If a company wishes to sell an asset that forms the biggest part of its assets, there are certain formalities that need to be met.

Section 112 and 115 of the Companies Act 71 2008 finds application. According to section 112(2) a company may not dispose of all or the greater part of its assets unless the disposal has been approved by a special resolution of the shareholders (with a 25% voting rights exercised in favor of the transaction), such a disposal is not prohibited by the Memorandum of Incorporation, prescribed notice must begin to shareholders which details the terms of the transaction and after the disposal of asset the company must pass the solvency and liquidity test. If a company wishes to sell such an asset, the company needs to comply with the above, however the Act is silent regarding the effect of non-compliance, but the inference can be made that such transaction is voidable for two reasons:

1. The obligatory wording of section 112(2) stating that a company “may not” dispose of such greater part of its assets without meeting the requirements and;
2. The fact that section 112(5) states that such special resolution may ratify the transaction.

It seems only fair that should the resolution not be ratified, that the third party has a claim for damages against the said company in line with the Turquand Rule – which effectively states that third parties contracting with a company can assume that all the internal and external requirements have been met to authorize the transaction, unless it would be unreasonable to assume so.

Regarding the sale of immovable property, it is important to note that the special resolution together with proof of compliance in terms of Section 112 and 115 are lodged as supporting documents to effect transfer in the Deed’s Office, and transfer of such immovable property will not be effected unless there has been compliance with above-mentioned.