Section 228 of the Companies Act



A recent court case has highlighted an aspect of selling a company-owned property which is sometimes overlooked: in terms of section 228 of the Companies Act, the directors cannot legally sell the property unless the shareholders have given their specific approval to do so at a general meeting. Mr Bill Rawson, president of the Institute of Estate Agents, says that many properties are registered in the names of companies and that a prospective buyer of such a property should make sure that the shareholders have specifically authorised the sale. The case, as reported in the June/July issue of the Estate Agency Affairs Board publication Agent, revolved around the sale of a company-owned property in Hout Bay. The company's sole director (and minority shareholder) signed the deed of sale, but later withdrew it because the majority shareholder had not approved the sale. The buyer sued on the well-established principle that a person dealing with a company is entitled to assume that it has carried out all the necessary internal formalities. However, the Court dismissed this argument and ruled in favour of the seller. "In many cases," says Rawson, "the shareholders and the directors are the same, especially in the case of a residential property which was registered in the name of a company in the days when this was a means of avoiding transfer duty. However, it is always a good idea to check up on this point, and even to ask to see a copy of the resolution authorising the sale. As the Hout Bay case has shown, the absence of the resolution provides the seller with a loophole to back out of the sale if it wishes to. "It is also in the estate agent's interest to check up on this point because, as the Estate Agency Affairs Board points out, the agent's commission is payable only if a binding and enforceable contract has been concluded and, if the sale does not comply with the Companies Act then it is not enforceable and the estate agent would have no claim for commission if the sale is cancelled as a result."