Section 228 of the Companies Act 61 of 1973 (the Act ), used to provide that the Directors of a company could not, without the authority of the general meeting, enter into a binding agreement to dispose of: the whole or substantially the whole of the undertaking of the company; or the whole or the greater part of the assets of the company.

The amendment to Section 228, which came into effect on 14 December 2007, now provides that the Directors require a special resolution to dispose of, the whole or the greater part of the undertaking of the company; or the whole or the greater part of the assets of the company. In order for a special resolution to be effective, it requires 75% of the shareholders to vote in favour of the resolution at a meeting for which not less than 28 days notice has been given. Within a month after the passing of the resolution, the resolution is lodged with the Registrar of Companies (CIPRO) for registration.

If the special resolution has not been passed, a ratifying special resolution authorising the transaction would have to be passed and registered. In the event of a sale of property, this ratifying resolution would have to be registered prior to the registration of transfer taking place at the Deeds Office.

In the matter of (Simcha Properties 6 CC v San Marcus Properties (Pty) Limited 2010 JOL (SCA)), the issue the Supreme Court of Appeal (SCA) was required to decide on, was whether a resolution that was made before the amendment to the Act, needed to be registered with the Registrar of Companies, if suspensive conditions in respect of an authorised sale of property were only fulfilled after the amendment to the Act.

Simcha Properties had contended that the representative of San Marcus Properties who had concluded the contract of sale had not been properly authorised to do so. The contract had been concluded on 11 September 2007, but was subject to a suspensive condition which had been fulfilled only on 15 December, subsequent to the amendment to the Act having taken place. This amendment stipulated that a company could not dispose of its assets or the greater part of its assets, without such disposal being approved or ratified by a special resolution of shareholders.

The land sold to Simcha Properties was the sole asset of San Marcus Properties, but no such special resolution had been passed approving or ratifying the sale.

The SCA upheld the decision and findings of Swart AJ in the High Court, wherein Swart AJ had held that the conclusion of the contract had indeed been properly authorised by what was effectively a general resolution passed prior to 11 September 2007. He further held that the amendment to the Companies Act did not operate with retrospective effect, and therefore that the new requirement of a special resolution did not affect the validity of the authorisation conferred on the representative of San Marcus Properties to conclude the contract of sale.

From a practical implementation perspective, it would be prudent to include in your sale agreements a clause to the effect that if the seller is a company, the duly authorised signatory warrants that the disposal of the property does not constitute a disposal of the whole or substantially the whole of the undertaking of the company, or the whole or the greater part of the assets of the company. Alternatively, if sale of the property does constitute a disposal of the whole or substantially the whole of the undertaking of the company, or the whole or the greater part of the assets of the company, then the transaction has either been authorised by a special resolution in terms of Section 228 of the Act, which resolution has or will be registered prior to the transfer of the property. Alternatively, the transaction is subject to the disposal being ratified in terms of Section 228(2) of the Act, and the registration special resolution, prior to transfer of the property.

Written by: Muhammad Ziyaad Gattoo of Cliffe Dekker Hofmeyr