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Restrictions on the sale of business premises

1 October 2003

Clearly such an advertisement is intended to prevent owners of businesses which could be going under from selling off land and buildings, thereby preventing these assets reaching the creditors of the business.

Section 34 - Voidable sale of business reads as follows:
(1) If a trader transfers in terms of a contract any business belonging to him, or the goodwill of such business, or any goods or property forming part thereof (except in the ordinary course of that business or for securing the payment of a debt), and such trader has not published a notice of such intended transfer in the Gazette, and in two issues of an Afrikaans and two issues of an English newspaper circulating in the district in which that business is carried on, within a period not less than thirty days and not more than sixty days before the date of such transfer, the said transfer shall be void as against his creditors for a period of six months after such transfer, and shall be void against the trustee of his estate, if his estate is sequestrated at any time within the said period.

In this case, which is covered in the latest issue of Property Werks, a property holding company which earned its income from leases of buildings on its immovable property sold its entire business (comprising the property and the leases) as a going concern. Transfer was registered in the name of the purchaser within five months of the company being provisionally liquidated. At the same time a bond was registered over the property in favour of a bank. After the transfer of the property, the company was left with no other assets and was unable to pay its only other creditor.

The court found that the company had transferred its whole business as a going concern, but because no notices had been published in compliance with the requirements of Section 34(1) of the Act the court found that the transfer by the company of the property was an extraordinary transaction and was clearly prejudicial to the only other creditor of the company. The registration of the transfer of the property in the name of the purchaser was declared void and ownership did not pass to the purchaser, which resulted in the purchaser not being able to mortgage the property. Consequently, the registration of the bond over the property was also found to be void.

Property Werks

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