Cornelius Vermaak and Marline Vermaak (“the Vermaaks”) were employed by Paledi Superspar and Paledi Tops (“Paledi”), respectively, as managers of the businesses. Paledi obtained trading stock on credit from the Spar Group Ltd (“Spar”).
As security for their acknowledged indebtedness to Spar, on 4 December 2013, two general notarial covering bonds were registered over the movable property of Paledi in favour of Spar. On default, Spar was entitled to take possession of and retain all and any of the movable property and sell and dispose of it. Certain clauses in the bonds also provided that Spar was entitled to conduct the Paledi businesses, in their name – including the power to purchase goods, and to dispose of the businesses.
Towards the end of 2015, Paledi informed Spar that they were no longer in a position to meet their expense and wage obligations. Subsequently, Spar obtained an order from the High Court, perfecting the notarial bonds.
The court order granted Spar the right to manage Paledi temporarily, with the limited purpose of recovering its debt.
Spar then presented the Vermaaks with a draft management agreement whereby they would both be paid lower salaries for an initial three months. The Vermaaks declined the offer and as a result, a new manager was appointed and the Vermaaks were released from their duties.
The Vermaaks contended that the perfection of the notarial bonds led to a transfer of business from Paledi to Spar in terms of s 197 of the Labour Relations Act (“the LRA”). Consequently, that in terms of s 187(1)(g) of the LRA, their dismissals were automatically unfair.
In reaching their conclusion, the LAC considered the following facts:
i. that Spar only assumed responsibility of Paledi for a limited period and purpose;
ii. that Spar was not authorised to dispose of the movable property in its own name;
iii. that Spar was not authorised to dispose of any immovable property;
iv. that the leases in the name of Paledi were not transferred to Spar: and
v. that it was common cause that if the debt was settled, the responsibility for running Paledi would have been returned to them.
Ultimately, Spar had acted as a creditor and not as an employer. Thus, the perfection of the notarial bonds didn’t result in a transfer from one legal entity (Paledi – the old employer) to another legal entity (Spar – the new employer).
The LAC held that perfecting a notarial bond, by a creditor taking possession of a business to recover monies due, does not trigger s 197 obligations.
Whether or not a business is transferred as a going concern will always depend on the specific facts of the transaction.
Written by Jordan Dias and supervised by Pierre van der Merwe, 30 July 2018