“A stitch in time saves nine” (wise old proverb)

The COVID-19 pandemic and the resultant lockdown have opened up new avenues of profit for some businesses, but they have also subjected many others to the spectre of business failure. 

Unfortunately we can expect the level of bankruptcies to surge for some time to come, and the domino effect will multiply the numbers until our economy turns the corner.

If financial distress looms for your own company, bear in mind the very onerous duties imposed on directors by the Companies Act. One of those duties is to avoid any form of “reckless trading” or “trading in insolvent circumstances”, and if you drop the ball on that one you risk personal liability, claims for damages, and even criminal prosecution.

What action should you take? There is a lot at stake here so specific professional advice is indispensable, but it is essential to face realities and to take decisive action quickly. Your legal options are likely to be either liquidation or business rescue. Let’s compare them…

Business rescue v liquidation

Liquidation: If your company is terminally ill you will probably have no option but to put it out of its misery by applying for liquidation. In that event a liquidator is appointed to oversee the winding-up of the company, to sell its assets and to distribute the net proceeds to creditors. Liquidation’s big advantage is in providing an orderly winding up of the company’s affairs, but there will be few winners emerging from the process.

All stakeholders are likely to lose out in a liquidation scenario. Shares become worthless, you lose your directorship, employees lose their jobs and, although they have preferent claims for outstanding pay, leave etc, these could well be worthless. Creditors holding some form of security aside, other creditors (which would include you if you have a loan account) are left with concurrent claims – which are probably worthless too. 

To top all that off, if you signed suretyship for any claims, you will be personally liable for them.

Business rescue: Business rescue on the other hand is designed to restructure the company’s affairs and business “in a manner that maximises the likelihood of the company continuing in existence on a solvent basis or, if it is not possible for the company to so continue in existence, results in a better return for the company’s creditors or shareholders than would result from the immediate liquidation of the company.”

Either way all stakeholders stand to benefit, including you as a director, shareholder and/or loan account creditor. Your staff have a better chance of keeping their jobs, suppliers have a better chance of retaining your company as an ongoing customer, and the economy benefits from avoiding another business failure (SARS in particular will be happy to retain your company as a taxpayer!).

The success rate for business rescues is not high, but even if it is partially successful it is likely to be better than liquidation. 

There have also been concerns expressed about the costs of business rescue, and although these concerns have been disputed, cost is perhaps a factor to be put in the balance with all the other factors mentioned above when deciding between the two options.

How does it work?

In a nutshell (this is of necessity just a brief overview of what can be a very complex subject) –

• Normally you would voluntarily place the company into business rescue with a board resolution; alternatively an outside stakeholder can apply for a court order (which you could oppose). 
• A business rescue practitioner (often referred to as a “BRP”) is then appointed to take full management control of the company in substitution for the existing board and management, and to investigate the company’s affairs in order to “consider whether there is any reasonable prospect of the company being rescued”. The company is in the interim protected from legal action by creditors via a moratorium.
• As a director you “must continue to exercise the functions of director, subject to the authority of the practitioner”, plus you have “a duty to the company to exercise any management function within the company in accordance with the express instructions or direction of the practitioner, to the extent that it is reasonable to do so”. In other words, you must assist and cooperate with the BRP as required.
• The BRP convenes a first meeting of creditors to advise whether there is a reasonable prospect of rescuing the company.
• If rescue seems feasible the BRP will then formulate a business rescue plan and present it to another meeting of creditors for consideration and voting. 
• If the business rescue plan is adopted and successfully implemented, the company is returned to the marketplace as a viable business. 
• If it turns out that there is no prospect of rescue or if the business rescue plan is rejected without any extension of the business rescue proceedings, the court can convert the rescue proceedings into a full liquidation. It can also in some circumstances set aside the business rescue resolution or court order.

Timing is everything!

“A stitch in time” really does make sense here. Your chances of rescuing the business are statistically (and logically) much greater if you take action as quickly as possible after the threat of financial distress first rears its ugly head. 

As to the legal position, our courts have put it this way: “… it is clear that the business rescue procedure is intended to be used at the earliest possible moment, i.e. when a company is showing signs of pending insolvency, but where it has not yet reached the stage of actual insolvency.”

Moreover the longer you leave it, the more likely you are to find yourself personally in trouble with the law and the higher the chance of all stakeholders losing everything.

Bear in mind that access to financing will be critical here, as will active support from major creditors both during the business rescue proceedings and in the longer term. 

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

“O brave new world” (Shakespeare)

The COVID-19 pandemic will doubtless lead to many new developments on the legal front.

For example, with widespread employee retrenchment now an unfortunate reality in our struggling economy, all employers, employees and trade unions should know of an important new Labour Court decision validating the use of remote conferencing for the retrenchment consultation process. 

The consultation process, rudely interrupted

• An employer decided in January 2020 that it needed to restructure its business operations, which prompted it to contemplate dismissal of employees based on operational requirements. 
• The next step in terms of the Labour Relations Act was to enter into a meaningful consultation process with employees and/or their representatives, aimed at discussing and seeking consensus on possible alternatives to retrenchment, minimizing dismissals, severance pay etc. 
• This being a large scale retrenchment proposal the employer issued a formal notice inviting consultation and requested facilitation of the consultation process. A facilitator was appointed and several physical meetings were held. 
• Before the final consultation meeting could be held however the process was rudely interrupted by the declaration of a National State of Disaster and the consequent lockdown and restrictions on gatherings. 
• The Commission for Conciliation, Mediation and Arbitration (CCMA) proposed methods by which the process might continue, including usage of Zoom, but the trade union in question refused to participate via Zoom and the employer proceeded with the meeting in its absence. 
• When the employer then issued notices of retrenchment, the union applied urgently to the Labour Court to declare the process procedurally unfair.

Our “new normal”

“With the advent of the outbreak of the Covid-19 pandemic, the “new normal” presented itself” (extract from Labour Court judgment)

Commenting on the irony of the union complaining about “the efficacy and reliability” of Zoom whilst using it to make its own urgent application to court, and noting that the facilitator, with “powers to make a final and binding ruling on procedure”, was not averse to using Zoom for the meeting, the Court found that the union had refused to participate in the consultation process through no fault of the employer’s. 

As the Court put it: “With the new normal – lockdown period during Covid-19 pandemic – zoom is the appropriate form in which meetings can take place. What is involved in this period is the health and safety issue … It is a necessary tool to ensure that restrictions like social distancing as a measure to avoid the spread of the virus are observed.”

Accordingly there was no procedural unfairness and the union’s application was dismissed. 

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

At long last the main provisions of POPIA (the Protection of Personal Information Act) have been gazetted, and they will commence on 1 July 2020. That means that the one year transitional period will expire on 30 June 2021. 

Don’t panic just yet, and ignore the many “fake headlines” in the media implying that you are at immediate risk of non-compliance, but at the same time don’t leave this to the last minute! Preparing for compliance is going to be a time-consuming affair, almost all South African businesses will need to comply, and the penalties for not doing so will be very severe indeed – 

• You risk administrative fines of up to R10m;
• You could face criminal prosecution (with up to 10 years’ imprisonment);
• You could be sued for millions by anyone whose data has been compromised, and this is an instance of strict liability” in that no “intent or negligence” on your part need be proved;
• The loss of trust and the adverse publicity resulting if your data breach goes public could be devastating.

In future issues we’ll let you have a lot more practical advice on how POPIA will affect your business, and on the steps you will have to take to protect yourself from the dangers of non-compliance, but for now get started with this first planning step: Ask yourself what personal information you hold, where you hold it, who has access to it, and how secure it is. 

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

“This Too Shall Pass. It might pass like a kidney stone, but it will pass” (Unknown)

Entrepreneurs and the small businesses they run are bearing much of the brunt of our deepening economic woes. Some SMEs have prospered, others have sunk – most of us have just battled on, preparing for and dreaming of happier times to come.

In “The mental battle of running a small business” on Daily Maverick Nic Haralambous shares his thoughts on how to stay mentally fit in these trying times with these wise words: “Your emotional wellbeing is an imperative part of your success and the survival of your business”.

P.S. There may just be some light at the end of the tunnel here – keep an eye on the New York Times “Coronavirus Vaccine Tracker” here. Hold thumbs! 

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 new home is exciting but it’s also a big investment. You want to be sure that the property you’ve chosen is right for you and that there won’t be any unwelcome surprises along the way. We have put together a short list of what you need to know before buying or selling your property.

• An Offer to Purchase is a binding contract. It’s important that you have read and understood the Offer to Purchase before you sign it. Do you understand the clauses in the contract and are they written with your best interest in mind? Contact us first to review the contract before you sign.
• If you are selling your property, you will need some cash upfront to cover: three months’ rates and levies (sectional title), compliance certificates (electrical, gas and plumbing) and bond cancellation fees. Be sure to have funds available to cover these expenses to avoid stress and delay.
• If you are the buying a property, have you factored in the cost to you as the Purchaser? Over and above the purchase price you will have to pay the transfer duty, transferring attorney, the bond attorney for the new bond and a consent fee for levy clearances (if applicable). Our Transfer Cost Calculator will give you an idea of the costs you will need to cover.

B Lubbe & Associate Attorneys have been helping individuals and families to buy and sell property for over 21 years. Get in touch so that we can do the same for you.

Investor Homes: What are the buyers risks and rewards? 

Buying a second property to rent out is an attractive prospect for those who want to generate a passive income. But what are the risks associated with purchasing a property purely for investment purposes?

Working with the right agent can mean the difference between a profitable investment or not. Your agent should be able to guide you to spot the right growth area and find the right property for the returns you are hoping for.

Top realtor, Sharon Bell, from Remax Properties is here to help. Contact Sharon on 0826501800 or  sharono@worldonline.co.za for more about buying and selling your property.

Moving day is stressful. Here are some top tips to make sure your move goes smoothly.

• Don’t forget about your pets! Moving is as stressful for them as it is for you. Take your dogs for a long walk on the day to help keep them calm.
• You don’t have to pay a professional to reconnect your appliances. Take a picture of the AC power plugs and sockets of your electrical appliances so you can reconnect them yourself.
• Be sure to defrost fridge and freezer in advance to avoid risk of damage when moving (and you don’t have to deal with the mess).

Contact Goafer Mini Moves on 083 270 2441 or goafer@mweb.co.za to make sure all your belongings arrive in one piece.

It is our responsibility to look after our community and our environment. Choosing a non-profit organisation was an easy task as Kanabo Conservation Link (KCL) is a very obvious choice. (more…)

On 6 March 2016, us Capetonians and visitors to our beautiful city may be affected by the Cape Town Cycle Tour (CTCT)- the biggest cycling event in Cape Town and the Western Cape. (more…)

We’re excited to announce that this year we shall be fully involved in the Cape Town Cycle Tour and as such have designed our first newsletter to match the theme! For the second time Nicola will be co-hosting (more…)

Our PAIA manual

Today B Lubbe & Associates Attorneys’ accountant lodged our PAIA manual at the South African Human Rights Commission to comply with Section 51 of PAIA

(The Promotion of Access to Information Act, 2000).  Our manual can be viewed on our Website and it is also available at our offices.

The purpose of this act is to promote a culture of transparency, accountability and good governance in the private and public sectors. 

We trust this will be the effect of this Act.

PAIA Manual – B LUBBE & ASSOCIATES