Walkers Attorneys

We have been keeping up with amendments to Bills discussed by Parliamentary Portfolio Committees in regard to the transfer of residences into a natural person’s name and have urged the Treasury to be more flexible. In the latest set of amendments (as referred to below), this has indeed come about! Insofar as the proposed Amnesty is concerned, which is not yet set in stone, we have prepared an analysis which you can click onto below. We are holding a Seminar on this and related topics and you can book by clicking on the icon below. Plus: an update on the new Companies Act and a walk down the road with the venerable “Voetstoots” clause.

In our February Newsletter I referred to the provisions that would allow transfer of residences from a Trust or a Company or CC, Transfer Duty free, and with a roll-over of Capital Gains to the person taking transfer.

A new paragraph 51A has been drafted in terms of the Taxation Laws Amendment Bill that provides for greater flexibility on the basis that the previous provisions will fall away as from September 2010 and that as from 1st October 2010 and until end December 2011, a natural person will be entitled to take transfer of a residence, provided he or she (alone or together with his or her spouse) held all the shares in that Company from 11th February 2009 until the date of transfer, or disposed of the residence to the Trust by way of donation or other disposition or financed all the costs relating to the residence. In addition, that natural person together with his or her spouse or relatives (to the third degree of consanguinity) must have used the residence mainly for “domestic purposes” as of 11th February 2009 to the date of transfer.

The reference to “domestic purposes” is different from the requirement of the previous Section 51(1), whereby a person or his/her spouse was required to have “personally and ordinarily resided” in the residence. Thus provided a person does not rent out, for instance, a holiday home for more than 50% of the time, that residence would fall within the relief offered. However on the other side of the coin, the disposal by a Trust for instance of a holiday home to a person, would destroy the whole Estate Planning structure, with no CGT relief in the sense that there is no primary residence abatement for holiday homes.

The proposals however are to be further amended as a result of the Parliamentary Portfolio meeting and submissions made to it during early August, more particularly to include the position where a Family Trust holds the shares in that property owning Company and indeed where the shares in the Company or the costs of purchasing or maintaining the residence were also held by or contributed to by other family members. I indeed wrote to Treasury urging exactly this flexibility because if the aim is to simplify structures, then let’s do it properly.

These provisions are subject however to the Trust or Company in question being de-registered within a period of 18 months from the date of transfer. There is also some uncertainty as to the present suggested rule that 90% of the assets held by such Company or Trust must be constituted by the value of the residence. The Treasury have now accepted that this is overly restrictive.

We will have to await the final legislation to see exactly how flexible the provisions are going to be, but the important point is that Treasury have accepted the view that transfers can take place where the shareholder in the property holding Company is a Trust.

Full details on the present VDP, - Tax and foreign Assets Amnesty/voluntary Disclosure Programme.. Read more.

including Foreign Assets and Tax Amnesty,
Where: Conference Centre, Town House Hotel,
When: 13th October 2010, 7 to 9am (breakfast included)
Cost: R250.00 per person
Speakers: Guy Antonier, Walkers Financial Services, Denis Lloyd
and Andrew Duncan, Walkers Private Clients.
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Government darns Companies Act

by Renier Kriek

A draft bill, to be known as the Companies Amendment Bill, was published for comment by the dti on 19 July 2010. According to the preamble of the Bill, it seeks to address significant errors, grammatical problems ambiguities and other issues in the Companies Act, 71 of 2008 (the New Companies Act). The Bill further seeks to better provide for the administration of the Act.

Of the 225 sections of the New Companies Act, 113 receive treatment by the Bill, ranging from the insertion of missing words and the correction of numbering, to more far-reaching and substantive changes. Notably, 30 amendments are made to section 1 of the New Companies Act, which contains the definitions that lay the groundowrk for the scheme of the Act. Among these amendments is the insertion of new definitions, likely in an attempt at clarifying a number of concepts and provisions introduces in the New Companies Act.

Keen followers of our newsletter articles on the New Companies Act will remember our objections to the business rescue provisions, particularly those provisions that would have allowed business rescue practitioners the power to cancel contracts to which the companies under their control are bound. The Bill amends the relevant section so that rescue practitioners will only be entitled to suspend a company’s obligations. This seems to dampen the authority of the practitioner, but it remains to be seen whether even the amended section is commercially realistic.

Another notable feature of the Bill is that it seeks to address concerns that the draft Regulations to the New Companies Act, published by Minister Rob Davies as early as July 2009, were ultra vires and therefore potentially invalid. That state of affairs would seriously have hampered the implementation of the New Companies Act.

The Bill is still in the early stages of the legislative process. After public comment has been received, considered and possibly incorporated, the Bill will still be liable to modification as it passes through parliament. This casts some doubt as to the precise content the New Companies Act will have once it is brought in to force, which probably indicates that the October 2010 due date for promulgation of the Act, which so far has been a dti priority, will no longer be met. The precise date for the implementation of the New Companies Act has now entered the domain of soothsayers, but it seems unlikely that the Act will be promulgated before the second quarter of 2011 at the earliest.

At this stage, it seems, preparing for the coming of the new companies dispensation is prematute, at least until the content of the New Companies Act has been settled by the legislature. What has hopefully become clear to all concerned is the clumsiness of the original drafting and the incompetence of a process which allowed such a flawed piece of legislation to be passed into law. At this early stage we have not undertaken a detailed study of the proposed amendments, but comment will follow shortly.

by Charl Theron

In Roman times, now more than 2,000 years ago, the superintendents of the markets, called the aediles curules, laid down specific Laws of buying and selling, which still apply today. It stated that if a Seller sells something, he by implication gives a warranty against latent defects in the thing so sold. Very basically, a latent defect is a defect that could not be reasonably detected by the Purchaser at the date of sale and also the Seller would not be aware of. The Seller was under obligation to disclose any defect known to him to the Purchaser.

If such latent defect manifested itself after the sale was concluded, the Purchaser had two options.

Firstly, if the defect was of such nature that, had the Purchaser known thereof at the date of purchase, the Purchaser would not have bought it, then the Purchaser could return the purchased object and claim back all money paid.

Secondly, if the defect was such that the Purchaser would notwithstanding the defect have purchased the object, than the Purchaser on discovering the defect after the sale, will be entitled to a reduction of the purchase price and therefore a partial refund by the Seller.

In the times of the Dutch influence on our Law, the Dutch being the astute businessmen they were, introduced the concept of “Voetstoots” also known as “as is”. By introducing the Voetstoots clause, the Seller’s liability under the Roman Law principles referred to above is limited. In a nutshell, “Voetstoots” means that an object is sold with all its latent or inherent faults and the Purchaser cannot avail himself of the above two options and has to retain the purchased object “warts and all”, unless the Seller knew of the defect and with a fraudulent intent did not disclose this to the Purchaser.

This puts the Purchaser in a very difficult position of proof as it allows the Seller not to be liable for a latent defect even if he had knowledge of a defect, but merely forgot to disclose this to the Purchaser, or had no fraud in mind when not disclosing the defect.

The legislature has now ostensibly come to the “rescue” of Purchasers by means of the Consumer Protection Act No. 68 of 2008 (“CPA”). This Act will come into operation on 24th October 2010. In terms of Section 55(2) of CPA:

“…every consumer has a right to receive goods that are reasonably suitable for the purpose for which they are generally intended, are of good quality, in good working order and free of any defects, will be usable for a reasonable period of time having regard to the use to which they would normally be put and to all surrounding circumstances of their supply and to comply with any applicable standards set under the Standards Act 1993 or any other public regulation.”

In a sense, Section 55(2) of CPA restates the Law as applicable from Roman times before the Dutch introduced the Voetstoots principle in that a Seller gives “an implied warranty of quality” of the product being sold.

Section 55(5)(a) goes further and states that in determining whether Section 55(2) applies to goods “it is irrelevant whether a product failure was latent or patent, or whether it could have been detected by a consumer before taking delivery of the goods.”

At first glance, it seems as though CPA will knock the principle of “Voetstoots” for a six. If however this was the intention of the Legislature, why did it not clearly spell it out to say that “Voetstoots” clauses in contracts would no longer be valid? This would have been easy enough to do as the principle is well known and defined in our Law.

Then however, Section 55(6) seemingly allows a Seller a watered down “Voetstoots” principle. Section 55(6) states that Section 55(2) will “not apply to a transaction if the consumer has been expressly informed that the particular goods were offered in a specific condition and has expressly agreed to accept the goods in that condition or knowingly acted in a manner consistent with accepting the goods in that condition.”

The “Voetstoots” clause has particularly been used in respect of sales of immovable property. It has become such a standard clause that I am of the opinion that if a Lawyer drafts a Deed of Sale for a Seller and he leaves out the “Voetstoots” clause, he might be held liable on grounds of negligence if the Seller suffered damages because of this omission.

Let’s face it, very few houses/buildings are perfect in all respects, but very seldomly would such defects be of such serious nature that a house/building cannot be occupied at all. Therefore the “Voetstoots” clause did oil the wheels of property transfers, brought some certainty and also avoided much and costly litigation.

If it is so that the “Voetstoots” clause is nullified by Section 55(5)(a) of CPA, it is my submission that litigation in property related matters will increase significantly.

It may also lead to a situation which applies in Britain for instance, where no home loan will be provided by a financial institution without an inspection by an independent qualified expert, which could become quite expensive.

To avoid the above situation and the uncertainty whether the “Voetstoots” principle is still alive, I suggest that each Deed of Sale for a “second hand” house or building contains a carefully drafted clause to introduce the safeguard for the Seller as referred to in Section 55(6) of CPA. Such a clause will differ from transaction to transaction and will depend on the state, age and condition of the house or building. Reference to the principle of “Voetstoots” should be avoided. It will however cause each Seller to exercise his mind clearly on these matters and will assist the Purchaser in making up his mind to purchase or not.

If such a provision is not made, I fear that there will be a proliferation of litigation and the Lawyers who will specialize in this direction will be handsomely rewarded at the cost of the parties involved.