This newsletter is for our valued clients and is intended to inform them of recent developments in our law and of other matters of interest. This newsletter and other articles are available on our website. Kindly advise should you not wish to receive this newsletter in future and feel free to distribute it to your friends or other interested parties if you so wish. Contributions are made by our directors and professional assistants. Please also refer to our disclaimer at the bottom of this newsletter.

THIS MONTH:

1) LOCKDOWN COVID-19:  LEVEL 4 EY STUART ATTORNEYS – MONDAY 4 MAY 2020

2) COVID-19:  A WAKE-UP CALL?

3) VOLUNTARY LIQUIDATION OF AN INSOLVENT COMPANY

4) CITATION OF A TRUST IN LEGAL PROCEEDINGS

5) THE COVID-19 PANDEMIC AND FORCE MAJEURE

6) ABOUT US

1) LOCKDOWN COVID – 19: LEVEL 4 EY STUART ATTORNEYS – MONDAY 4 MAY 2020

We trust that you are well and staying safe.

It has been 35 days since our National Lockdown commenced and the manner of operating and working has changed immensely in this time. We, as South Africans, have stood in solidarity, we have adapted, created new methods of working and keeping ourselves busy, in a very short period of time. We salute you and thank you for your patience during this time and contributing to the safety of our fellow South Africans.

We will be entering Level 4 lockdown, tomorrow 1 May 2020. Our amazing team of Directors at EY Stuart Inc, is hard at work to ensure that our Office and staff are operational and that our working conditions complies with the Regulations prescribed and published by the Minister.

We will therefore commence working, as prescribed by the Regulations, on 4 May 2020. There will still be some staff that will be working from home and we will support them with their daily tasks. We are now and will continue to be available, should you wish to consult, via Skype and MS Teams. The platforms are safe and easily accessible. We will, during the course of next week, issue further communications pertaining to the signing of transfer and bond documentation and how our Offices will address the safety precautions to keep our staff, as well as you, our valued client, safe.

The Deeds Office will also re-open on Level 4 and we will keep you updated with regard to lodgements and registrations.

We are further excited to inform you that the City of Tshwane Metropolitan Municipality have created a internet portal on the existing E-Tshwane portal, which enable us to apply directly for rates clearance figures electronically to the rates clearance department. We understand that the rates clearance department, will from Monday 4 May 2020 start attending to the electronic applications submitted. Our conveyancing secretaries have already commenced submitting our applications via the E-Tshwane portal.

Please feel free to contact us should you require any further information or assistance.

Stay safe, keep the curve down and we will continue to keep you updated.

Ona Nell - Conveyancer/Director

2) COVID-19:  A WAKE-UP CALL?

The views expressed in this article are the personal views of the writer.

To my knowledge, none of our staff members, colleagues or clients have been infected with the Coronavirus. The pandemic is being effectively contained in South Africa, unlike other countries, and for this, we can praise our Lord and Savior for safeguarding us.

This pandemic will have a long-lasting financial implications for all of us, some to a larger and some to a lessor extent. Nevertheless, we are all in the same boat and must support and encourage one another on all levels, as best we can.

I believe that this lockdown period served as an eye-opener and wake-up call to revisit our outlook on life, day-to-day living and our business models.

“Slow down” is not necessarily a bad motto. Lockdown has given me a chance to again consider all my blessings; my family, my business relationships and friendships, and not to take them for granted.

Although we may always have differences with different views, we can stand together as families, as businesses and as a nation by merely doing what is right and best for the common objective. This requires that we put aside our differences and personal views to see this achieved.

In business we all tend to compete, attempting to out-smart competitors or opposition, but at the end of the day, this all comes at a cost to yourself and your business. I have realised cost effective service delivery for clients is what matters in any professional environment. This can only be achieved if you concentrate on service delivery whilst reducing operational costs that contribute very little to the service delivery.

At EYS Inc. our business strategy will forever be changed and we will approach the “post-lockdown era” with its unforeseen challenges, with new hope and aspiration for the betterment of our personnel and clients alike.

In the months to come I will share, in more detail the changes EYS Inc. will implement to enhance our service delivery, and the outcome thereof on business.

I urge us to join hands and attack the challenges lying ahead whilst staying hopeful and positive.

Elmo Stuart - Director

3) VOLUNTARY LIQUIDATION OF AN INSOLVENT COMPANY

Amid the COVID-19 (coronavirus) outbreak, experts predict one of the most extreme economic contractions in history.  In South Africa, which already had a staggering economy before the pandemic, we are sure to feel the full blow of the world economic recession, or even, depression.

It can only be expected that many companies, whether they are small, mid-sized or large corporations, will face insolvency.

The question which looms is:  Should a company attempt to keep its head above water for as long as possible or should pro-active steps be taken to close the doors of the company in anticipation of insolvency?

A further consideration is business rescue.  Our company law (and our courts, in enforcing same) leans to saving a company rather than liquidating it.  Business rescue is however only available in certain circumstances and same will be discussed in a future newsletter. Due consideration must be given to this costly process and it is best to receive appropriate legal advice. It is furthermore unlikely that it will be advantageous to a small private company with a low turnover to consider business rescue as opposed to liquidation.

Turning back to the question posed and the decision companies will face, one cannot be a complete pessimist and successfully run a company.  Successful business is almost always linked to the taking of risks – sometimes major risks.  It is therefore almost certain that the persons who run a thriving company are risk-takers by nature.

What is however also expected from persons running a company (the Directors of the company) is to conduct the business of the company responsibly.

We may see successful companies go under in the coming months, not due to any fault on the part of the directors necessarily, but due to unforeseen and unavoidable circumstances.

Many directors of (currently) financially distressed companies or anticipating financial distress may now face an unavoidable decision: should they liquidate the company while it is still factually solvent (its assets exceed its liabilities) but the company cannot sustainably run a business and is heading for commercial insolvency (the company is unable to meet its liabilities as and when it becomes due and payable), or should they proceed to conduct business in the hope to save the company.

The Companies Act may ease the conscience of directors and drive them to make the correct decision.

The Companies Act 71 of 2008 deals with circumstances where directors of a company can be held personally liable for the liabilities of a company.  One such circumstance is when a director proceeds to conduct business while the company is insolvent (factually or commercially).  The moment that a company is found to be insolvent by the board of directors, it will follow that those directors must take steps to either solve the liquidity problem (if possible) or to call a shareholders’ meeting to resolve to apply for business rescue or liquidate the company.  The latter form of liquidation is known as a voluntary liquidation.

If  a company continues to carry on business whilst it is insolvent and a creditor applies for the liquidation of the company (a forced liquidation), not only the company, but possibly also its directors, can be held personally liable for the debt of the company.  

Although the Companies Act 61 of 1973 was repealed, certain provisions thereof dealing with liquidation of insolvent companies were retained, while the Companies Act 71 of 2008 deals with liquidation of solvent companies.

A company may be voluntarily liquidated by resolution of the shareholders and will likely be done in the following circumstances:

1. When it is found that the company is already insolvent;

2. When it is found that the company’s insolvency is inevitable (the business of the company, although currently solvent, is unsustainable over the course of the near future).

This is done by way of a special resolution (75% of voting rights) of shareholders resolving to liquidate the company.

The company being liquidated voluntarily may, albeit not insolvent yet, still have liabilities (debt).  The Companies Act therefore requires a sworn statement of how debts of a company will be met when liquidated voluntarily. 

A further consideration in the decision to liquidate while still solvent or to proceed conducting business until insolvency is clear, is the operational (running) costs of a company. If the operational costs cannot be reduced or maintained to such an extent to avoid insolvency in due course (i.e. if the business is becoming unsustainable), it may be the safest decision to voluntarily liquidate the company while solvent, to avoid possible directors-liability or a forced liquidation by a creditor.

To consider whether to proceed trading, to apply for business rescue or to liquidate, all legal consequences including termination of contracts and directors liability under suretyships must be considered and it is best to receive legal advice in advance in order to plan ahead and make the right decisions in time.

This newsletter is a broad summary of when and how a company can or must be liquidated, but the specific circumstances of every company may require its own course of action. 

Leslie Stuart - Associate

4) CITATION OF A TRUST IN LEGAL PROCEEDINGS

The question is often raised whether a trust can be cited in its own name in court proceedings.  The Supreme Court of Appeal recently considered this aspect, and confirmed the general principles applicable in Tusk Construction Support Services (Pty) Ltd and Another vs Independent Development Trust (case number: 364/2019 / [2020] ZASCA 22 (25 March 2020)

View Full Judgement

In this matter, Tusk Construction issued summons against the Independent Development Trust, to which the trust raised objection on the basis that the trustees in their representative capacities had to be sued and not the trust, as a trust is not a legal persona and not considered to be a juristic entity.  The full judgment can be viewed on our website.

The Supreme Court of Appeal confirmed that:

1. the correct manner to cite a trust in court proceedings is to cite the trustees in their representative capacities;

2. whilst a trust lacks legal personality it is a legal entity sui generis;

3. the citation of the trust itself in court proceedings is not fatal;

4. given the legal character of a trust, the citation of a trust by name in litigation must be understood as a reference to the trustees for the time being of the trust;  and

5. pleadings can be amended to correctly cite the trustees in their representative capacities (in order to give linguistic effect to the legal rule that a trust lacks legal personality).

If you have an interest in the law of trusts, we can highly recommend “PRINCIPLES OF THE LAW OF TRUSTS TRHOUGH THE CASES”, co-authored by Adv. Gert van den Berg & Dr. Stefan Strydom.

View Order Form

Elmo Stuart - Director

5) THE COVID-19 PANDEMIC AND FORCE MAJEURE

No introduction is necessary as to what COVID- 19 is, or what the impact it has on the world and our country.

The current COVID-19 pandemic has already led to (and may possibly lead to further) losses being suffered by parties to commercial agreements.  Non-performance by either party in a contract due to impossibility may bring the contractual principle of force majeure into play.

A force majeure clause in a contract in essence regulates the liability of the parties and the effect on the contract when an extraordinary event or circumstance beyond the control of the parties (e.g. war, strike, riot, crime), or an event described by the more informal legal term ‘act of God’ (e.g. flooding, earthquake, volcano), prevents one or both parties from fulfilling their obligation under the contract. A force majeure event may result in a subsequent impossibility of performance, which in our law ordinarily terminates the contractual obligations that have become impossible to perform.

The question is: is COVID-19 a force majeure event?

In South Africa, the government has, in terms of the Disaster Management Act, declared a nationwide lockdown.  Many sectors were affected by this lockdown, since they are unable to sell the goods they used to or render the services they normally do.  It is in most cases not possible to perform in terms of a commercial agreement.  Not in the sense that it is necessarily absolutely and objectively impossible, but that performance in terms of a contract is only possible by illegal acts, in contravention of the Disaster Management Act.

In Glencore Grain Africa (Pty) Ltd v Du Plessis NO & others [2007] JOL 21043 (O) the court stated that for a force majeure event to prompt the type of impossibility which will terminate parties’ contractual obligations, certain conditions must be met, namely:

1. that the impossibility must be objectively impossible, in other words, the impossibility must be absolute as opposed to probable and could not be overcome;

2. a reasonable person would not have been able to avoid the impossibility, in other words, neither party should be at fault and the impossibility should be one that is unavoidable.

Therefore, the general rule is that a force majeure event excuses parties from performing in terms of a contract.  This rule is however not absolute and is dependent on certain conditions, namely:

1. an unforeseen event must occur;

2. objective impossibility to perform arises due to the unforeseen event;

3. the party calling on force majeure must not have been in default (mora) at the time of impossibility;

4. the party must not have assumed the risk of possible non-performance due to impossibility.

However, the requirement of objective impossibility requirement in the context of the COVID-19 pandemic must be revisited and may be qualified. 

What if a contract is for the continual (or fixed term) sale and distribution of alcohol?  Certainly, it may be possible to perform.  If the liquor still exists (was not destroyed) and you have logistic means to distribute the liquor (without being identified as a liquor distributor), it may well be possible to deliver alcohol already sold, even during the lockdown measures implemented.  The fact is that it is illegal.  Will force majeur or vis major assist a contracting party when such a party can technically perform but will not risk the consequences if caught?

The then Appellate Division of our courts, in the case of Nuclear Fuels Corporation of SA (Pty) Ltd v Orda AG 1996 (4) SA 1190 (A), had to deal with the question whether a vis major (force majeure) event can exist in the case where performance becomes illegal in an appeal from Witwatersrand division of the then Supreme Court.

In this case, the facts were briefly as follows:  Nuclear Fuels Corporation (NFC) contracted with Orda, a Swiss corporation, whereby NFC will sell a large quantity of uranium oxide to Orda.  Part of NFC’s obligations in terms of the agreement was to export the uranium.

The Nuclear Energy Act (in force at the time) prohibited the disposal and export of nuclear material (such as uranium) without the written authority of the relevant Minister.  Prior to the conclusion of the contract, the Minister’s delegate had granted the required authority subject to certain conditions.  Orda was unable, or unwilling, to meet these conditions and consequently, alternative conditions were negotiated between NFC’s representative and the Minister’s delegate.  These conditions were met.  Both parties were under the impression that all requirements in terms of The Nuclear Energy Act had been complied with (since authority was granted). 

Before delivery, NFC was informed that ministerial authority will be refused if the initial/original conditions laid down by the Minister’s delegate are not met.  Delivery therefore never took place.

The court held that the Minister’s refusal to grant authority for the export of the uranium made it impossible to perform in law.  Performance in terms of the agreement would have been illegal.

After considering several other aspects of the case, the court found that the appeal had to succeed and that the Minister’s refusal to grant authority, terminated the contract and the parties’ obligations thereunder.

It is submitted that illegality is rather the issue in the context of the lockdown in terms of the Disaster Management Act and not objective absolute impossibility.

It is important to carefully consider any force majeure or vis major clause in an agreement. Force majeure clauses normally have a requirement that the defaulting party has to notify the other party to the contract of impossibility as soon as the impossibility arises or is realised within a reasonable time.  Prompt and pro-active action is therefore needed when a party realises that it will not be able to perform due to a force majeur event.

It is recommended that contracting parties seek legal advice before relying on a force majeure clause in a contract in order to avoid performance under the contract as the circumstances and contractual provisions must be carefully considered. Any action (such as refusal to perform under the contract) may constitute a repudiation of the contract with consequent damages claims if there is no basis to refuse and/or neglect to perform.

Thomas Wood - Candidate Attorney

6) ABOUT US

To view our previous newsletters, please visit our website on www.eyslaw.co.za.
Kind regards,

EY STUART INC.

Disclaimer: The information disclosed herein is not intended to constitute legal advice and is not guaranteed to be correct, complete, or up-to-date. You should not act or rely on any information emanating from this Newsletter without seeking the advice of an Attorney, as the facts relating to your circumstances may influence any advice or information conveyed herein. Should you require legal representation, then please do not hesitate to communicate with us for further information and our standard mandate terms.

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