Advertise: Implications of Insolvency Act on commercial transfers
The downturn in economic conditions is forcing numerous businesses to close, claiming insolvency. However, there are various implications to the Insolvency Act of which owners trying to sell their businesses are unaware, including the fact that failure to adhere to section clauses may render the sale invalid. Simphiwe Maphumulo of the law firm Garlicke & Bousfield Inc explains.
Simphiwe Maphumulo
Section 34 of Insolvency Act is an old piece of legislation, however Maphumulo has received enquiries from several clients who do not know of its existence and asked for an explanation as to why one needs to advertise when selling one's business or its core assets.
Section 34 of the Act on Commercial Transfers deals with situations whereby a trader transfers, in terms of the contract of sale, any business belonging to him, or any goods or property forming part of such business, outside the ordinary course of that business.
In terms of Section 34 (1) of the Act, such sale or intended sale has to be published in the Government Gazette, and in two issues in Afrikaans and in two issues of an English newspaper circulating in the district in which that business is carried on.
Such advertisement has to be made within a period not less than 30 days and not more than 60 days before the date of transfer.
Should the seller transfer his business as aforesaid, without having complied with the aforementioned provisions of the Act, such transfer shall be void (invalid) as against his creditors for a period of six months after such transfer, and shall be void (invalid) against the Trustee of his estate, if his estate happens to be sequestrated at any time within the said period of six months.
The objective of this Section is to protect all the creditors of the said business against the owner selling his business and not paying his debts. A period between 30 and 60 days is to allow them to lodge their claims against such business before the business is sold. In most instances, banks that are financing a purchaser would insist that the abovementioned Section be complied with before they finance the purchase.
