Article courtesy of Law Dot News | Property – Signing a Deed of Sale

12 Questions to Ask Before You Sign That Deed of Sale

“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.

 

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Article courtesy of Law Dot News | Business Law – Company / Corporate Compliance

Directors – When Are They Personally Liable?

“… 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.

 

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Article courtesy of Law Dot News | Family Law | Credit Law | Debit Recovery

The Trouble with Family Loans: A R540,000 Lesson

“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.

 

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Article courtesy of Law Dot News

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

“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.

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