May 21, 2021 | Article
Bankruptcies in South Africa averaged 229 companies per month from 1980 until 2020. In August 2000, an all-time high of 511 companies declared bankruptcy, compared to the record low of 63 companies in May of 1988. Projected bankruptcies for 2021 is 220 companies per month and 240 companies per month for 2022. It is a known fact that more than 90% of business owners close their doors within five to seven years of opening them. Up to 90% of these business owners were likely stripped of their personal assets, resulting from sureties and guarantees that they signed as business owners. This could have been avoided had the business owner set up a trust to protect their assets from SARS, the banks, and other creditors.
The “newer type of trust”
A trust which carries on business activities is often referred to as a ‘business trust’ or ‘trading trust’.
Similar to any other type of trust, in layman’s terms a business trust can be described as a legal arrangement or instrument which is created to hold and manage assets for the benefit of certain individuals and/or entities – its beneficiaries.
A trust is not regarded as an independent entity or juristic person that can be owned, sold, or transferred as would be the case with a company or a close corporation in terms of the common law, nor in terms of the Trust Property Control Act. A business trust was referred to by the court in the Vrystaat Mielies case of 2004 as “a newer type of trust”.
Without legal personality a trust cannot own property. Any property held in trust is held by the trustees in their capacity as trustees. Section 12 of the Trust Property Control Act requires trust property to be held separately from the trustees’ personal estates.
An alternative to a company, regulated by the Companies Act
The introduction of the Companies Act of 2008 brought about a fundamental shift to the left in company law.
As an example, Section 76 of the Act states that a director must act with care, skill and diligence. Section 218(2) of the Act states that any person who contravenes any provision of the Act is liable to any other person for any loss or damage suffered by that person as a result of that contravention. Section 20(9) of the Act states that if there is an unreasonably excessive abuse of the company as a separate entity, the Court may declare that the company is to be deemed not to be a juristic person in respect of any right, obligation or liability of the company or make any further order the court considers appropriate.
Such a declaration may leave assets at risk. The Court even held in the Stephen Malcolm Gore case of 2013 that the Section 20(9) remedy should not be regarded as exceptional, or ‘drastic’ – therefore totally acceptable. It may therefore be prudent to consider other types of business forms.
A trading or business trust can therefore be structured to resemble a company or close corporation, whereby trustees can be compared to the directors of a company and beneficiaries can have the rights similar to shareholders. If structured correctly, a trading trust can provide a limited liability form of trading without the complexities or expense inherent in trading through companies and close corporations.
These trusts are inter vivos trusts, formed to ensure the continued operation of a business that has a profit incentive.
Trusts can be used for trading purposes
A trading trust can be used as an alternative to other business structures such as a company, close corporation, partnership or sole proprietorship.
It may be a good strategy to let the trust own the assets, which are leased to an operating company, to protect the assets from operating risks. The Magnum Financial Holdings (Pty) Ltd (in liquidation) v Summerly case of 1984 confirmed that a trust can be used for trading purposes by acquiring assets and incurring debt and can therefore be sequestrated. Trust creditors can therefore look to the trust’s assets for settlement of their claims and not to the founder, trustees or beneficiaries.
Trustees will only be liable for trust debt if they have personally bound themselves to be responsible for trust debt or if they have acted in a way to be held personally liable.
Lack of regulation
The main statute that governs South African Trust Law is the Trust Property Control Act 57 of 1988, which only regulates certain administrative aspects relating to trusts.
In 1987, the South African Law Commission recommended that the law of trusts should not be codified (arranged into a systematic code) and that only certain administrative aspects relating to trusts should be regulated.
Although the Act does regulate certain aspects of trusts, it gives no guidance as to trustees’ powers, which must derive from the trust deed itself. As a result trust deeds may contain very different provisions, with only a few court cases as guidance. Although most trust deeds have certain standard clauses, a trust deed is a mere contract in which the founder can express their unique wishes and terms.
Trading trusts also need not be audited, except when required by the Master of the High Court or the trust deed. Although this may make a trading trust cheaper and easier to run than other business forms, this lack of oversight may be detrimental to an outsider contracting with the trust.
~ Written by Phia van der Spuy ~
Apr 30, 2021 | Article
A written instruction to draft a will cannot be elevated to the status of a will, the Western Cape High Court has ruled.
Rapport reports that family members of as deceased person approached the court to declare that her written and signed instruction to Nedbank to draft a will should be viewed as such. The deceased had instructed the bank a day before her death to make her minor son the beneficiary of her assets.
The 44-year-old woman died from cancer before the will was drafted and signed. The Judge said in his judgment the family wanted the court to take a ‘liberal approach’ to the instruction document, but he was not convinced it was justified. The husband of the deceased opposed the application.
He will likely inherit his late wife’s share of their joint estate as Elaine died intestate.
Source: LegalBrief
Apr 30, 2021 | Article
An assistant butchery manager at processed meat manufacturer, who went to work after testing positive for Covid-19 and even hugged a colleague who suffered from comorbidities – was dismissed fairly, The Star reports according to the Labour Court following a dismissal dispute.
The case concerned the fairness of the dismissal of an employee on account of gross misconduct and related negligence, related to his failure to observe Covid-19-related health and safety protocols put in place at the workplace.
The Judge remarked: ‘The facts of this case are indeed extraordinary. They are indicative of the need for more to be done at both the workplace and in communities, in ensuring that employers, employees, and the general populace are sensitised to the realities of this pandemic, and to further reinforce the obligations of employers and employees in the face of an exposure to Covid-19.’
The man was found guilty of gross misconduct by his employer as he did not tell them he took a Covid-19 test and was waiting for his results. He was also convicted and fired because after testing positive, he continued working and placed the lives of his colleagues at risk.
Source: LegalBrief
Apr 23, 2021 | Article
Wilkinson and Another v Crawford N.O. and Others [2021] ZACC 8
The facts of this matter were summarised in our previous reports about the judgements of the Cape High Court (WCHC) and the Supreme Court of Appeals (SCA). In short in 1953 a testator bequeathed part of his estate to a trust. The capital beneficiaries of the trust were to be his grandchildren. It was common cause in the Constitutional Court (CC) that he intended not to include adopted grandchildren. After his death his daughter adopted two children. Upon her death as the longest survivor of his children the trust was to be terminated. Before her death the daughter started the proceedings in the Cape High Court to attack the terms of the trust on the basis that they were discriminating unfairly on a ground prohibited by section 9 of the Constitution.
In an appeal to the CC against refusal by the WCHC and the SCA to order that the adopted children be regarded as descendants of the testator, the appellants argued that the terms of the trust were open to an interpretation that adopted children were to be included as capital beneficiaries, alternatively that exclusion of the adopted children amounts to unfair discrimination on a section 9 prohibited ground (birth).
The majority of the CC (Mhlantla J, with Khampepe J, Madlanga J, Theron J and Victor AJ concurring) ruled that although adoption is not specifically listed in section 9 it is analogous to birth, which is a prohibited ground of unfair discrimination in section 9.
In a first dissenting judgement Majiedt J disagreed and held that adoption cannot be equated to birth. The infringement on the testator’s right to bequeath as he pleases as an expression of his right to privacy, dignity and property is also unjustified.
In a second dissenting judgement Jafta J (Mogoeng CJ concurring) held that the relevant clause (6) of the trust deed, if construed correctly, already covered the adopted children and qualified them as capital beneficiaries.
The result of the majority judgement is that the adopted children will each receive one quarter of the trust capital.
Source: FISA
Mar 16, 2021 | Article
- The new national minimum wage is R21.69 per hour, an increase of 4.5%.
- Farm workers’ minimum wage is now equal to the national minimum wage for the first time.
- The minimum wage for domestic workers is still below the national wage, but has been hiked by 23% this year – and should be on par by 2022.
The government has gazetted the new national minimum wage: R21.69 per hour. This is an increase of 4.5% from last year.
Last year, the National Minimum Wage Commission recommended that the minimum wage be increased by inflation (currently around 3%) plus 1.5%.
It noted that inflation for poorer households is currently significantly higher than for higher-income earners, due to the relatively sharp increase in food prices. Because the households of minimum-wage earners spend more of their income on food, this hurts them more than higher earners.
Also, the minimum wage is still below the upper-bound poverty line (of R1,268 per person per month).
Domestic workers
The minimum wages of domestic workers increased from R15.57 per hour to R19.09, a hike of almost 23%. The commission wants the minimum wage for domestic workers – who still, even after the latest increase, earn 12% less than other minimum wage workers – to be exactly the same as the national wage by next year.
Apart from house cleaning work, domestic workers also include gardeners, drivers and people who look after children, the aged, sick, frail or disabled in a private household (but not on a farm).
Farm workers
From this year, the minimum wage for farm workers is now equal to the national minimum wage, after earning 10% less in the past year. This is thanks to a 16% bump of R18.68 to R21.69 this year.
In a note, the employment law service Labourwise reminded employers that the national minimum wage excludes allowances that are paid to enable employees to work (such as transport and equipment), or payment in kind (such as board or accommodation), as well as bonuses, tips or food.
“So, for example, one cannot argue that you pay an employee less than the minimum wage because you contribute to their uniform or provide them with meals.”
Source: Business Insider
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