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Conveyancing & Property Update, Sales in execution fall as debt-heavy clients get their affairs in order, reported in Personal Finance, Weekend Argus



Sales in execution fall as debt-heavy clients get their affairs in order

Written byNeesa Moodley-Isaacs

More cautious lending practices by the banks and a proactive approach by over-indebted homeowners, who are tackling their financial problems, have resulted in a decrease in the number of sales in execution.

Banks forcibly selling homes (sales in execution) have fallen over the past year, mainly because consumers are managing their finances better and are taking steps to address their debt problems with the banks before their homes are attached, most of the big banks say. According to the National Credit Regulator's consumer credit market report for 2010, there were about 1.8 million mortgage accounts with a total outstanding balance of R760 billion at the end of December last year. For the quarter to March 2010, 87.76 percent of the mortgage accounts were up to date, and this improved to 89.08 percent for the quarter to December 2010.

The proportion of accounts more than 120 days in arrears was five percent, or 90 760, for the quarter to March 2010, and this improved to 4.74 percent, or 85 920, for the quarter to December 2010.

Of the four major banks – Absa, First National Bank (FNB), Nedbank and Standard Bank – only Standard reported that sales in execution increased over the past year. "The financial stress consumers are facing has led to more sales in execution, and we expect this to continue for some time," Funeka Ntombeka, the director of home loans at Standard Bank, says.

But figures from Lightstone, a company that researches the property market, show an overall decrease in sales in execution over the six months to March this year.

Gavin Opperman, the chief executive of Absa retail bank, says while there are still heavily entrenched debtors with poor credit profiles, more consumers are beginning to meet their debt repayments.

According to FNB, sales in execution account for only 0.5 percent of the bank's home loan client base. 'About 92 percent of our home loan accounts are in good standing. While the number of arrear accounts that are scheduled to proceed to sales in execution varies at 20 to 30 per day, this number often falls to zero as non-performing loans are processed and then cleared," Vincent Tadden, the head of collections for FNB Home Loans, says.

More homeowners are settling their home loan accounts before a sale in execution or are making arrangements to pay off their arrears over a reasonable period of time, Tadden says.

John Loos, a strategist for FNB Home Loans, says the FNB Estate Agent Survey provides an idea of the extent of homeowners selling "voluntarily" due to financial stress. 'As at the first quarter of 2011, consumers selling in order to downscale due to financial pressure was estimated at 22 percent of total sales. Although this is lower than in the second quarter of 2009, when the percentage of consumers selling due to financial pressure peaked at 24 percent, it remains a high statistic," he says.

Consumers are finding ways to stay in their homes and are negotiating repayment terms with banks as opposed to selling their homes or facing a sale in execution, Loos says. Debi Misura, the general manager of Nedbank's home loans collections and recoveries department, says the number of sales in execution has dropped significantly as a result of the bank's interventions to help distressed homeowners.

OWN CHANNELS

Rael Levitt, the chief executive of Auction Alliance, says the banks are aggressively using their own channels, instead of sales in execution, to sell the properties of homeowners who can no longer afford their mortgage bond repayments.

Levitt says the banks are more cautious than they were in previous years about granting residential mortgage bonds, particularly at the lower end of the market, because consumers' debt levels are high and lower-income consumers are more likely to default on their loans.

A Constitutional Court ruling earlier this year declared that only a judge can authorise a sale in execution. Levitt says that previously, when a judgment was taken against a defaulting homeowner, the registrar of the High Court could order a sale in execution. "Now the court will have to make an evaluation of the facts of each case before deciding whether or not to order a sale in execution," he says.

However, the improvement in the number of people who are managing to keep up with their home loan repayments could be derailed by changes in the economy.

Inflationary pressures are mounting on the back of rising energy costs and food prices. Employment and consumer confidence fell in the first quarter of this year compared with the fourth quarter of 2010, Jacques du mit, the senior property analyst for Absa, says.

Clarity on what a creditor must do before a court will order a sale in execution

The banks must meet certain requirements before they can sell your property if your home loan repayments are in arrears, and a recent High Court judgment has provided clarity on what is expected when a creditor applies to a court for a sale-in-execution order. The judgment was handed down by the North Gauteng High Court in the case of First Rand Bank versus Folscher Bismarck. The judgment means "there is now an onus on a creditor to provide the court with further information and documentation so that a judge will have all relevant information to make a decision on default judgment and execution",

Andrea Holder, an associate partner at law firm Shepstone & Wylie, says. The judgment does not apply to a sale-in-execution application that involves immovable property owned by a company, close corporation or trust, she says. Holder says that, according to the judgment, if you do not appear in court to defend yourself after you have been served with a summons and your creditor applies for a default judgment, the creditor must file an affidavit that states:

  • The outstanding arrears at the date of the judgment;
  • Whether or not the property was acquired with a state subsidy;
  • Whether the property is used for commercial or residential purposes;
  • Whether or not the property is occupied; and
  • Whether or not the debt was incurred to acquire the property. Any matter in which the amount claimed falls within the jurisdiction of a magistrate's court must be referred to a magistrate's court if the property is to be sold in execution.

Holder says that if the bank or creditor applies to the court for a warrant of execution after judgment is granted, the court must consider:

  • Whether the mortgaged property is your home;
  • How the debt was incurred;
  • The arrears outstanding on the mortgage bond;
  • The arrears on the date when judgment is sought;
  • The total amount due in respect of which execution is sought;
  • The payment history on the mortgage bond;
  • Your financial strength and that of your creditor or bank; and
  • The possibility that your debt may be paid within a reasonable period without your home having to be sold in execution.

When you are issued with a warrant for a sale-in-execution, your attention must specifically be drawn to the fact that you can apply to the courts to have the judgment rescinded, Holder says.

 

Andrea Holder, Partner

Contact: 031 575 7511 and holder@wylie.co.za

 

Customs @ Wylie, Update, Changes in Customs duty, reported in Freight & Trading Weekly



Changes in Customs duty — buyers and sellers are protected

Written by Mark Boucher Customs @Wylie

The Customs Act 91 of 1964 ("the Act") provides a measure of protection to buyers and sellers of imported or excisable goods affected by an amendment in the rate of duty.

A contract may be entered into between two parties based on the duties in place at the time of the signing of the contract. However, as we know, the rate of customs duty or any other duty imposed under any of the schedules to the Act may be amended at any time. This will alter the actual "landed" cost of goods.

Section 59 (1) of the Act gives the seller of goods the right to recover from the buyer, as an addition to the contract price, a sum equal to any amount paid by him/her as a result of any increase in duty, in the absence of agreement to the contrary. Say for example an importer purchases pencils from an exporter in Ireland. He and the exporter enter into a contract of sale, using the DDP Incoterm. When the contract is concluded the rate of duty is set at 15%. However, while the first shipment is on the water, the rate of duty increases to 20%. The exporter is obliged to pay the additional duty to Customs. However, the importer argues that since they signed the contract of sale at a 15% rate of duty that is all he is willing to pay.

In such a scenario, the exporter could rely on Section 59 (1) of the Act to support his claim that the importer is obliged to pay him the additional 5% duty.

Section 59 (2) affords the same level of protection to the buyer in that it makes provision for the buyer to deduct from the price payable an amount equal to the decrease in duty since the time of signing the contract to the date of customs clearance.

Not only does the Act protect buyers and sellers but Section 59 (3) also protects signatories to a contract involving the hiring of goods. This section reads as follows:

"The provisions of this section shall also apply to a contract for the hiring of any goods or the use of any goods in rendering a service at a contract price, and the expressions "seller" and "purchaser" shall correspondingly be construed as including the person by whom and the person to whom the goods are hired or the service rendered."

Section 59 of the Act theoretically provides for easy adjudication in situations where either party stands to lose out as a result of an amendment to one of the schedules to the Act. However, it is an entirely different matter in practice when trying to convince a foreign supplier to conform to our Act.

Mark Boucher, Customs @ Wylie

Contact: 031 575 7312 and boucher@wylie.co.za

 

Litigation Update, Former Chemspec CEO’s trail of debt



 

Former Chemspec CEO's trail of debt

ALL WILL BE EXPLAINED, WOOD SAYS

Written by Tania Broughton tania.broughton@inl.co.za

Strath Wood, the former CEO of JSE-listed Chemspec, who resigned under a cloud last year, stands accused of leaving behind a trail of financial destruction when he moved to America.

Not only has his uMhlanga home been attached by the sheriff, but a leading law firm and a former colleague have both gone to court to attach assets to cover alleged debts.

Wood's resignation – cited as being because of ill health – came just days after a Pietermaritzburg High Court judge said he had lied and fabricated evidence, and ordered him to pay R3 million plus interest and costs to IFA Hotels and Resorts.

The dispute related to an agreement between IFA and Wood, in which he had bought 25 million shares in the Don Hotel Group for IFA. He then sold the shares and put the proceeds into his own account.

IFAs lawyer, Patrick Falconer, said Wood owed his client about R9m. "He has not paid a cent," he added.

While Wood's home in La Palma Terraces had been attached and would be sold at auction, Falconer said the property was bonded and there was not much equity in it.

"We will pursue him for the balance, his being overseas will not stop us. We can certainly consider sequestrating him; he has left a trail of financial destruction," Falconer said.

The law firm which represented Wood in this matter, Shepstone and Wylie, had also launched court proceedings against him to recover its fees.

This application came before the Pietermaritzburg High Court on Friday, and was adjourned until later this month.

On the same day, attorney David Randles, a former director of Chemspec who has returned to the legal profession, launched an urgent application to attach shares in the Strath Wood Family Trust, pending the outcome of a civil dispute in which Randles is claiming 10 million Chemspec shares from Wood.

The shares were worth more than R10m at the time the company listed. Now they are worth about R3.8m. In his affidavit, Randles accused Wood and his wife, Kathleen, of trying to dispose of the shares "to defeat the claims of numerous creditors".

Randles said Wood offered him the shares just prior to the listing of the company as an incentive to join Chemspec. He accused Wood of reneging on this deal and placing the shares in his own trust.

Tired of Wood's "empty promises", he sued him in the high court, with a trial date likely sometime in the second half of next year.

Wood denied owing Randles the shares and is opposing the application. Randles claimed that Wood's attorney told his attorney in December last year: "Strath is never going to pay him (Randles). He can just forget about that… it is simply not going to happen."

A subsequent request for an undertaking that Wood and his trust would not deal with the shares was ignored.

Randles said it then became clear that "Wood's empire was crumbling"- sparked by his resignation after the IFA ruling.

In April, Chemspec chairman Ivan Clark told him that Wood had offered him all his shares, which had also been pledged to FNB for a debt owed by the company.

 In May, he discovered that Wood had sold his car, there was no furniture in his home, the home had been attached by IFA and he had obtained a green card and "apparently emigrated" to America.

He said Wood had already encumbered the shares and it appeared that he would sell them even at a discounted price to frustrate his claim. "He is frantically trying to get rid of his assets and is in the process of cutting his ties with this country.. it appears he uses the trust as his alter ego," Randles alleged.

The matter was adjourned for papers to be served on Wood and to give him time to respond. Wood said in an e-mail to The Mercury that it was "inappropriate" to report that he had left behind a trail of destruction. He said he had "legitimate defences" to his dispute with Randles.

"I was involved in litigation with IFA. I understand that my share of a unit owned by me has been attached. My attorneys, Shepstone and Wylie, are due payment in respect of fees outstanding and I intend resolving with them issues regarding those fees." He said he was travelling and would be able "to explain the full position" later this week. 
 

 

 

 

Employment & Pension Law Update, Earning threshold changes could benefit employees



Earning threshold changes could benefit employees

Employees are often unaware that they are entitled to certain rights provided for in the Basic Conditions of Employment Act, 1997 ("BCEA'.') by virtue of how much they earn.

Employees earning below an amount determined by the Minister of Labour are legally entitled to be remunerated for overtime worked, work on public holidays and work on Sundays. Those people that earn in excess of the amount set by the Minister of Labour will not benefit from these provisions and are not entitled to be remunerated.

Currently, the earning threshold is R149 736 per annum but the Minister of Labour has recently increased this threshold. Effective from July 1, the earning threshold will be R172 000 per annum.

This means that from 1 July 2011, employers must ensure that all of their employees earning less than R172 000 per annum are being remunerated in accordance with the BCEA in so far as overtime and work on Sundays and public holidays is concerned.

"Earnings" is defined as an employee's regular annual remuneration before deductions. It excludes contributions made by the employer in respect of the employee. Where an employee receives subsistence and travel allowances, achievement awards and payment for overtime worked, this will not be regarded as remuneration for calculating the threshold.

Employers are well advised to review their contracts of employment and payrolls before July 1 to ensure that those employees that are legally entitled to certain provisions of the BCEA are being remunerated.

Employees that did not previously enjoy certain benefits because they earned in excess of R149 736 per annum may now be entitled to these rights.

Siobhan Viljoen, Associate Partner

011 292 2540 and viljoen@wylie.co.za

 

 

 

 

Conveyancing & Property Update, Buy to suit your pocket, reported in the Sunday Tribune



Buy to suit your pocket

Written by NICOLA JENVEY – PROPERTY EDITOR

The life rights issue is still a vague one for many people considering buying property, particularly when the decision is being made for retirement living.

Life rights schemes differ from sectional title properties mainly in that no actual property purchase or transfer takes place – the development retains ownership of the unit.

The basic concept of life rights is that buyers pay an amount for the right to live in a unit for a determined period. When the owner dies, a spouse may be entitled to stay in the unit until death or resale.

Shepstone & Wyle partner Sifiso Msomi said that the payment is an agreed amount that may be deemed a lifetime of rental paid in advance.

No transfer or registration fees are payable, but Tyson Property Group inland director Lee Ellis, points out buyers must know that the property cannot become an estate asset and be bequeathed.

Garlicke & Bousfield director Simphiwe Maphumulo says life rights properties can be bought with loans, but banks are not keen on the risk. Legally, life rights outrank other rights over the property including those of the bond holder.

"This is a cheaper option to secure a place in a retirement development and enjoy a lifestyle in your golden years that otherwise might not be affordable," said Wakefields Real Estate CEO Keith Wakefield.

The advantage is that life rights fix accommodation costs for the rest of the owners' lives. If the development offers a fixed-for-life levy, the associated levies and costs of frail care will not increase above an agreed level.

Hillcrest-based Le Domaine applies a reversionary rights scheme, recognised as a form of life rights, to the Village Versailles development. In this case, purchasers buy into the lifestyle at a 20 percent discount from the sectional title unit price, but on death or notice the unit reverts to the developer at the price originally paid.

Stanleys Property CEO Mike Stanley said the practice is widespread globally and popular as a retirement model.

The most common US retirement sale is a life plan model, resembling the South African life rights system, while Australia and New Zealand retirement village operators rarely transfer title to occupants, instead applying a licence to occupy scheme.

The UK uses a lifetime lease model, while in Europe the apartments-for-life concept, sold on a life rights basis, is gaining popularity.

Stanley said the 1988 Housing Schemes for Retired Persons Act recognised life rights as an ownership form, offering protection to developers and purchasers.

However, people who buy into life rights schemes should ensure they get security of tenure, physical, health and financial security.

Msomi said when a life rights unit is resold, the outgoing resident or estate gets a percentage of the market-related resale price with the details differing with each development.

However, typically this amount corresponds to the number of years the owner occupied the unit.

Sifiso Msomi, Partner

contact: 031 575 7105 and msomi@wylie.co.za

 

 

 

Litigation Update, Facebook, reported in Northern KwaZulu-Natal Courier



 

Facebook

Should the new Council release the Shepstone and Wylie report on the investigation into the alleged illegal promotions at the Municipality that apparently vilified the Council's subsequent decision to suspend two managers?

Gerhard Potgieter – They should. Can Shepstone and Wylie not make it public?

Simon Manyathi – Ooops!

Ansie Graaff Jonker – Yes…

Imogene Leyland – It is the moral duty of our officials to account for their actions, the moral responsibility of citizens to hold them responsible for their actions. These are the things that make democracy a success. So, yes, it is time for them to account for their actions and called in to question.

Helen Stevens – I agree with every word that Imogene says. I could not have put it better myself. (And that's saying something as I am very opinionated!)

Gary Markham – Of course they must. But the old Councillors will probably be left with egg on their faces and because pals of pals rule the roost they will probably be an excuse like 'oh, sorry, what report – I think we lost it' .

Other issues on facebook

Berni Jacobs – To all the political parties… you have our votes, now will you please clean up our town by removing your posters ASAP!

Bobby Abrahamse – I just want to commend Glencoe police on an excellent response. I had five unauthorised persons in my yard this morning and they were on the scene within two minutes and apprehended three of them. WELL DONE!

Lucky 'Lucx Mathambo – Upon reaching the top of the hill, Hagar told the wiseman how he had fought people and critics on his way up to hear the words of the wise man. The wise man spoke:" The same people you fought on your way up, are the same people you will face on your way down."….the moral of the story is: I'd like to think of myself as one of the 'same people…. I also wish to extend best of wishes to the new council.
 

 

 

Corporate & Commercial Update, Legal Review, Constant Change reported in Business Brief



 

CONSTANT CHANGE

All successful economies need a strong legal framework within which to operate. This gives local and international businesses the ability to operate with more certainty. Furthermore, it provides protection to local citizens transacting beyond the country's borders.

The structure in which businesses operate continues to become more complex. The risks and costs relating to ignorance of legal issues can materially hamper any business. The New Companies Act, Consumer Protection Act and Competitions Act are but a few changes that South Africa's active legislature is seeing.

Changing legislation, foreign Investment and an increasing focus on the African continent has meant that legal firms throughout South Africa have had to adapt in order to meet diverse client requirements. With the rising interest in Africa as an investment destination, and the increasing footprint of multi-nationals on the continent, the need for experienced, local and reputable legal services is becoming critical to the success of establishing these businesses.

Chairman of Werksmans Attorneys, Des Williams says, "The current trend appears to be a view of South Africa as a 'gateway' into the rest of Africa. When based in South Africa, you are trading in a mainstream, international economy that has a large capital base and large, highly sophisticated banking, accounting and legal systems. There are several flights a day to the major capitals of Europe, America, and the Far East and Africa, as well as education and health systems of sufficient quality to attract expatriates. Doing business in South Africa, particularly from Johannesburg, has traditionally been and still is easier and more commercially effective than anywhere else in the region."

POTENTIAL IN SOUTH AFRICA

Foreign law firms have also recognised the potential in South Africa, both as a market and as a gateway to other African markets Williams says that the company's major advantage over other local law firms and foreign law firms competing in this market lies in our well established Lex Africa network. "We have recognised the potential far ahead of the trend and are the first South African law firm to explore partnerships across the African continent. In 1993, we pioneered the Lex Africa network, which currently consists of leading law firms in 30 African countries," he says.

 Pieter Steyn, Chairman of Lex Africa and Director at Werksmans Attorneys says, "Africa is a land of great opportunity but it is also associated with diverse challenges and risks. Any new or established business in Africa, whether local or foreign, must be positioned off a strong legal base and be able to deal effectively with legal or commercial issues, particularly if they have cross border business interests in other African countries. This requires an intimate knowledge and understanding of local laws, customs, business practices, cultures and language."

CHANGING LEGISLATION

Closer to home, the implications of changing legislation in South Africa are far-reaching for all businesses and it is imperative for a legal partner to guide clients and avoid potential pitfalls.

Williams adds, "Imminent implementation of new legislation provides us with the opportunity to better serve our clients and the local economy. As such, we have invested significant resources in providing our clients and the broader business community with insights into the most recent legal developments across a diversity of key industry sectors. Currently, the Consumer Protection Act, Companies Act and recent Employment Legislation are top of mind for most clients and will remain a focus for much of 2011."

He says, "It is encouraging to note that – following the recession – business in the legal arena has increased. M&A, banking and finance, litigation and competition work are a few of the areas in which we have noticed increased activity over the past few months. I believe that increasingly complex legislation and regulation, as well as foreign investment and interest in Africa, will continue to drive these areas of the business."

FACING CHANGE

DLA Cliffe Dekker Hofmeyr recently announced the appointment of Chris Ewing as Chairman of the firm. The appointment has been made with the long term sustainability of the firm in mind and underscores the firm's progress towards achieving its growth and transformation strategies developed over the past 10 years under Ewing's watch. "

As Chairman, I will concentrate on developing our growth strategies, which will include our relationship with DLA Piper globally and in Africa. I will be able to spend more time on client relationships and I look forward to returning to the practice of law in a client oriented role. I am looking forward to serving as a mentor and adviser to our younger lawyers," Ewing said.

Ewing adds that the legal services industry is in good shape at present. "All the law firms have recovered from the recession and are now in the process of hiring new staff to handle the abundance of new work," he comments.

Another trend that Ewing is seeing is the globalization of the industry with many law firms partnering with global entities that result in many benefits such as, intellectual property benefits. In 2005, Ewing formalized the firm's association with DLA Piper, marking the first such affiliation of a South African law firm with a global partner. He led the firm through the merger with Hofmeyr Herbstein & Gihwala in 2008, which established Cliffe Dekker Hofmeyr as one of the country's largest business law firms. Ewing was then appointed CEO of Cliffe Dekker Hofmeyr, just ahead of the global economic meltdown.

RETENTION

"The movement of partners is happening at a rapid rate of recent. Law firms have to expect that as much as they will gain exceptional talent into their organization, they will also lose it just as fast. It has become vital to offer employees attractive packages and create a flexible culture and environment," remarks Ewing.

It has become imperative to properly engage with employees and give them everything that they would need to perform at their best and deliver exceptional standards of work. The human resources department for lawyers has long ago, moved away from just being about hiring and firing, it now has a more strategic role in an organization, paying careful attention to encouraging, motivating, developing and retaining employees. Ewing says that law firms should have proper recruitment strategies in place that are revised on an annual basis. He believes that it is not just about poaching from fellow law firms, it has become about nurturing, developing and mentoring the future of South Africa, hence he advises law firms to strive harder to empower the youth of this country, the future lawyers.

Cliffe Dekker Hofmeyr recruits 50 aspiring lawyers on an annual basis. Ewing says that it is a stringent process of sifting through over 1000 CVs to the shortlisted candidates. He envisages that more and more companies will afford candidate attorneys the opportunity to learn and grow.

There are many ways to attract and retain the best talent to an organization and this does not only revolve around competitive salaries, it is other financial and non-financial rewards that make the difference. In this tight labour market, the retention of current employees and the attraction of key talent are major challenges. A comprehensive approach to 'total rewards' is a primary lever to assist in achieving a sustainable pipeline of human resources. Salaries are just one way to recognize and reward staff. Other forms of rewards include:

  • Short term incentives
  • Long term incentives
  • Development and growth
  • Recognition and fair rewards
  • Employee well-being
  • Meaningful work and role clarity

 

EDUCATION -The forgotten part of a legal team

Education is the often overlooked, yet vital part of a business's attention to the legal environment. According to June Marks, CEO of June Marks Attorneys, she says that it is unfortunate that South Africa's legal and business environment is riddled with difficulties, such as:

  • Technology advances rapidly
  • New legislation is introduced constantly
  • Corruption is rife.

"Lawyers play a pivotal role in surviving the warzone, as they are the trained professionals who keep up to date with all legislation and developments. Yet, the attorney's profession is an often misunderstood one, and the unfortunate truth is that if a company's staff do not understand the attorney, the results are disastrous. Not only can it lead to financial losses in litigious matters being lost but incorrect advice being given or worse given that your attorney is there to protect you," says Marks.

HOW CAN THIS BE AVOIDED?

It is of vital importance for employees to be educated on the law, on the South African legal system and on the workings of the attorney's profession. Although not widely known, yet often resulting in litigation and criminal cases, in terms of section 332 of the Criminal Procedure Act, a company is held liable for the criminal acts of its employees. This means if your employees do something wrong, your company will be held liable. So, employees must be educated on constant legal developments and how they affect the company and the environment at large.

NEW LAWS

The legal services industry has been inundated with changing legislation and in all honesty, there is no country in Africa or the world that can say that they have been through the changes that South Africa has faced or facing.

The Institute of Directors in Southern Africa (IoDSA) has welcomed the introduction of the business judgment rule into South African company law, which seeks to protect directors from liability to the company and shareholders as a result of poor decision-making.

"What this means is that when the business judgment rule applies, it is taken that a court will largely be prohibited from examining the merits of the directors' decision and that a presumption of due care and good faith will be created regarding that director," says Natasha Bouwman, Legal Specialist, Institute of Directors in Southern Africa.

The Companies Act no 71 of 2008 (new Act) introduced the business judgment rule into South African company law for the first time, after being developed in the US in order to:

  • Deter a risk-averse culture among directors as their liability increases. It is envisioned that the rule could help prevent directors not taking part in risky activities that could be beneficial to the company.
  •  Persuade competent individuals to take up the position of director. There exists a limited pool of competent people who could properly serve as directors in SA.
  • Avoid 'judicial second guessing': The evaluation of business decisions by judges after the event is problematic because judges then have the benefit of hindsight – something the directors did not have when taking decisions.
  • Avoid shareholder management of the company. If certain decisions made by directors are protected by means of the business judgment rule, shareholders will be wary of bringing legal action against directors, owing to the potential of failing in their action and the legal costs involved.

BUSINESS ENTITIES UNDER THE NEW COMPANIES ACT

The new Companies Act seeks to repeal the Companies Act 61 of 1973 in its entirety. Among the stated purposes of the new Companies Act are the aims to simplify the legislation in order to encourage entrepreneurship, enterprise efficiency and to create flexibility in the formation and maintenance of companies. Under the new Companies Act, there will be two categories of companies, namely, profit companies and non-profit companies.

 According to Simla Ramdayal, Senior Associate at Edward Nathan Sonnensburg, no provision is made for the incorporation of close corporations after the new Companies Act comes into effect. Close corporations in existence prior to the effective date of the new Companies Act will continue to remain in existence until deregistration, dissolution or conversion into a company in terms of the new Companies Act. Provision is made in the new Companies Act for close corporations to convert into a private company if an aggregate of 75% of the members' interest in a close corporation consent to the conversion. The Close Corporation Act will be amended by the new Companies Act and will remain in force indefinitely.

 "Section 21 companies that are in existence prior to the effective date of the new Companies Act will continue to remain in existence. However, every pre-existing section 21 company will be deemed to have amended its "Memorandum of Incorporation" ("MOI") as of the effective date of the new Companies Act to expressly state that it is a non-profit company, and to have changed its name in so far as required to comply with section 11(3) (b) of the new Companies Act (the requirement that the name must end with the expression "NPC")," says Ramdayal.

Under the new Companies Act, one or more persons may incorporate a profit company and three or more persons may incorporate a non-profit company by submission of a Notice of Incorporation and the MOI for registration. Symbols and "any letters" will be permitted to be used in the name of a company (in accordance with the regulations to be promulgated under the new Companies Act). This has been criticized due to the fact that many companies may have to upgrade their systems to read symbols and possibly foreign alphabets.

MOI's and shareholders' agreements under the new Companies Act, shareholders will no longer be able to regulate the management and administration of a company by using a shareholders' agreement to override the provisions of a company's Memorandum or Articles of Association.

Shepstone & Wylie Attorneys  Partner: Commercial, Claire Cowan says that the new Act simplifies the constitutive documents of a company by replacing the Memorandum and Articles of Association with a single document known as the Memorandum of Incorporation (MOI). From the date on which the new Act came into operation, the Memorandum and Articles of Association of a pre-existing company will automatically become the MOI of that company.

"In future, shareholders' agreements have to be consistent with the provisions of a company's MOI. The new Act allows shareholders a period of two years following the effective date to review and amend their shareholders' agreements to accommodate this change. During this two year period any provisions in a shareholders' agreement concluded before the effective date, that conflict with the MOI, will continue to override the provisions of the MOI," adds McGee.

Most of the typical provisions contained in a shareholders agreement relating to the management and administration of a company are now contained in the new Act in the form of "alterable provisions", which are standard rights, duties and powers which will apply to a company unless they are varied in a company's MOI. As a result, many of the provisions of a shareholders' agreement may be comfortably included in the MOI, provided that they are tweaked where necessary to comply with the provisions of the new Act.

McGee says that although the new Act gives each pre-existing company a two year grace period during which the provisions of its MOI will override any inconsistent provisions of the new Act, it is imperative that during this period, every pre-existing company reviews its MOI against the standard provisions in the new Act to determine their effect on the management and administration of the company and to what extent, if any, such standard provisions should be amended in the MOI.

Likewise, shareholders should review their shareholders' agreements against the corresponding alterable provisions of the MOI to make sure that where required, the alterable provisions are amended to accommodate the provisions of their shareholders' agreements.

START-UPS

Small and start-up businesses work predominantly on trust and verbal agreements – because being cautious and doing it formally, costs time and money. It works until something goes wrong!

Advocate Richard van He!den, Managing Director of www. LawUnlocked.co.za says that entrepreneurs are by their nature optimists. It takes commitment and a positive outlook to take on the hardships in building a new business. But many businesses start trading without any proper legal agreements in place, basic agreements like regulating the relationships between partners and shareholders of the business or its relationships with employees, suppliers and customers.

"But the hard lesson that many businesses have learnt is that these agreements become vital once the business is established. You may have been able to wing it on the basis of informal arrangements with your customers or suppliers, especially when the transactions involved were for just a few thousand rands, but the picture is very different and far more risky when your volumes have increased to a point where your business finds itself transacting for hundreds of thousands of rands without protecting itself contractually. Often, habits of informal agreements are so deeply ingrained you don't even realise you're still winging it legally, until you have to go to court," says van Heiden.

CUTTING COSTS

He says that the opportunity for sorting out these legal measures is best taken in the early days of the business. "Understandably, the need for entrepreneurs to wing it comes from the exorbitant costs that lawyers charge on an hourly basis. New business owners simply cannot afford the high costs and try to resume work without proper contracts in place," says van Heiden.

It is possible to benefit from innovative legal drafting solutions that are now available on the web, but only when the drafting is tailored and customised to an individual case, as a real live lawyer would do. There are applications such as www.LawUnlocked.co.za that are based on solid legal principles, combined with clever application of computer science and artificial intelligence. This can give business owners quality, customised contracts at completely affordable rates.

"At the very least, it will save business owners a bundle in fees in only needing a lawyer tweak the more complex or unusual contractual terms to an agreement. At the very best, an 'artificial intelligence' legal document will give business owners substantial protection against the most commonly encountered risks. Entrepreneurs shouldn't delay formalising their legal agreements. You've worked too hard to see it all go up in flames or being worn out in a duel to the death in court, where no-one wins but the lawyers," comments van Heiden.

THE FINAL WORD

One of the best ways to find good legal representation is to rely on the recommendations of trusted family, friends, or business partners. If they have employed the help of law firm before, they can tell you if they were satisfied or displeased and probably even give you advice about what to look for and ask when choosing a representative.

CONTRIBUTORS

June Marks Attorneys, LawUnlocked,Werksmans Attorneys, DLA Cliffe Dekker Hofmeyr, Spoor & Fisher, IoDSA, ENS 

Shepstone & Wylie 031 575 7000

Claire Cowan, Partner

Contact: 031 575 7404 and cowan@wylie.co.za

 

 

 

 

 

Litigation Update, Inspiring tomorrow’s businesswomen today, reported in Baywatch



Inspiring tomorrow's businesswomen today

written by, Megan Erasmus

The Zululand branch of the Business Women's Association (BWA) of South Africa held its annual 'Businesswomen of Tomorrow' event at the St Cathrine's school in Empangeni on Friday.

The event, which is inspired by the Cell C 'take a girl child to work day', gathers a group of intellectual and inspirational business women to speak to a group of grade 11 and 12 girls from a number of different schools in Zululand, to inspire them to reach higher and dream bigger.

Among the many speakers this year was Natasha Pedro from the Umfolozi Casino Resort, Bandile Xaba from Shepstone and Wylie Attorneys, entrepreneur Makhosi Mthiyane and Elena Mattioda.

Event coordinator, BWA's Sherry Bevan, says the function is always highly anticipated by all involved.

'Very often we have businesswomen contacting us as much as a year in advance saying they would like to speak, and the response for the girls is always positive.'

The schools that participated this year included the Richards Bay Secondary, Empangeni High, Hluma High, John Ross College, Betesda High and St Cathrine' s.

Snowy Mabaso of Betesda High says the event was very nice and informative.

'The speakers gave good advice about life in general.'

Hlume High's Sihle Mthethwa agrees, saying events like these show girls that they should stand up for themselves, and not be dependent on anyone.

Never a truer word has been spoken!

 

 

Corporate & Commercial Law, New Company’s Act Update, Sweeping Changes, reported in Financial Mail



COVER STORY

Sweeping changes

It was almost a decade in the making, contains 225 sections over more than 200 pages, has undergone numerous rewrites and was amended even before it was finally signed into law three weeks ago.

From the outset, the legislation drew relentless criticism and most of the amendments, redrafting and delays were to correct a host of inconsistencies, ambiguities, technical problems and even spelling, grammar and typographical errors.

But, for business, the new Companies Act remains a source of lingering concerns, confusion and uncertainty This law, together with the Consumer Protection Act, presents companies with severely challenging corporate and commercial conditions. Among the sweeping changes are stricter personal liability for directors who make bad decisions. Anyone who has suffered damages can now institute action directly against a director or manager. This could result in fewer executives accepting board appointments. It is clear that the intention is to make directors more accountable to shareholders, but setting the standard so high could sway some directors from making difficult decisions that may expose the company, and themselves, to risk.

 The new law also alters shareholder agreements and the way shares are issued, redefines mergers and acquisitions, and ends the further registration of close corporations. The act creates the new Companies & Intellectual Property Commission (CIPC) and disbands the almost dysfunctional Companies & Intellectual Property Registration Office (Cipro).

Newly appointed CIPC head Astrid Ludin admits that the ultimate success of the legislation will depend on smooth implementation.

Government has argued that the Companies Act simplifies the registration and administration of businesses, introduces greater flexibility in areas such as corporate auditing, and provides for innovative business rescue plans for financially distressed companies.

For the corporate sector, however, the drive to make things simpler has in fact compounded the complexity and increased the burden of compliance, making it more difficult to do business in SA.

It is too early to put a firm figure on the total cost of complying. But Kabby Esat, a partner at Shepstone & Wylie law firm, estimates that if each unlisted company spent on average R10 000 and each listed company R500 000 over two years on compliance, the costs could be anything between R2,5bn and R3bn.

"One of the intentions of this legislation is to make the registration and administration of businesses simpler, but … it actually adds a much larger layer of bureaucracy for companies."

Stephen Kennedy-Good, a director at Deneys Reitz, says one of the consequences of the added protection for minority shareholders could be to compromise a critical area of corporate activity — mergers and acquisitions (see box).

Another contentious area is section 45 of the act, which prohibits intercompany loans. Madelein Burger, a partner at Webber Wentzel, says that except under tight conditions, this section could seriously affect a company's credit status with financial institutions.

Previously, if companies within a group having the same shareholders or holding company wanted to make loans to each other or secure each other's debts, a board resolution was required. Now, any loan from one company to another in the same group, or any security provided for another company in the group, will need a special resolution that must be supported by 75% of voting shareholders.

"Can you imagine the cost implications and logistical challenges of getting board members and shareholders together to approve every transaction?" says Burger.

But Ludin is confident that most of these concerns can be addressed through focusing on education and compliance over the next six months. One of her first tasks since taking office two weeks ago was to establish a working group of various stakeholders that will address the more pressing issues.

Much of the success will depend on whether the new CIPC can overcome the fraught and often crippling problems that plagued the former Cipro, which compromised the security of a number of companies. "We realise there are ongoing concerns around the registration of companies, and this needs to be resolved," says Ludin. "Over time we need to build a strong and credible regulator. We know that credibility is key to both local and international business confidence."

Though it is likely that some of the more glaring ambiguities and contradictions in the legislation will be addressed through further amendments, other contentious areas will be settled by judicial rulings and interpretation by the courts. The battle has only begun.

Get agreements in order

Companies have been given a two year transitional period to bring shareholder agreements in line with the provisions of the new Companies Act. So, on May 1 2013, any provisions that are inconsistent with the legislation will become void.

Currently, a shareholders' agreement could include provisions that the company shall not perform certain acts, such as issuing shares, without prior written approval from shareholders or without a special resolution being passed.

Under the new act, the board of directors' authorisation is sufficient for an ordinary issue of shares, meaning that any provisions to the contrary in a shareholders' agreement will be void.

And if a company gives notice that it is intending to sell the majority of its assets, under the new act, minority shareholders have the right to force a buy-back of their shares at fair value.

During the transitional period, shareholder agreements will continue to have force. But in the event of a conflict between those provisions and the provisions of the company's memorandum of incorporation or the new act, the shareholders' agreement will prevail.

So company executives should review existing shareholder agreements and eliminate any inconsistencies. Shareholders should also be cautious about making any changes to agreements during this transitional period.

Shareholders' rights

For the first time in SA law, a company can merge with another and transfer all assets and liabilities without the consent of creditors.

However, creditors are protected by additional provisions within the Companies Act in the area of fundamental transactions, which require that they must be informed of any merger plans.

But even with these safeguards, creditors could feel vulnerable, fearing that the mergers are a ruse by their debtors to transfer their liabilities to other companies.

 Together with mergers and acquisitions, the new act defines three other distinct areas of fundamental transactions: disposal of all or the greater part of a company's assets; schemes of arrangement; and takeovers.

These activities will be regulated under the new Takeover Regulation Panel, which replaces the Securities Regulation Panel.

The legislation offers strong powers and rights to shareholders; all transactions will require 75% approval.

Where the transaction involves disposing of the majority of the holding company's assets, then the same level of shareholder approval is required. But if 15% or more of the shareholders veto the transaction, they have the right to have the transaction reviewed in court.

Should the minority shareholders not go the court route, they are protected by a provision that grants them appraisal rights, which compels the company to repurchase their shares at fair value.

The act also forbids directors or executives from taking any action that could negatively affect or deny shareholders the opportunity to assess an offer on its merits.

Kabby Esat, Partner

Contact: 031 575 7403 and esat@wylie.co.za

 

 

 

 

 

 

 

Corporate & Commercial Update, IDZ to go solo, reported in the Zululand Observer



Written by:

Ronelle Ramsamy

The Richards Bay Industrial Development Company (RBIDZ) is set to operate independently from the City of uMhlathuze in the future.

This after the City's Council resolved at its Executive Committee sitting on Tuesday that it was in favour of cancelling its 40% minority shareholding in the Company.

The decision was made after Council considered legal analysis from Attorneys – Shepstone and Wylie on the risks and benefits of Council's shareholding in the company. The report showed that such shareholding would most likely not be beneficial for Council.

Co-owners of the RBIDZ company comprise shareholders Ithala Bank (60%) and the City of uMhlathuze (40%).

On 30 November 2010, Council considered a report pertaining to the challenges, commitments and options of Council's shareholding in the RBIDZ.

Council also requested that a further report be submitted to advise them on the business and legal risks, as well as the potential benefits relating to Council's shareholding in the RBIDZ.

The City's decision to cancel it's shareholding in the RBIDZ is expected to prevent possible points of uncertainty and conflict between Council and the Company in the future.

The value of Council's 40% share in the restructured RBIDZ transaction equates to R57 140 000.

The arrangement will also result in the RBIDZ Company having to acquire any additional portions of land that it may need at the ruling market related value.

Council resolved that the concurrence of the RBIDZ Company be obtained to proceed with the legal requirements to cancel the Shareholding Agreement.

Restructuring – Earlier this year, the City approved the restructuring of the Land Sale Agreement and the related Services and Shareholding Agreements with the RBIDZ.

This allowed for the RBIDZ to take transfer of Phase 1A and Phase 1F in a phased approach.

Phases 1B, C, D and E would then remain with the City and would have to be de-proclaimed as the IDZ.

With the IDZ Company taking occupation of Phase 1 A in terms of the lease agreement, Council agreed on Tuesday that the RBIDZ should make payment of R34 510 000 due by them prior to transfer.

Council also agreed to the leasing of an approximate 18 hectare portion of land located between Phase 1A of the RBIDZ and the Mzingazi Canal to the company to enable them to incorporate the property into the adjacent industrial development