26 January 2009 by

Section 34 (1) of the Insolvency Act No. 24 of 1936

It is well known that in the event of a trader transferring its business, the goodwill thereof or goods or property forming part of such business, except in the ordinary course of business or for securing the payment of a debt, a notice of the intended transfer is to be published in the Government Gazette and in two issues of an Afrikaans and two issues of an English newspaper circulating in the district in which the business is carried on. In the event that such notices are not published, the sale is void as against the seller's creditors for a period of six months after such transfer and is void as against the trustee of the seller's estate if sequestrated within the aforementioned time period.

The Insolvency Act No. 24 of 1936 (the Act) defines a 'trader' as "any person who carries on any trade, business, industry or undertaking in which property is sold, or is bought, exchanged or manufactured for purpose of sale or exchange, or in which building operations of whatever nature are performed, or an object whereof is public entertainment, or who carries on the business of a hotel keeper ... or who acts as a broker or agent of any person in the sale or purchase of any property or in the letting or hiring of immovable property..."

The effect of failing to comply with the notice requirements stated above is dire not only for the purchaser but also for the financial institution that provides the finance to purchase the business. This results in many financiers requiring proof of advertisement of the sale of the business within the correct time periods (being not less than 30 days and not more than 60 days before the date of transfer) before registration of the bond relating to the finance is allowed to be effected.

A typical going-concern sale involves the transfer of a letting enterprise and needless to say where applicable, many financial institutions have called for proof of advertisement to ensure compliance with the Act. It is now settled that a sale of a letting enterprise will not need to be advertised as is required with other businesses (the sale of a guesthouse for example). The directive issued in the Supreme Court of Appeal decision of Kevin & Lasia Property Investment CC and another v Roos NO and Others 2004 (4) SA 103 (SCA) places this firmly beyond dispute. A company that invests in commercial property, which is let out to tenants will not fall within the purview of the definition of a trader as defined in the Act. The owner of that commercial property is clearly not engaged in a scheme of profit-making, as the underlying asset is not trading stock. That owner rather holds the property as a capital investment from which income is generated. In contradistinction, a person who acts as an agent or broker for the letting or selling of immovable property would need to adhere to the Act and when selling their brokerage business would need to advertise the sale.

Simóne Franks

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