across the bar

can we sue iceland?

by Steve - Posted 23 April 2010

There you are, a little Eskimo sitting chilling at your fishing hole - the next thing you know you are being showered in molten lava and ash. Who would have thought that Iceland was such a dangerous place beyond Bjork and the odd hungry polar bear!

The recent eruption of Eyjafjallajokull (hat tip for proper pronunciation) left millions of airline passengers grumpier than a hungry polar bear. Now that the dust has settled, passengers want to be paid compensation for losses suffered through cancelled direct and connecting flights, other transport costs, hotel reservations and unpaid salaries.   

With the sheer magnitude of the losses already suffered by the airlines (which is said to be more than the loss suffered in the aftermath of September 11), it comes as no surprise that the airlines are arguing that they are not liable because a volcanic eruption is an Act of God which made it impossible for them to perform under their contracts with passengers.

In SA law, an Act of God (or force majeure in fancy legal latin), is regarded as an event that directly and exclusively results from the occurrence of natural causes that could not have been prevented by the exercise of foresight or caution. If a contract becomes impossible to perform as a result of an Act of God, neither party may be held liable for any loss suffered by the other.

However, if the impossibility is temporary, the parties may not be entitled to cancel and may have to accept delayed or alternative performance (in this case, a new flight). What is regarded as temporary will be a question of fact in each case.

In World Leisure Travel v Georges (2002 WLD), Mr Georges cancelled a family package tour to Mauritius he bought from WLT when his flight to the island was cancelled due to a cyclone that hit the night before he was due to depart. A clause in the fine print of his contract stated that cancellation of the tour within 2 weeks of the date of departure would lead to the entire tour price being forfeited.

After the flight was cancelled, Mr Georges sent a fax to WLT also cancelling his tour and claiming a full refund of the tour price. The legal basis for the cancellation was that the contract had become impossible to perform. Unfortunately the court disagreed and held that, because SAA had laid on a special flight 2 days later, the impossibility was only temporary. Mr Georges was therefore not entitled to cancel the contract and forfeited the full tour price.             

If you are one of the unfortunates that have just spent the last 6 days on a cold airport floor, this may not come as good news. But hey, spare a thought for the Eskimos or quit your job and open a travel insurance agency.
 

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New Companies Act

by Nicci - Posted 25 March 2010

The new Companies Act, which comes into effect mid-2010, will have a significant impact on company law in South Africa.    Over the next few weeks, we will be highlighting areas of the Act which we believe could affect you and ways in which you can anticipate and prepare for these changes.

Topics we will be covering include:

a)      The importance of the Memorandum of Incorporation and the flexibility it gives shareholders and directors in structuring the way in which the company operates.

b)      Directors’ rights and duties.

c)       Shareholding:   different classes of shares, what rights do shareholders have?, what protection does a minority shareholder have against decisions made by the majority?, what happens to your shares on death/insolvency?,  to whom may you sell your shares?   What happens to the value of your shares if the company issues new shares?

d)      How does the Act affect Close Corporations?   Is it necessary to convert your CC into a Company?

e)      Administrative obligations and accountability.

f)       Business rescue.

Follow this link to the Act as well as the draft regulations published in January 2010.

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Family Trusts vs Testamentary Trusts

by Nicci - Posted 16 March 2010

A Trust can be formed in one of two ways:  either while you are alive (inter vivos) where an individual wants to place assets in a trust for specific beneficiaries or in terms of a Will (mortis causa).

Trusts are used primarily in Wills to protect the inheritance of minors and only come into effect after the death of the testator.  The bequeathed assets are then protected until the beneficiaries are old enough to inherit, i.e. 18 years old.  This is also a useful tool if the testator wants to prolong the time period before the actual asset transfers to the beneficiary, as the testamentary trust can be structured in such a way that the inheritance only passes to the beneficiary at an age older than 18, i.e. when the beneficiary turns 30.

Any asset can be placed in an inter vivos trust - immovable property, cash or shares and the asset, once transferred, belongs to the Trust and will not be taken into account for the purposes of valuing your personal estate.  This type of trust works well when the asset held by the trust is a family beach house or farm.

All trusts have to appoint trustees, who manage the assets of the trust on behalf of the beneficiaries.  In a testamentary trust, the Will itself is the trust deed and contains instructions on how the trust is to be managed and the powers and duties of the trustees.  In an inter vivos trust, a trust deed is drafted and registered with the Master of the High Court and sets out the powers and duties of the trustees.  The trustees can only act on behalf of the trust once the Master has issued Letters of Authority to do so.

It is recommended that at least three trustees are appointed in a family trust and at least one of these trustees should be an independent party, eg. an attorney, accountant or a trust company.  A separate bank account in the name of the trust must be opened and all financial transactions relating to the trust must be recorded through this bank account.   SARS also requires all trusts to be registered for income tax purposes, so careful record keeping is a prerequisite for trustees.

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Proposed tax breaks for primary residences

by default - Posted 06 October 2009

Individuals who own their primary residence in a Company, CC or Trust, can transfer their property into their own name/s without having to pay Capital Gains Tax, Transfer Duty or Secondary Tax on Companies from 11 February 2009 to 31 December 2012.   

The Taxation Laws Amendment Bill has now been extended to include Trusts as well.  The amended section includes the transfer from a Trust to a beneficiary of that Trust if the beneficiary is resident in the home and had contributed to the cost of acquisition and maintenance of the home.

The requirement for an individual to qualify is that they must personally have resided in the home from 11 February 2009 to the date of transfer.  Tenanted properties or holiday homes would therefore not qualify.

For more information, contact Nicci on (021) 465 9175

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pre-incorporation contracts under the new Companies Act

by default - Posted 06 October 2009

A pre-incorporation agreement is an agreement concluded on behalf of a legal entity (eg. a Company) that is still to be formed.    S35 of the Companies Act 61 of 1973 allows for a person to act as an agent of a company that doesn’t yet exist and for companies to conclude pre-incorporation agreements.

The requirements are:

-          The agreement must be in writing;

-          The memorandum of association of the company on its registration contains as an object of the company the adoption or ratification of the agreement;

-          The person who concluded the agreement professed to act  as an agent of the company;

-          2 copies of the agreement must be lodged with the Registrar of Companies with the application for registration of the Company.

 S35 does not determine the nature of the rights and obligations of the agent.  The agent , acting on behalf of the company to be formed,  is not bound to the other contracting party if the company is not formed or if the company refuses to ratify the agreement.    Hence the reason for inserting a clause in a pre-incorporation agreement specifically holding the agent personally  liable should the company a) not be incorporated or b) the company refuses to ratify the agreement.

S21 of the new Companies Act 71 of 2008 changes the current position.   It provides that a person (“promoter”) may enter into a written agreement in the name of, or purport to act in the name of a company to be incorporated and the Board may ratify or reject the pre-incorporation agreement within 3 months of incorporation.  If the Company does nothing, it is deemed to have ratified the agreement and the promoter is not personally liable ito the agreement.  However, if the company is not incorporated or, after being incorporated, it rejects the agreement, the promoter is automatically personally liable ito the agreement entered into.

For more information, contact Nicci on (021) 465 9175.

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RICA AMENDMENT ACT COMES INTO FORCE

by default - Posted 10 July 2009

What the above means is it will no longer be a matter of walking into a Clicks store and purchasing a prepaid sim card and cell phone. Pre paid users will have to supply all the necessary information as will contract users. So no identity number and no proof of address mean no active sim card and no cell phone number!!!!

On 1 July 2009 the Regulation of Interception of Communications and Provision of Communication- Related Information Amendment Act came into operation.The Act has far reaching consequences for both service providers and consumers. Whether you consider the Act a violation of privacy or not, it is now law and non-compliance with its provisions can result in some hefty forms of punishment.

So what is all the fuss about? In terms of the Act, cell companies must record a whole host of user information before activating sim-cards or allowing traffic on their networks.

South African cellphone users will need to disclose their full names, identity number and physical address and this information must be verified by the cell companies from documents requested (a bit like FICA).

Existing customers who activated cell phones or sim cards prior to the commencement of this Act also need to supply all the necessary information to their service providers. If this information is not provided, the service will be discontinued and your number terminated.

If you are selling an active cell phone to one of your friends, then either immediately upon the sale or when you hand the cell phone or sim card to your friend, they are now by law required to report their details to the service provider and provide all the necessary information. If your friend or alternatively you, as the seller, fail to comply with this section you will be guilty of an offence and liable to a fine or imprisonment.

Any juristic person who fails to comply to produce the necessary identification details will be guilty of an offence and liable on conviction to a fine not exceeding R 2000 000 or to imprisonment for a period not exceeding 10 years.

One of the main incentives for the need to supply identification details seems to be that criminals use pay-as-you- go sim cards to plan and carry out crimes.

The reaction to this piece of legislation has been mixed with some arguing that it’s provisions, ranging from the need to produce identification details to allowing certain cell phone calls to be monitored, is a violation of privacy…..Well that’s an argument for another day!!!!

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Can a company help buy its own shares?

by Steve - Posted 13 June 2009

Section 38 of the old Companies Act severely restricted a company from providing financial assistance for the purchase of its own shares. The Act was amended in 2006 to allow for assistance to be given by the company under the following circumstances:

1. Where the board is satisfied that, immediately after providing the financial assistance, the Company will remain solvent; and

2.The terms on which the assistance was given were fair and reasonable to the company and were approved by special resolution.

These amendments have been carried through to section 44 of the new Companies Act of 2008.

Solvency and liquidity test

In assessing the solvency of a Company, the board must be satisfied that, after the assistance is given:

1. the assets of the company will exceed its liabilities; and

2.the company will be able to pay its debts as they become due in the ordinary course of business.

Personal liability

A Director may be held personally liable if he was present at the meeting when the decision or agreement was reached to provide financial assistance contrary to the requirements set above and he did not vote against that decision or agreement, despite knowing that providing the assistance was contrary to the Act or the company’s Memorandum of Incorporation.

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New Companies Act tightens up director's duties

by Steve - Posted 13 June 2009

In recent years the various King Reports on Corporate Governance have recommended more accountability for directors of companies. These recommendations have found their way into the new Companies Act which was signed in April 2009. 

The Act introduces a number of important changes to the roles and duties of persons acting formally or informally as directors. The changes have been anticipated by most directors holding office in public companies. However, directors of smaller private companies are still going about their business as usual. With the threat of criminal sanctions and personal liability, we encourage all our clients who act as directors of their companies or other companies to come up to speed with the requirements of the new Act before it takes effect.

NicciFerguson offers one-on-one director training and support to entrepeneurs running private companies. Contact Steve or Nicci to find out more.    

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Search engine to find venture capital funds

by Steve - Posted 10 March 2009

Interesting idea for entrepreneurs looking for venture capital.

http://bits.blogs.nytimes.com/2009/03/09/a-search-engine-for-seekers-of-venture-capital/

SA venture capital funds could do something similar. If the whole process is made easier, should uncover more diamonds in the rough. 

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Writing software at work - new SCA judgment

by Steve - Posted 07 December 2008

The Supreme Court of Appeal in King v SA Weather Service was asked to decide who was the owner of certain software written by an employee (King). The main question to be answered was whether he had written the programs within the course and scope of his employment? 

The court held that although King's job description (as a meteorigical technical officer) did not formally include computer programming when he was employed, his job had evolved to the point where he was spending 50% of his employment time on system development and programming (this contradicted King's evidence that he had developed the programs at home and in his own time).

The court also found that the relevant software was directly related to the employer's business and had been developed by King so that he could do his job better. He had also been asked to write other programs by his employer according to a prescribed format which had to be approved before the programs were implemented. None of the programs developed by King were used or exploited outside his employment. 

The court held that King had written the programs within the course and scope of his employment and that the employer was the owner of the software.

The court did not want to set down any rules relating to this issue and instead said that each case would need to be decided according to its own facts. The court also said that the creating the work at home would not be conclusive in deciding who was the owner of the work.           

Our R0.02

Because there are no hard and fast rules on this, you should probably agree with your employer upfront before you start a project on your own time, that they will not assert ownership over any copyright that comes of it (good luck with that!).

You would probably be well advised to avoid writing anything which is remotely useful to your employer's business or from which they can gain some form of advantage. 

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