loan and the date of repayment”. Another nail in their coffin – they had failed to prove animus contrahendi (lawyer speak for “a serious intention to contract”).
  • Their claim was dismissed with costs, so it’s goodbye to their R540k.
5 reasons why you need a contract, no matter how strong your family
One wonders how many families have rued their attitude of “We have a very close and strong family, and we trust each other with everything. No way do we need a contract. Forget it.” But it’s not just a matter of trust. Consider these scenarios –
  1. Without a written contract, who is to say for certain that you are all on the same page as to whether it is a gift or a loan, and if so when and how it is repayable? You could in all innocence have two totally different visions of what you have agreed on. It’s only fair to everyone to put everything on record.
  2. Even the strongest families go through rough patches – it may be highly unlikely, but it happens, and our law reports are full of unforeseen and bitter family fights.
  3. What if (horrible thought, but we must all be realistic) one of you dies before the debt is repaid? Now you are dealing not with a parent, a grandparent, or a child, but with the executor of their estate, an executor who will need proof of the loan and its terms.
  4. If a divorce should intervene, a family loan is as much an asset (or liability) as any other, and solid proof of it will be essential.
  5. The same applies to an attack by a third party such as the taxman or a creditor.
Bottom line: Have a clear, written contract recording at the very least the amount of the loan and the agreed date and terms of repayment. For significant amounts of money, professional advice is essential.
A final thought – ask about the National Credit Act
It may seem strange in the context of a family, but your loan agreement will be unenforceable if you didn’t register as a “credit provider” in terms of the National Credit Act (NCA) in circumstances where you should have registered. In many cases it won’t be necessary, in that it doesn’t apply where family members are dependent on each other. Plus, only “arm’s length” transactions will as a general rule fall under the NCA. But there are grey areas here, so specific advice is again essential. 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.

© LawDotNews

Your Website of the Month: The 9 Key Points of Making a Difficult Decision

By | Uncategorized

“Avoiding a decision is itself a decision … probably the wrong one”

Decisions, decisions – we spend our days making them, most of them minor but every now and then a really big, important one comes along. Perhaps it’s something like  “Should I resign my 9-to-5 and start up that artisanal bakery business I’ve always dreamed of?” or “Should we sell up and move to the coast?” or even “Should we list on the JSE?”.

Whatever difficult decision may be looming over you, remember that delay is tempting but unwise. Rather grab the nettle with the “9 key points” in Psyche’s article “How to make a difficult decision” here.

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.

© LawDotNews

Divorce: Claiming Interim Maintenance and a Contribution to Legal Costs

By | Family Law, Uncategorized
Even if your marriage is collapsing around you, you might be afraid to sue for divorce because you have no money to survive on, plus you know that a hotly contested divorce might take years to finalise while your breadwinner spouse fights you tooth and nail every step of the way. How will you support yourself and your children until the case is finalised? How will you pay your lawyer to run the case for you? Must you wait for the end of the case before you see a cent? The answer luckily is “no” in that you have a relatively quick and simple remedy in the form of asking the court for “interim relief” in respect of –
  • An order that your spouse pay you –
    • Maintenance (for children and/or for yourself) pending finalisation of the divorce,
    • A contribution towards your costs in the divorce proceedings,
  • Interim care of, and contact with, your children (if there is any dispute over this aspect).
You may well hear this form of relief referred to in High Court divorces as a “Rule 43 application” (or, if your divorce is in the Regional Court, as a “Rule 58 application”), whilst the technical term for the maintenance is “maintenance pendente lite” (“maintenance pending the litigation”). At this stage the Court isn’t interested in recriminations, or blame-finding, or the itemised details of your and your spouses’ financial positions. Those enquiries come later, during the actual divorce litigation. At this stage all it wants to know is how much you need, and how much your spouse can afford to pay. A recent High Court judgment illustrates…
A “coy about his wealth” spouse ordered to pay up – now
  • The warring spouses here are a senior banking executive and his wife, who qualified as a teacher but gave up that career to become a homemaker and mother to the couple’s two children.
  • She asked the High Court for interim maintenance for herself and the children, and for a contribution to her legal costs.
  • In assessing these requests the Court laid out some of the general principles involved –
    • Unless the care and residence of children is involved the issues are straightforward, relating to “the applicant’s reasonable needs, and the respondent’s ability to meet those needs. The applicant’s entitlement to maintenance must be assessed having regard to the standard of living enjoyed by the parties during the marriage.” This should be “a simple and straightforward calculation of needs and means”. (Emphasis supplied).
    • The aim is “to avoid substantial prejudice to either party pending divorce. It is not to provide a precise account of what is due to or from either party, according to the parties’ or the court’s sense of morality, propriety, the blameworthiness of the parties’ conduct during the marriage, or their habits of living after the separation.” The case should be cast in practical rather than moralistic terms, and the “emotional heat of a separation” should be kept out of it.
How much money could you be awarded?
Of course every case will be different, but where the parties have, as in this case, enjoyed a high standard of living, the figures can be substantial. Here for example the Court’s awards were sizeable, commenting that the husband “is coy about his wealth, but there is little doubt that he has a substantial income” – just under R7m in the previous year – with “considerable resources” and an estimated net worth of just over R40 million. Moreover the couple had enjoyed “a very comfortable lifestyle” together. The end result is that the husband must pay substantially what his wife asked for in the form of R1.6m immediately and thereafter R108k p.m. –
  • R88,701-69 p.m. for the wife and children’s interim maintenance, plus school fees, extra mural activity costs, medical aid and medical costs
  • Rental of up to R20,000-00 p.m., plus cost of utilities
  • R34 656.39 for house moving costs
  • R1,572,945-80 as a contribution towards the wife’s interim legal costs.
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.

© LawDotNews

Buying a Business? Make Sure the Seller Publishes Notice of the Sale

By | Business, Insolvency / Liquidation, Property, Uncategorized

“The purpose of the legislature in enacting s 34(1) is to protect creditors by preventing traders who are in financial difficulty from disposing of their business assets to third parties who are not liable for the debts of the business, without due advertisement to all the creditors of the business.” (Extract from judgement below)

With our economy in trouble and the ongoing pandemic and lockdown damaging more and more businesses by the day, sales by distressed companies and traders are likely to rocket. 

If you are a prospective buyer here, be aware of one particular danger lurking in the wings for you. 

Follow this rule to protect yourself – before you buy any business, its goodwill or assets forming part of the business, take legal advice as to whether or not the sale must first be advertised in terms of section 34 the Insolvency Act. You stand to lose both the business and the purchase price if section 34 requires the sale to be advertised and it isn’t.

Your risk is that if an unadvertised sale is challenged by a liquidator/trustee (or by a creditor if there is no liquidation/sequestration) within 6 months of the sale, it is likely to be declared void.  In that event, you will be lucky to get even a portion of your purchase price back – with the seller in financial difficulty your concurrent claim is probably worthless.

As a creditor…

The advertising requirement is designed to protect you as a creditor from having to claim from a debtor which suddenly becomes a worthless shell having quietly sold away its business and/or assets beyond your reach. 

Note that you only have protection if you have instituted proceedings against your debtor “for the purpose of enforcing [your] claim” before the transfer of the business – a good reason not to drag your heels when suing a recalcitrant debtor.

When advertisement isn’t necessary

The sale will only be valid without advertisement if –

  • The sale was made “in the ordinary course of business” (unlikely where the business subsequently fails), or 
  • It was made for “securing the payment of a debt” (unlikely to be under your control as buyer), or
  • The seller wasn’t a “trader”.  As “trader” is widely defined in the Act, and as the onus of proof here is squarely on the buyer, that’s not going to be easily proved. As we shall see below, you can be a “trader” in property as much as in any other commodity.

As a general rule therefore, it is safest to insist on the sale being properly advertised before you pay out the purchase price, but there are grey areas and pitfalls here so take specific advice. Note also that the Act’s requirements for the timing and manner of advertisement are strict and must be followed to the letter.  

As a recent High Court case shows, as a buyer (in this case of a property business) you could lose everything if you lose sight of this very real danger…

An R8m claim and a property transfer (and bond) set aside
  • A property owner bought and developed a property firstly into a shopping centre and later into a shopping centre with 11 sectional title units.
  • Whilst being sued by a creditor for R8m, the owner sold a section to a buyer and transferred it to him, and a bank registered a bond over the property.
  • The creditor obtained judgement against the owner only to find that it had been placed into liquidation. It asked the High Court to set aside the sale on the basis that the sale had not been advertised in terms of section 34 and was therefore void.
  • The buyer countered by denying that it was a “trader” as defined in the Insolvency Act. Its core business, it said, was to acquire and then rent out properties, “its business objective was not the buying and selling property per se as its stock in trade”.
  • Finding on the facts that the owner was indeed a “trader” when it sold the property to the buyer, the Court set aside the sale, the transfer to the buyer, and the bank’s mortgage bond.

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.

© LawDotNews

Trustees at War: The Removal Remedy and Its Limits

By | Uncategorized

“Animosity and difference of opinion are not sufficient to have a trustee removed from office and/or for the majority of trustees to unilaterally force another to vacate his/her office…” (Extract from judgment below)

When family infighting impacts a family trust, an early casualty is often the relationship between the appointed trustees and beneficiaries, and/or between the trustees themselves. 

And if that results in irreconcilable differences and conflict between the trustees, the only answer may be for one or more of the trustees to be replaced. First prize of course will always be to achieve this with a voluntary resignation – but what happens if a trustee refuses to resign? Can the majority forcibly remove him/her?

A recent High Court decision dealt with just that question.

3 professionals v the beneficiary’s mother
  • A “valuable property” in Knysna is owned by a trust created for the benefit of a couple’s daughter (11 years old at the time, now 30). There are four trustees appointed by the Master of the High Court (“the Master”) issuing “letters of authority” to two auditors and an attorney (“the professionals”), and to the beneficiary’s mother. The father farms the property through a company and a close corporation. Although no family feud is specifically mentioned in the judgment, it seems clear that the father is in one camp, and the mother and daughter in the other.
  • The trust deed contained this clause – “The office of a TRUSTEE shall be vacated if …. the majority of TRUSTEES request a TRUSTEE to resign.”
  • The trustees fell out in a dispute over the father’s loan account, with the professionals proposing that the trust should pay the father interest on his loan, and the mother objecting on the basis that payment of interest had never been agreed to.
  • This was discussed in a telephonic trustees’ meeting, and resulted in the professionals writing to the mother to say she was removed as trustee for three reasons – “1) all items discussed were either rejected or opposed; 2) she made false allegations against the applicants and 3) she admitted that she did not have sufficient knowledge to fulfil her duties as trustee”. The Master then pointed out to the professionals that they could not resolve to remove the mother, only to request her to resign. They did so in a second letter to the mother. 
  • The mother refused to resign and the professionals asked the High Court to order that the mother “has lost her office as trustee”. Their attitude was that they were acting in terms of the trust deed, no reasons for the decision had to be given, and the Master had no option but to issue new letters of authority.  
  • The clause itself might seem pretty clear, the professionals clearly believed that they were acting entirely within their mandate and they presumably commenced their litigation with high hopes of success. But it was not to be…
  • The Court, for the reasons we discuss below, held for the mother, who accordingly remains a trustee. 
Ambiguity, showing good cause, and ubuntu

The Court’s reasons for its decision contain some important principles that anyone involved in a trust would do well to take note of (with some thoughts on how to deal with each issue in brackets) –

  • The trust’s removal clause, held the Court, was ambiguous when it provided that a request (involving a choice) for resignation shall (peremptory – no choice) lead to vacation of office. The clause, said the Court, “must be interpreted to read that there must be good cause for such a request and that the trustee shall vacate his/her office only in the event of an acceptance of the request”. (Make sure the trust deed is clear and unambiguous).
  • Secondly, an implied term should be read into the clause requiring good cause to be shown – to allow trustees to remove another without producing reasons “would be against public policy and the principles of ubuntu, reasonableness and fairness”. (Make sure you can show fairness and good cause for decisions).
  • Thirdly, the professionals had failed to prove any justification for their action. They could not rely on the clause without giving reasons for their decision and proving that they took their decision “based on the discretion of a good person acting reasonably”. (Make sure you can justify your actions as reasonable).
  • Fourthly, the resolution to request the mother’s resignation “should have been taken on a properly constituted trustees’ meeting and upon proper notice of their intention”. Instead, they took decisions “secretly and without notifying [the mother] in advance.  They also “failed to give proper notice in compliance with the provisions of the Trust Act.” (Comply with all procedural formalities).
  • Finally, said the Court, there was no deadlock between the trustees – “Decisions in the interests of the trust and trust beneficiary can be taken by the majority of trustees during a properly convened meeting on condition that sufficient notice of all matters to be considered is given.  It is not necessary to remove the first respondent in order to conduct the business of the trust in a lawful manner.” (Be sure that removal is actually necessary).

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.

© LawDotNews

Employers: When Should You Sue Rogue Employees? A R33m Example

By | Uncategorized

“It is the duty of an employee when rendering his or her services always to act exclusively in the interest of the employer … an employee is not entitled to use his or her employment relationship with the employer without the employer’s permission to make a profit or earn commission for his or her own account” (Extracts from judgment below)

Employees have very strong rights in our law, but employers also have effective remedies when employees “go rogue”.

A recent case, in which an employee was ordered to repay his employer R33m in “secret profits” including R9m in damages, provides a good example.

Diverted sales opportunities and secret profits
  • A manufacturer employed a “Key Accounts Manager” as its agent in dealing with customers. He was trusted with an “almost unlimited discretion” and minimal management oversight to act in his employer’s interests.
  • His employer sued him in the High Court on allegations that he breached both his employment contract and his duty to his employer, firstly by selling product to customers at below-minimum prices, and secondly by selling through his own companies to secretly profit thereby. 
  • The employee’s denials of wrongdoing cut no ice with the Court, which held that he “was clearly under a general obligation to do his best for his employer and to conduct the plaintiff’s business in good faith and for its benefit” but “was in breach of his fundamental obligation of loyalty and good faith which he owed to … his employer”.
  • The secret profits claim. Ordering the employee to “disgorge” his secret profits of R33,291,599.24 (less any “amounts paid in making such profits” which the employee is able to prove), the Court held that the employer had proved the three elements needed to succeed in such a claim –
    • The employee owed it a “fiduciary obligation” (a duty to act honestly and in utmost good faith),
    • In breach of that obligation he placed himself in a position where his duty and his personal interest were in conflict, and
    • He made a secret profit out of corporate opportunities belonging to the employer.
  • The damages claim was for losses on product sold to customers at prices well below the employer’s base price “in order to further [the employee’s] secret profit-making activities.” Finding that but for the employee’s wrongdoing the customers would have bought product at no less than the base price, the Court awarded the employer R9,407,651.05 in damages (to be credited, when paid, to the R33m claim). 
Rubbing salt in…

To really rub salt into the employee’s wounds, he was ordered to pay costs, and the bill will be a big one, including –

  • Costs on the punitive “attorney and client” scale, an appropriate order said the Court “given the secret and unlawful nature of the scheme which the defendant ran for four years at the expense of his employer”, 
  • The cost of audio visual equipment used in the trial, and
  • The (no doubt substantial) travel and subsistence costs of both the employer’s legal team and its six witnesses, all of whom travelled from Gauteng to Cape Town for the trial.  

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.

© LawDotNews

Your Website of the Month: Your Selection of Budget 2019 Tax Calculators (And a Tax Guide)

By | Uncategorized

“People who complain about taxes can be divided into two classes: men and women” (Anon)

  • How long will you work for the taxman today?
    Input your salary into the 2019 Tax Clock calculator and find out how many hours you will spend today working for the taxman, and at what time precisely you will finally start working for yourself (warning – it’s not pretty!).
  • How will your income tax change?   
    Put your monthly taxable income into Fin24’s Budget 2019 Income Tax Calculator to find out.
  • How much extra will your sin taxes cost you this year? 
    Work out how much more you will be shelling out for spirits, wine, beer and cigarettes (or how much you will be saving if you don’t indulge!) with Fin24’s Budget 2019 Sin Tax Calculator.
  • Your Pocket Tax Guide “From the Horse’s Mouth”   
    Download the official SARS Budget 2019 Tax Guide from the National Treasury website here.

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.

© LawDotNews

Court setback for Guptas

By | Uncategorized

Mine business rescue plan halted pending application

THE GUPTAS risk losing control of the affairs of their crown jewel, Optimum Coal Mine, after suffering another crushing blow when the high court in Pretoria halted its plans to put the mine into business rescue.

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