July 2, 2021
KVV | A Note from our Director
Dear Client
Are you wearing enough PPE to protect your income?
All over the world, the fear, worry, sadness and loss, that are spread with the virus are unprecedented.
Together we are fiercely trying to combat the virus, by following the COVID-19 protocols, whether we are at home or work, whether we are buying groceries or picking up our children from school.
For the COVID protocols to achieve their purpose, each one of us needs to take up the responsibility of abiding by the safety rules personally, regardless of what lockdown level we are in.
But not only is our health at risk, so is our businesses, our income, our salaries, our bread and butter on the table. Just as important as our lives and health are, so is our healthcare system and keeping a roof over our heads. And someone needs to pay for that… and that someone is the salary earner.
This begs the question what PPE are we wearing to protect our income?
Yes, we do not have control over the job losses and businesses closing on a global scale, but don’t let the fear of the uncontrollable make you underestimate your worth in contributing to the economy, by “earning your salary”.
Food needs to be packed to reach our tables, Insurance companies needs profitable companies to invest with to pay out, income tax needs to be generated to fund hospitals. Every individual contributes on a larger scale, more than you and I realise.
As you sit behind your desk at work, or in isolation at home behind your desktop, with your kids playing around your feet – take hold of your commitment and responsibility to keep whatever business you are in going.
Protect your company`s productivity by not letting your emotional state get the better of you. For the sake of our economy, stay strong and focus on how you influence those around you. That is a difference that only you, have the power to make.
Franklin D. Roosevelt said:
“Courage is not the absence of fear, but rather the assessment that something else is more important than fear”.
In time we will look back on what we’ve overcame and be grateful for the effort we’ve made to keep as much standing as possible, even when the world caves down around us. You are making a contribution. Focus on how you influence those around you. Be a difference maker!
Kind Regards
Diaan Van Wyk | Director
July 2, 2021
Bodies Corporate: Before You Sequestrate to Recover Arrears…
“Bankruptcy – a fate worse than debt” (Anon)One of a Body Corporate’s fundamental duties is to collect monthly levies from the scheme’s members, and to take robust action to recover any arrears. As with any other creditor/debtor relationship however, trying to recover debt can be an exercise in frustration and delay, and the more recalcitrant the debtor, the greater the temptation to “go straight for the jugular” by applying to sequestrate the debtor’s estate. You will have to show that the sequestration is to the advantage of creditors as a whole – not just to you – but that isn’t the only consideration. You will be throwing good money after bad if you end up having to pay a “contribution to the costs of sequestration”. The recent case of a sectional title Body Corporate, which perhaps thought that it was protected from this particular danger because of its statutory preferences for recovery of arrear levies prior to transfer, illustrates the danger. But before we get to the facts and the outcome of that case let’s have a quick look at the general principles involved.
What is a “contribution to costs” and who has to pay it?
If you want to share in the net proceeds of an insolvent estate, you must formally prove your claim at a meeting of creditors convened by the trustee of the insolvent estate. If you don’t do that, you wave goodbye to any possible dividend and will be writing off the debt. On the other hand, if you decide to prove your claim you may be at risk of having to pay into the estate as well as writing off the debt – talk about adding insult to injury! That danger arises if the costs of sequestrating the estate exceed the funds in the estate available to pay them. In that event the trustee of the insolvent estate will recover a “contribution to costs” from proved creditors – including you if your claim was proved as above.The special danger of being the “petitioning creditor”
The creditor who applies for the debtor’s sequestration is – as “the petitioning creditor” – liable to contribute to the shortfall even without proving a claim. In other words, unlike other creditors, you cannot protect yourself from contributing to costs by holding back the claim – you are “deemed” to have proved it. That’s why, although applying for sequestration can be an excellent way of recovering debt from a recalcitrant debtor, it is essential to first consider the danger of contribution.How “secured creditors” can protect themselves
Also relevant to our story is that a creditor holding security (such as a bond over the insolvent’s property) must prove its secured claim in order to be paid out the net proceeds of its security. A secured creditor can, if it suffers a shortfall after being paid out those net proceeds of its security, also share in the “free residue” of the estate. The “free residue” is the net proceeds of all unencumbered assets available for distribution to creditors. The secured creditor’s share in this event will be based on the “concurrent” portion of its claim, in other words it is now a concurrent creditor. This is where the danger comes in because any contribution payable is payable in the free residue by concurrent creditors. A secured creditor can largely protect itself from this danger by “relying on the proceeds of its security” to satisfy its claim. By doing so it waives its concurrent claim for the shortfall, but equally it no longer has to contribute along with the other proved (or petitioning) concurrent creditors. It will now only have to contribute when there are no other such creditors, or when other contributors are unable to pay their share.The case of the Body Corporate that sequestrated to recover arrears – and paid the price
Let’s see how those principles were applied in a recent Supreme Court of Appeal (SCA) case –- The owner of two sectional title units, bonded to separate banks, was unable to pay his levies. The Body Corporate sequestrated his estate, and his two units were sold. Only the two banks proved claims.
- This was where the Body Corporate’s statutory protection for arrear levies came in. No transfer can be registered in the Deeds Office until all rates and taxes (and levies in the case of Bodies Corporate and Homeowners Associations) have been paid in full. Thus the arrear levies were paid in full to the Body Corporate by the transferring attorneys. “Done and dusted” thought the Body Corporate, but it was not to be.
- There was a shortfall in the insolvent estate, and the trustee tried to recover the resultant contribution from the two banks (the bondholders) who had proved their claims in the estate.
- The banks objected, arguing that because they had relied on their security in proving their claims, they were not liable to contribute (as above). The Body Corporate, they argued, was as the petitioning creditor liable for the contribution despite not having proved its claim.
- The Body Corporate on the other hand argued that it could never be liable for a contribution. Although it was indeed the petitioning creditor, it had never proved a claim against the estate and the arrear levies had been paid to it in full, as required by law, before transfer of the properties.
- To cut a long story short, the dispute wound its way through our courts and ended up in the SCA, which, after a detailed examination of the relevant law, held the Body Corporate as petitioning creditor to be solely liable for the full amount of the contribution to costs (R46 663.16).
Bodies Corporate beware!
The Court’s reasoning in reaching this conclusion will be of great interest to the lawyers amongst us, but the bottom line for Bodies Corporate is this – if you sequestrate to recover arrears, you could well end up carrying the full brunt of any contribution to costs. So perhaps take advice on whether you can/should rather use other debt collection processes, including perhaps applying to the CSOS (Community Schemes Ombud Service) to order and enforce payment of the arrears. 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
July 2, 2021
Buying Property from a Company – Should You Buy the Shares or the House?
“There is never a wrong time to buy the right home” (Anon)You find the house of your dreams, agree on the price and get ready to put pen to paper. The house is in the name of a company, and you are offered a choice – either buy the house out of the company or take over the company (which owns the house and nothing else) by buying the shares and thus avoid the delay and cost of a normal property transfer and registration in the Deeds Office. What should you do?There are a host of both practical and legal factors to consider before deciding. Holding property in a company can come with significant advantages, but there can also be major disadvantages, so professional advice specific to your own circumstances is a no-brainer here. Some of the many factors you should consider are –
- Tax and estate planning considerations. These are complex and no two cases will be identical, but consider the higher capital gains tax rates payable by companies (and the annual exclusion and “primary residence exclusion” of R2m for individuals), the differential income tax rates, possible VAT considerations, your own estate planning circumstances (including the estate duty angle) and the like.
- Asset protection. Particularly if you run your own business or are in a profession at significant risk of litigation, it may be important to you to protect your major assets (like your house) from possible attack by creditors. Any assets held in your own name will be a natural target if you run into financial problems, whilst those held in another entity like a company or trust will generally be much harder to attack. Complicated multi-level structures such as having a trust owning your company’s shares have generally fallen out of favour for a variety of reasons, but you may still be advised to consider one in your particular situation.
- Joint ownership. Joint ownership of property comes with its own set of risks and issues, and depending on your needs you might be advised to address them with a company/shareholder structure.
- Costs and simplicity. Running a company comes with extra costs (accounting/auditing, statutory costs etc), formalities and responsibilities, getting a bond in your own name is likely to be a simpler process than taking it in a company, and so on.
- The hidden risks. When you buy a company’s shares you get the company as it is, with all its assets and liabilities. If the seller is in any way unreliable, you could find yourself losing the house to an undisclosed company liability that suddenly crawls out of the woodwork. Suretyships are a particular danger here – there is no central register of suretyships you can refer to, and it is common for groups of companies and other entities in particular to sign cross-suretyships without necessarily keeping a record of them all. These are risks that can be largely managed with proper advice and due diligence, but a residual whiff of doubt is inevitable.
- Other factors. There will be many other aspects to consider, depending on your circumstances and needs, and on the company in question.
Transfer duty – you pay it either way!
As a buyer you can never lose sight of all the costs you will incur in buying a house, and the “big one” is normally transfer duty. It’s essentially a government tax, payable by you as buyer (unless the property sale is subject to VAT), and it can be a lot of money. Do not however fall into the old (and surprisingly still-common) trap of thinking that by buying the company you avoid paying transfer duty. That was indeed a commonly used loophole in decades past and it is still sometimes referred to. But in reality that all changed many years ago, and (subject to what is said below) you should budget to pay transfer duty as set out in this table –
What about “buying” a property-owning trust?
Similarly, before 2002 a common transfer duty avoidance strategy was to hold property in a trust, then to “sell” the trust to a purchaser by substituting him/her as a beneficiary of that trust. That loophole was also closed in respect of beneficiaries holding “contingent interests” in the property – the situation here is a bit more complicated than it is with companies as there are various types of trust you could be dealing with, so specialist advice is 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.© LawDotNews
July 2, 2021
When Bond Clauses Sink Sales
“Before anything else, preparation is the key to success” (Alexander Graham Bell)You sell your house, give the signed sale agreement to your attorney, and wait to get paid out as soon as the property is transferred in the Deeds Office. What could possibly go wrong? Quite a bit as it turns out, but perhaps the most frequent “sinker of sales” is a failure by one party or the other to meet a “suspensive condition” (often also referred to as a “condition precedent”). As our courts have put it “a suspensive condition suspends the operation of all obligations flowing from a contract until occurrence of a future uncertain event. If the uncertain future event does not occur, the obligations never come into operation.” In other words, there is no binding sale at all until all suspensive conditions have been met.
The bond clause
A very common suspensive clause in property sale agreements, where the buyer cannot pay the purchase price in cash, is the “bond clause” making the sale subject to the buyer obtaining a “bond approval” from a financial institution (usually a bank). The bank loans the money to the buyer against the security of a mortgage bond over the property. The bond clause is of course an essential escape route for you if you are a buyer needing to raise a loan. As a seller on the other hand you want the clause tightly drawn to stop the buyer using it as an excuse to pull out of the deal if the dreaded “buyer’s remorse” should set in after the sale. For both parties it is essential to ensure that the clause is properly drawn to reflect clearly and correctly what you are both agreeing to. Preparation is key here! Our law reports are replete with bitter and expensive disputes over bond clauses, many of them avoidable had the parties proactively sought legal assistance before signing the sale agreement.What should be in the bond clause?
In broad terms a bond clause will provide that the sale agreement is suspended until the bank approves the bond, and that the agreement will lapse if approval is not given by the date and in the amount specified in the clause. Beyond that, make sure that there are no grey areas around what the deadline is or around what exactly will constitute “bond approval”. What format must it be in? Is it enough that an approval is granted, or must it be communicated to the seller before deadline? Is the bank’s offer to the buyer subject to the National Credit Act and if so on what basis can the buyer reject the offer? Is it enough to specify that the bond approval should be on the bank’s “usual terms and conditions”? What if the buyer rejects a reasonable offer from the bank in order to get out of the sale? And so on… As a seller, if you are concerned about your buyer not being able to raise the required finance, consider adding a “72-hour clause” to the sale (ask your attorney for advice on this). As a buyer, consider specifying the maximum interest rate at which you will accept the bank’s offer of a loan, or you could find yourself tied to unaffordable bond repayments. Each case will be different, and our courts will always look at the specific wording of each particular case. So make sure the clause is specifically tailored to protect both parties in your respective circumstances.Amending or waiving the bond clause
What if the buyer can’t get an offer from a bank by due date or in the required amount or (if the buyer specified a maximum interest rate as suggested above) at the required interest rate? If that happens, the parties can agree to vary the agreement – perhaps to give the buyer more time to raise the bond, or to change the amount of the bond. Just remember that that must be done in a written, signed agreement before the due date. After the due date the whole agreement will have lapsed and there will be no contract left to amend. Alternatively as a buyer, you have the option to “waive” the bond condition. You can do so unilaterally (i.e., without the seller’s agreement), provided again that the agreement hasn’t already lapsed, and provided that nothing in the agreement prevents such a waiver. Importantly, you can only waive a suspensive condition where it is for your “exclusive benefit”. A bond clause will usually qualify in that it is normally there purely to protect you from being tied to an agreement you cannot afford – but perhaps avoid any possible doubt by specifying that in the clause. 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
July 2, 2021
11 POPIA Questions to Ask Yourself Before 30 June 2021
Note: This is a complex topic and there is no substitute for tailored professional advice. What is set out below is of necessity no more than a simplified summary of some practical highlights.
You and your business are at substantial risk if you aren’t fully compliant with POPIA (the Protection of Personal Information Act) on 1 July 2021.
The clock is ticking! Have a look at the Information Regulator’s Countdown Clock here to see exactly how many days (and hours, minutes, and seconds!) you have left.
Be ready! Be compliant! Ask yourself these eleven questions –
- Does POPIA really apply to us? As soon as you in any way “process” (collect, use, manage, store, share, destroy and the like) any personal information relating to a “data subject” (suppliers, customers, members, employees and so on – whether individuals or “juristic persons” such as corporates and the like), you are a “responsible party”.The formal definition of a responsible party is “a public or private body or any other person which, alone or in conjunction with others, determines the purpose of and means for processing personal information” – very few businesses and organisations will fall outside that net. Equally you are unlikely to fall under exemptions such as that applying to information processed “in the course of a purely personal or household activity”.But don’t panic –. compliance is easily attainable for most businesses, particularly if you are a smaller operation with little in the way of sensitive personal information. Answer the questions below to get a feel for areas you need to concentrate on now.
- What risks do we run if we don’t comply with POPIA? If a data subject suffers any loss as a result of your breach of POPIA, the subject (or the Regulator at the request of the subject) can sue you for damages and you will be liable even if your breach was unintentional and not negligent. You also face criminal prosecution, penalties and administrative fines for some breaches.
- Have we registered our Information Officer/s? You must register your Information Officer (“IO”) with the Information Regulator – go to the Regulator’s Online Portal for the online and PDF versions of the registration form, plus the email address for support enquiries and a link to the Search page. The IO is responsible (and liable) for all compliance duties, working with the Regulator, establishing procedures, and the like. You are automatically your business’ IO if you are its “Head” i.e., a sole trader, any partner in a partnership, or (in respect of a “juristic person” such as a company) the CEO, MD or “equivalent officer”. You can “duly authorise” another person in the business (management level or above) to act as IO and you can designate one or more employees (again management level or above) as “Deputy Information Officers”.
- Do we have a list of all personal information we hold, and how and why we hold it? Make a full list of all the personal information you hold/process, whether physically or in electronic form. Then evaluate it against the test that, to collect and “process” personal information lawfully, you need to be able to show that you are acting safely, lawfully, and reasonably in a manner that doesn’t infringe the data subject’s privacy.You must show that “given the purpose for which it is processed, it is adequate, relevant and not excessive”. Data can only be collected for a specific purpose related to your business activities and can only be retained so long as you legitimately need to (or are allowed to) keep it for that purpose.
- What security measures do we have in place? You must “secure the integrity and confidentiality of personal information in [your] possession or under [your] control by taking appropriate, reasonable technical and organisational measures to prevent … loss of, damage to or unauthorised destruction of personal information … and unlawful access to or processing of personal information.”You are at great risk of liability and penalties if you suffer any form of data breach from a risk that is “reasonably foreseeable” unless you can prove that you took steps to “establish and maintain appropriate safeguards” against those risks. If you haven’t already done so, brainstorm with your team all possible internal and external vulnerabilities (physical as well as electronic) and address them.
- Do third parties hold/process personal information for us? If third parties (“operators”), hold or process any personal information for you, they must act with your authority, treat the information as confidential, and have in place all the above security measures. Further restrictions apply if the third party is outside South Africa.
- Do we know what to do if we suffer a breach? Any actual or suspected breaches (called “security compromises” in POPIA) must be reported “as soon as reasonably possible” to both the Information Regulator and the data subject/s involved.
- Do we do any “direct marketing” and if so do we comply with all requirements? Most businesses don’t think of themselves as doing any “direct marketing”, but the definition is wide and includes “any approach” to a data subject “for the direct or indirect purpose of … promoting or offering to supply, in the ordinary course of business, any goods or services to the data subject…”. So for example, emailing or WhatsApping your customers about a new product or a special offer will put you into that net.If your approach is by means of “any form of electronic communication, including automatic calling machines, facsimile machines, SMSs or e-mail”, you must observe strict limits. Whilst you can as a general proposition market existing customers/clients in respect of “similar products or services” (there are limits and recipients must be able to “opt-out” at any stage), potential new customers can only be marketed with their consent, i.e., on an “opt-in” basis. They can be approached only once for that consent so keep a record of everyone you have asked.
- Does our website use cookies and if so do we have a cookie notice and policy in place? As countries around the world ramp up their privacy laws, we will all see many more examples of “cookie notices” on websites we visit. You may wonder how your own website should be configured, and the short answer is that if it uses cookies (almost all do), POPIA very likely applies despite the fact that there is no specific mention of cookies in the current legislation. Bottom line – to be on the safe side, have a cookie notice and policy in place. Keep yours simple and user-friendly.
- Do we have a privacy policy and a POPIA manual in place? POPIA – unlike PAIA (the Promotion of Access to Information Act) – doesn’t require you to have a POPIA manual in place but in larger businesses it is certainly a good idea to prepare one.However you should certainly have a privacy policy in place. Make sure that everyone in your organisation is aware of it and of how critical it is to comply with it at all times.
- Is our staff team ready? Check that everyone in your business understands your compliance plan and their own individual roles and responsibilities in it. Make sure that nothing falls through the cracks – assign specific tasks to specific staff members.
Bodies Corporate and Homeowners Associations – how POPIA affects you
Bodies Corporate and Homeowners Associations (HOAs) fall into the POPIA compliance net and should be asking themselves the questions above.
In assessing what personal information you hold, how and why you hold it, and who you are sharing it with, remember to include not only scheme owners and HOA members but also your auditors, attorneys, managing agents, the CSOS (Community Schemes Ombud Service), security service providers and the like.
If you have gate security in the form of visitor registers, scanning of licence plates and driver’s licences and so on, be ready to address questions around having lawful reason for collection and retention of all the personal information you are gathering in this manner.
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
July 2, 2021
Can You Change Your Marital Regime After Marriage?
“A journey is like marriage. The certain way to be wrong is to think you control it” (John Steinbeck)One of the most important decisions you must make before you marry is what “marital regime” (“matrimonial property system”) you want to apply to your marriage. To recap, you have three choices –
- Marry in community of property: This is the default in South Africa if you don’t sign an antenuptial contract (“ANC”) before you marry. All your assets and liabilities (with a few specific exceptions) are pooled in one joint estate. It’s probably not the best choice for most couples – you don’t for example want to be lumbered with a poor credit record (and a bank rejecting your bond application for example) or even with a sequestration application because of a spouse’s debts. But as the old saying goes, “it depends…”
- Marry out of community of property with accrual: The most popular option with couples these days, under this regime you keep as your own separate property whatever you brought into the marriage, but in the event of divorce or death you share equally in any subsequent “accrual” (growth in asset value built up during the marriage). You must specify accrual in your ANC, otherwise “without accrual” (as below) will apply.
- Marry out of community of property without accrual: As the name suggests, under this regime you have your own separate estates, and there is no sharing of accrual. The best choice for some couples in some cases, but probably not for most.
“Oops, we made the wrong choice; what now?”
A surprising number of couples tie the knot without any thought for the legal consequences, and only later do they learn that because they had no ANC they are married in community of property with all that that entails. Or perhaps they did think it through but made the wrong choice at the time. For example, you could find yourself needing to improve your personal credit record, perhaps after applying to a bank for a mortgage bond and being rejected because of your spouse’s debts. The good news is that all is not lost – you can still change regimes with a “postnuptial contract”. The bad news is that we are talking an expensive application to court here, and there are various requirements which may frustrate your application.A court order is essential
The Matrimonial Property Act specifically allows a married couple to “jointly apply to a court for leave to change the matrimonial property system, including the marital power, which applies to their marriage”. You will have to satisfy the court of three things, namely that- there are sound reasons for the proposed change;
- sufficient notice of the proposed change has been given to all the creditors of the spouses; and
- no other person will be prejudiced by the proposed change.
The couple who didn’t get court authority
- A couple had married out of community of property excluding accrual.
- Thereafter, the wife drew up an agreement as “an ‘insurance policy’, to allay her fears of insecurity in the event of a divorce”. The husband agreed to set aside his marriage contract, specifying that his wife was entitled to half of his estate.
- After some hesitation the husband signed this agreement, but critically it was never sanctioned by a court as required and was merely handed to friends for safekeeping.
- During subsequent divorce proceedings, the wife was forced to abandon her main claim (that the agreement was valid and binding) precisely because of her failure to obtain a court order as set out above.
- She also tried another tack, namely that the agreement was enforceable as an agreement “in anticipation of divorce”. This was rejected by the Supreme Court of Appeal on the facts, finding that the parties had had a “normal marital relationship” after the signing of the agreement, and that the wife had accordingly failed to prove that divorce “was in the parties” contemplation when the agreement was concluded”.
- The Constitutional Court cemented her defeat in this regard by refusing its leave for her to appeal the SCA decision.
© LawDotNews
