Implications of Section 34 of insolvency Act on commercial transfers
Section 34 of Insolvency Act is an old peace of legislation, however Simphiwe Maphumulo (pictured) of Garlicke & Bousfield Inc has had enquiries from several clients who do not know of its existence and asked for an explanation why you need to advertise when selling your business or the core assets of the business.
The basis of the article is to alert clients about the implications of this Section and the fact that failure to adhere to it may render such sale invalid.
Section 34 of the Insolvency 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 2 issues in Afrikaans and in 2 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 (thirty) days and not more than 60 (sixty) 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 6 (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 6 (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 (thirty) and 60 (sixty) 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.
