“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

“It is only where the enforcement of a contractual term would be so unfair, unreasonable or unjust so as to be contrary to public policy that a court may refuse to enforce it” (extract from first  judgment below)

Leases often give tenants an option to extend or renew at the end of the current term, and tenants who lose sight of the value and importance of such an option are flirting with disaster. 

Tenants 

In a nutshell, when the time comes to exercise your option do comply fully with the clause’s requirements. Make sure also that you understand and accept the exact wording of the renewal clause before you sign the lease. Drop the ball in either respect, and if your landlord wants you out for whatever reason, you will struggle to convince a court to come to your rescue by forcing an unwilling landlord to renew. 

Four recent court cases – one in the Constitutional Court, two in the Supreme Court of Appeal (SCA) and one in the High Court) illustrate, but before we get there here’s a quick note for landlords…

Landlords 

This is of course also highly relevant to you – the last thing you want is for a poorly-worded clause to lumber you with an unwanted tenant, or an unrealistically low rental, or even just with a bitter and expensive legal fight over what the clause actually means. Nor, as we shall see below, do you want to run the risk of a court holding the terms of your lease to be so unfair as to be unenforceable.

First case: Non-compliance v unfairness, Ubuntu and public policy

• As part of a black empowerment initiative, a business hiring out tools and building equipment to builders had set up four of its ex-employees in a franchise operation. The business premises were let to them by the building owner, a trust linked to the hiring business.
• The leases were for 5 years and contained options to renew for a further 5 years, on the giving of notice six months before termination, and subject to the rental for the renewal period being agreed. A mechanism for the agreement of rental was set out in each lease. The franchise agreements were for 10 years, presumably indicating an anticipation of renewal.
• The tenants didn’t exercise their options on time, and when they did try to do so, it wasn’t in the terms required by the lease. 
• When the landlord told two of the tenants to vacate (the others were offered a month to month temporary arrangement), they asked the High Court for an order allowing them to remain. They conceded that on the strict terms of the leases they would have no case but argued that on the basis of fairness and Ubuntu the leases should not be terminated.
• After winning in the High Court but losing on appeal to the Supreme Court of Appeal, the tenants took their appeal to the Constitutional Court, explaining “that they were unsophisticated and not versed in the niceties of the law.” 
• The Court dismissed the appeal, holding that although Constitutional values such as Ubuntu (which encompasses values of fairness, reasonableness and justice), “form important considerations in the balancing exercise required to determine whether a contractual term, or its enforcement, is contrary to public policy … It is only where the enforcement of a contractual term would be so unfair, unreasonable or unjust so as to be contrary to public policy that a court may refuse to enforce it.” 
• In other words, the highest court in the land has held that if you want to avoid the strict terms of the lease you must show that they are against public policy. You can use constitutional values to do that because those values “underlie and inform the substantive law of contract” but the acid test remains – have you proved that enforcement of the lease’s terms would be contrary to public policy? The tenants in this case had, said the Court, failed to do so. They have 30 days to leave. 

Second case: Renewal clause void for vagueness

For ten years a tenant occupied premises in terms of an original lease and agreed renewals. When it gave notice of a further renewal, the parties were unable to agree on a rental, the renewal clause providing that … “the rental and costs shall be mutually agreed upon in writing between the Landlord and the Tenant when the right of renewal is exercised”.

The landlord applied for eviction and the SCA held that the term was unenforceable, being merely an agreement to agree rather than containing any “legally enforceable obligations”. The renewal clause was void for vagueness and the tenant was given 14 calendar days to vacate. 

Third case: No agreement on rental, too late to call in a third party

A tenant gave notice of renewal, the lease in this case providing that “the rental consideration will be determined by agreement between the parties based on the prevailing market rental’s applicable to the property”, and if they could not agree, a third party would determine it.

The lease, held the SCA, had terminated because the tenant had only tried to invoke the third party clause after the lease had lapsed. The rental must be fixed or agreed for the renewal to be valid.

Fourth case: No notice of renewal and no deadlock breaking mechanism

The tenant in this case failed to give notice of renewal on time, his attempts to negotiate an extension with the landlord failed, and the High Court ordered his eviction. The tenant’s argument that over the years it had become “customary” for the landlord just to remind him about an upcoming expiry and ask him if he wanted to renew was, said the Court, irrelevant because the clause itself was not “definite and complete”. 

The clause provided “that the parties agree in writing to the rental, conditions and provisions of the proposed lease” and even if the tenant had given proper notice of an intention to renew, the parties would still have had to negotiate terms, and there was no “deadlock breaking mechanism” in the lease.

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

Fraudulent SIM swaps were involved in around 13,300 reported digital banking fraud incidents across online and mobile banking and banking apps in 2019 (up 16% from 2018) and all indications is that the lockdown will see another spike in incidents.

Read “What to do if you are a victim of SIM-swap fraud” on My Broadband for advice on the dangers, how to protect yourself from becoming a victim, how to tell if you are under attack, and what to do about it if it happens.

Stay safe out there!

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

“Ninety percent of all millionaires become so through owning real estate. More money has been made in real estate than in all industrial investments combined. The wise young man or wage earner of today invests his money in real estate” (Andrew Carnegie, billionaire industrialist)

Dollar billionaire Andrew Carnegie said it a century ago, and it still rings true – wise property investment can be hard to beat when it comes to accumulating wealth. The exciting opportunity for buyers at the moment is of course the more attainable sale prices and the lower interest rates resulting from the pandemic and the lockdown. It is, by all accounts, still very much a buyer’s market.

On the other side of the coin, sellers and estate agents are no doubt heartened by recent signs that the first green shoots of a recovery are in the offing, and so the time is ripe for a reminder that, in terms of the Estate Agency Affairs Act (“the Act”) only agents with a valid and current Fidelity Fund Certificate (FFC) can operate and earn commission. 

The challenge for agents is that when it comes to the issue of FFCs, they are at the mercy of the Estate Agency Affairs Board (EAAB), which has reportedly struggled in the past to issue certificates efficiently and on time. This problem will presumably be exacerbated by the ongoing lockdown restrictions and the risk of precautionary office evacuations. 

However there is some good news for agents (not such good news perhaps for those sellers or landlords hoping to save on commission!) in a recent Supreme Court of Appeal (SCA) judgment…

No FFC, but not the agent’s fault 

• Two estate agencies (“S” and “A”) jointly brokered a lease agreement, but when S asked for its 50% share A refused, partially on the basis that S had no valid FFC at the time the commission was earned.
• In fact S had done everything necessary to apply for its annual FFC, which was issued by the EAAB on 1 January 2018 in the wrong name (S had converted from a close corporation to a company). The EAAB acknowledged its error and in May 2018 issued a correct FFC to S, backdated to 1 January. 
• However the High Court dismissed S’s commission claim, holding that mere entitlement to an FFC is not enough – a valid FFC must have been actually issued at the time the commission was earned.
• S appealed to the SCA, which reversed that finding and awarded S its 50%. The Court held that the Act’s strict and peremptory requirement for a FFC had to be interpreted in light of both Constitutional considerations and consistency “with what the Act seeks to achieve”.
• On that basis, and commenting that “But for the error on the part of the Board, [S] was entitled to, and would have been issued with, a valid fidelity fund certificate for the period 1 January-31 December 2018” and that “the fault lies squarely and solely with the Board”, the Court concluded that “the estate agents were rightly considered to have been in possession of a certificate”. S is therefore entitled to its commission.

Agents – don’t lose your commission!

The Court was however at pains to point out that the particular facts of this case were “in a narrow compass” and it is clear that the general rule remains – hold a valid and current FFC or almost certainly forfeit your commission. Do not even try to rely on an EAAB mistake unless you have complied strictly with all the formalities for a certificate and can prove that you are entitled to one.

And as the Court put it, if something does go wrong with the issue of your FFC “…estate agents should not adopt a supine attitude in the face of the Board’s errors. They should do what is reasonably within their power to have the situation rectified. In the meantime their compliance with the requirements should be a primary factor in the determination of disputes that arise before the error is rectified” (emphasis supplied).

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

“…it must be asked whether, but for the Covid-19 outbreak, the interruption or interference to the Applicant’s business would have occurred when the Lockdown Regulations were promulgated” (extract from the judgment below)

It’s no surprise that our media has been awash with reports on the recent High Court judgment around a restaurant’s business interruption cover claims.

The restaurant in question, like many other businesses of all types and sizes, has been suffering severe losses from being forced to close (and latterly trade under very limited conditions) during the lockdown. Its business interruption claim in terms of an “Infectious Diseases Extension” clause in its policy (which it had faithfully been renewing annually since 2007) was rejected by the insurers.

What caused your business losses? The two things you must prove…

Sued by the restaurant, the insurers raised a whole slew of defences to the claim, all of them ultimately rejected by the Court.

Of most interest to businesses holding this type of cover will be the central question of whether or not the wording of your particular policy, in particular any “notifiable disease extension” clause (which in this case was a no-premium, “free cover” extension) will cover you for losses sustained in the particular circumstances of this pandemic and the lockdown. 

The clause in this particular case promised cover for ”interruption or interference with the business due to (e) notifiable disease occurring within a radius of 50 km of the premises…”. 

The insurer argued that this covered only losses resulting from business interruption “where the interruption is due to the Notifiable disease and not losses as a result of other causes” and that in this case business was interrupted not by the Covid-19 outbreak but rather by the lockdown “which is not insured under the Policy.”  It also argued that “there was no sufficient causal link between the Covid-19 outbreak and the [restaurant]’s eventual loss.” The restaurant, it said, could have taken out other policies to specifically cover it in these circumstances but it chose not to do so. 

In a nutshell, the Court found that the restaurant had to show two things –

1. “The Covid-19 as a Notifiable disease, caused or materially contributed to the “Lockdown Regulations” that gave rise to the Applicant’s claim (this is a factual enquiry). If it did not, then no legal liability can arise…”
2. “If it did, then the second question becomes relevant, namely whether the conduct is linked to the harm sufficiently closely or directly for legal liability to ensue, or whether the harm is too remote from the conduct”.

Finding that the restaurant had indeed proved causation as above, the Court declared that it was covered for such of its losses as it “is able to calculate and quantify from time to time”.

So are you covered?

The insurers have said they are taking this matter on appeal to the Supreme Court of Appeal (the insurance industry as a whole of course faces substantial losses from these claims), but remember that your particular policy may anyway be worded so as to cover you. There are also media reports of similar claims being met by some insurers, and of interim relief being offered by others. As the Court in this case put it “each case must be decided upon its own facts and the law”.

Moreover the Financial Sector Conduct Authority (FSCA) says that “The National Lockdown cannot be used by any insurer as grounds to reject a claim” and that “policyholders are able to claim in instances where they can show that they have satisfied the requirements of their specific policy, whether it was before, during or after the national lockdown”. You can complain to the FSCA if you feel that you have been treated unfairly.

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

Breaking any of our lockdown laws can be an expensive business, risking heavy penalties. 

If you are accused of a contravention and offered the option of paying an “admission of guilt” fine to avoid a court appearance, beware! It may seem like the easy way out to pay up and put the whole thing behind you but it could land you with a criminal record. 

You really don’t want to have a criminal record!

Having a criminal record comes with serious and lifelong negative consequences. Even an old and long-forgotten minor offence can hang around in the background until it suddenly pops up at the worst possible times – such as when you apply for a travel visa or a new job. 

When are you most at risk? 

The general rule is that you will acquire a criminal record if you are arrested, if the police open a docket and take fingerprints, and if you are thereafter convicted of a crime. 

The problem with admission of guilt fines is that they may well leave you with a “deemed” conviction and sentence which will end up in the CRC (SAPS Criminal Record Centre) database. Although there was talk in the past of the CRC capturing convictions with just your name and I.D. number the main risk seems to still be in having your fingerprints taken.

It’s not easy to get rid of a criminal record

And once you have a criminal record, it’s not easy to get rid of it.  

1. Firstly, you can apply for “expungement” of the record to remove it from the CRC database, but that option is only available to you after 10 years and for certain “minor offences”. It will also take a long time to process – “20 – 28 weeks” per SAPS. Note that some specified minor convictions fall away automatically after 10 years – ask for specific advice.
2. Secondly, you could ask a court to set aside your conviction and sentence – costly, not quick and not guaranteed to succeed.
3. Thirdly, you could hope that planned amendments to our criminal procedure laws will retrospectively come to your aid – speculative and not yet in the pipeline.

The bottom line – if you are offered the option of paying an admission of guilt fine, ask for advice before you accept!

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

“…every landowner has a right to the lateral support and where subsidence or other destabilisation occurs, as a result of excavations on an adjacent property, the owner of the adjacent property will be liable in an action for damages irrespective of whether she was negligent or not.” (Extract from judgment below)

It’s every homeowner’s nightmare – your property starts subsiding and as the tell-tale cracks in the living room widen alarmingly, it begins to dawn on you that your whole house is at risk of collapse. 

The cause must, you decide, be your neighbour’s excavations for a new house/garage/swimming pool. You approach said neighbour for a friendly chat and a request to do something about it urgently. “Sorry” replies your neighbour, “not my fault, I am building exactly according to approved plans so it’s your problem.” 

So where do you stand legally?

A recent Supreme Court of Appeal (SCA) decision has broken new ground (weak pun intended!) in our law here, and all property buyers, sellers and owners would do well to take note.

A slope subsides and a neighbour sues

• This long-running dispute between neighbours dates from 2008 and concerns the owners of two properties on a steeply sloping mountainside, one above the other.
• The house on the upper property was built in 1994. Fourteen years later in 2008 the owner of the lower property started extensive excavations in preparation for construction of her new house.
• The upper owner very soon noticed problems, with his garden and outside walls showing clear signs of subsidence. Eventually there was a major movement in the underlying ground and the entire slope subsided. The upper owner’s property moved laterally and downwards towards the excavation resulting in extensive structural damage to the property. It was clearly a major event, with another neighbour having to abandon his property entirely because of safety concerns.
• The upper owner sued the lower owner for damages, and after a long fight through the courts the matter ended up with the SCA which upheld the damages claim by the upper owner.

The duty of “lateral support” 

The Court addressed several important questions, all of them vitally important to any property owner or prospective property owner –

• Does the duty of support cover buildings, or just land “in its natural state”? Our law has long recognised a neighbour’s duty to provide physical lateral support for adjoining properties, but until now it has been unclear whether that applies only to land “in its natural state”, or whether it extends also to developed land with “artificial” structures on it. It’s an important question – few urban properties would be covered if the duty applies only to undeveloped land.
  
  The SCA’s final word – the duty of support applies to both land in its natural state and to “improved” and developed land (i.e. your house and other structures are covered).
  
  As an important side note here, the Court referred to both the fact that “in our neighbour law, fairness and equity are important considerations”, and to the fact that “in our constitutional context, the principle of lateral support must find expression in the constitutional value of Ubuntu, which ‘carries in it the ideas of humaneness, social justice and fairness’” (Emphasis supplied). Sticking to the ‘letter of the law’ may no longer be enough when dealing with your neighbours!
  
  Which leads us to another important thought – take legal advice immediately you realise your property is in danger. You may well be advised to urgently apply for an interdict to stop the excavations or other building work from continuing.
• Did the excavations breach that duty? The Court was faced with competing evidence from two geo-technical experts who were agreed that there was a slope failure which caused ground movement on the affected properties, but differed on the cause and mechanism of the slope failure. In the end the Court held that “the exact mechanism which caused the removal of lateral support is unimportant” and that the claimant “succeeded in establishing that the slope mobilisation had resulted from a breach of the duty to provide lateral support due to the excavation on the first appellant’s property”.
• Did the excavations cause the loss? On an analysis of the evidence the Court determined that the claimant had established both factual causation (“whether the relevant conduct caused or materially contributed to the harm giving rise to the claim”) and legal causation (“whether the conduct is linked to the harm sufficiently closely or directly for legal liability to ensue, or stated differently, whether the harm is too remote from the conduct.”).
  
• Is negligence necessary? Normally to establish a damages claim you must prove that the person who caused your loss acted both wrongfully and negligently (or deliberately). Not so, said the Court, “the right of support is a natural right of ownership” and in subsidence cases “it is unnecessary to prove an unlawful act or negligence; the cause of action is simply damage following upon deprivation of lateral support.” 

That last finding of course means that landowners are “strictly liable” – something to bear in mind before you buy or develop any property where subsidence could possibly be an issue.

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

Our law (in the form of the Protected Disclosures Act) encourages employees to disclose unlawful or irregular conduct in their workplaces without fear of reprisal. 

Why encourage it?

“3 Reasons Why Whistleblowing is Important for Public and Private Companies” on the Compliance Line website here suggests that employers should actively encourage their employees to “whistleblow” because –

1. “The majority of fraud is captured through Whistleblowing”. It should be one of your frontline protections against financial loss from criminal activity.
2. “Whistleblowers are often close to the action and have the most important information”.
3. “Whistleblowing helps align people so the organization can pursue its vision and mission”. You are in essence protecting your business from two serious risks – reputational damage and the negative consequences of corporate non-compliance.

Lockdown has subjected businesses and their employees to unusually high levels of stress – financially and generally. That is bound to expose companies to new and greater risks of unlawful conduct and loss, and with that comes an increased need to protect yourself and your business from those risks.

And how to encourage it?

“How to make whistleblowing work” on the Good Corporation’s website brings together multiple suggestions on how to create a successful whistleblowing system, whilst a whistleblowing platform like Code Red (“designed in accordance with the King IV code on corporate governance which encourages ethical business leadership and organizational culture”) or Whistle Blowers makes it easy to encourage effective and anonymous online reporting.

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

“To sign a document means to authenticate that which stands for or is intended to represent the name of the person who is to authenticate” (quoted in the case below)

We all know that verbal agreements, although fully binding for most types of transaction, are a recipe for uncertainty and dispute. It’s not just a question of trust – even if no one is deliberately dishonest about what was agreed, innocent misunderstandings are common. We have a natural tendency to hear what we want to hear and to remember what we want to remember, and a properly-drawn written agreement avoids that.

So even when a written and signed document isn’t required it is always wise to insist on one. Note that the parties themselves can require a document to be in writing and signed. Or it could be required by law – the most common examples of the latter are property sale agreements, wills, suretyship agreements, ante-nuptial contracts, and credit agreements (there are other less common examples – take professional advice in doubt).

But that’s not always easy to achieve, and the COVID-19 lockdown in particular has highlighted the challenges of getting everyone together for an old-fashioned original “paper and ink” signing session. Even when social distancing is no longer required and ceases to be the norm in society, the convenience and benefits of being able to sign documents remotely (whether you and the other party/ies are in different houses, cities, countries or even different continents) are obvious.

Firstly, when is a digital agreement “in writing”; and can property sales and wills be electronic?

Fortunately our law, in the form of the ECTA (Electronic Communications and Transactions Act) recognises the general validity of digital documents. A “document or information” is “in writing” if it is –

• “In the form of a data message; and
• Accessible in a manner usable for subsequent reference.” 

As a result, perfectly valid and enforceable agreements are now often entered into online, by email, WhatsApp and the like. 

Note that there are some specific exceptions where a physical (“wet ink on paper”) as opposed to an electronic format is still required – most commonly property sale agreements, “long” (10 or more years) leases and wills (there are others – take advice in doubt).

Secondly, is “signature” always required?

Formal “signature” isn’t always essential as the ECTA provides that if the parties to an electronic transaction don’t specifically require an electronic signature, “an expression of intent or other statement is not without legal force and effect merely on the grounds that –

• It is in the form of a data message; or
• It is not evidenced by an electronic signature but is evidenced by other means from which such person’s intent or other statement can be inferred.”
  

Thirdly, how can you sign a document electronically?

Where “signature” is required, the ECTA recognises the concept of “electronic signatures” (defined as “data attached to, incorporated in, or logically associated with other data and which is intended by the user to serve as a signature”. They are valid except in cases where either a law (like the laws relating to property sales etc mentioned above) or the parties themselves require actual physical signatures.

An electronic signature can take many forms. Where it is required by the parties but they haven’t agreed on a particular type of electronic signature to be used, it is valid if –

• “A method is used to identify the person and to indicate the person’s approval of the information communicated; and 
• Having regard to all the relevant circumstances at the time the method was used, the method was as reliable as was appropriate for the purposes for which the information was communicated.”

That definition will often be wide enough to include names on email messages, scanned images of physical signatures and the like. But remember the parties can specify what formats are and aren’t allowed, plus our courts may well look at all the circumstances of a case and decide for example that an actual manuscript signature is required even when transmitted electronically (see for example the “R804k” judgment discussed below).

“Advanced” electronic signatures

This is a concept of authentication designed to make an electronic signature more reliable and it is used when a law requires signature for specified documents or transactions but doesn’t require another particular type of signature.  

For example the Deeds Registries Act requires documents like the Power of Attorney to Transfer Property to be signed, and that can be done either physically or electronically – but if electronically the electronic signature must be an advanced one. The Credit Agreements Act provides other good examples. 

Even when not specifically required, a big advantage of advanced electronic signatures is that they are presumed to be valid. That means anyone attacking one would have to prove its invalidity and not the other way round.

Security and fraud; with an R804k example

Cyber criminals are as always waiting to pounce so all the normal warnings in regard to electronic communication apply here, with the added need to ensure that electronic documents cannot be altered after completion/signature. 

A recent example of “forged electronic signatures” is an online fraud that went horribly wrong for a firm of financial advisers who were sued for R804,000 when their client’s Gmail account was hacked by fraudsters – 

• Using the investor’s authentic email credentials, the fraudsters sent three emails to the financial advisers instructing them to transfer a total of R804,000 to the fraudster’s accounts. Two of the emails ended with the words: ‘Regards, Nick’ while the third ended with ‘Thanks, Nick’.
• The financial advisers made the transfers and the investor sued them on the grounds that they had paid out contrary to the written mandate he had given them which stipulated that ‘All instructions must be sent by fax to [011 *** ****} or by email to [***@***.co.za] with client’s signature.’
• The financial advisors argued that they had complied with the mandate in that the email endings “Regards, Nick” and “Thanks, Nick” were valid electronic signatures in terms of ECTA.
• The SCA (Supreme Court of Appeal) however upheld the High Court’s ruling that the financial advisors were liable. They had not complied with the mandate which “requires a ‘signature’ which in every day and commercial context serves an authentication and verification purpose … The word ‘electronic’ is conspicuously absent from the mandate …  The court below cannot be faulted for concluding that what was required was a signature in the ordinary course, namely in manuscript form, even if transmitted electronically, for purposes of authentication and verification.”

Play it safe – have your lawyer draw and manage your agreements for you to minimise this sort of risk, and ask also about using an external service provider for secure, authenticated and verifiable electronic document signing and storage. If you do come to blows with the other party down the line, the integrity and evidential value of your electronic documents and signatures could be make-or-break.

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

“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.

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