This article considers the application of the voetstoets
principle under the law of insolvency, particularly in the light of
the Consumer Protection Act 68 of 2008 (CPA).
A voetstoets clause in a sale agreement effectively declares to the purchaser of goods that the goods are to be sold "as is" and without any undertaking of quality. The voetstoets clause will protect a seller who knows of a latent defect in the merx but does not disclose it, unless he concealed it with the intention of defrauding the buyer (Van der Merwe v Meades 1991 (2) SA 1).
Section 55(2)(b) of the CPA provides that the consumer has a right to receive goods that are of good quality, in good working order and free from any defects. This section is not applicable to a transaction if the consumer expressly agreed to accept the goods in that condition and knowingly acted in a manner consistent with accepting the goods in that condition. In short, the voetstoots rule will in most cases not be applicable to sale and purchase transactions.
In terms of the Insolvency Act 24 of 1936 and the Companies Act 61 of 1973, the functions of a trustee and of liquidator are essentially to control and administer the property and affairs of the insolvent estate, and to realise the estate's assets for the benefit of the general body of creditors. Section 391 of the Companies Act 61 of 1973 describes the liquidator's general duties as to proceed forthwith to recover and reduce into possession all the assets and property of the company, movable and immovable, to apply the same, so far as they extend in satisfaction of the costs of the winding-up and the claims of creditors, and to distribute the balance among those who are entitled thereto.
Liquidators and trustees have powers to sell any movable and immovable property of the company by public auction, public tender or private contract and to give delivery thereof.
In terms of section 82(1) of the Insolvency Act 24 of 1936 a sale by public auction or public tender must be after notice in the Gazette and after any other notice, which the Master may direct and, in the absence of directions from creditors as to the conditions of sale, upon such conditions as he may direct.
The question then arises as the extent to which the protections afforded to consumers by section 55(2) of the CPA are applicable to purchasers of goods from trustees and liquidators.
First, the CPA does not exempt liquidators or trustees from its application, and the definition of "supplier" in section 1 thereof would, on the face of it, include a supply by a liquidator of goods belonging to an insolvent company to a purchaser thereof.
The second point of reference is that section 55(1) of the CPA provides that section 55(2) does not apply to goods bought at an auction. Auctions are dealt with in section 45 of the CPA and include a sale in execution pursuant to a court order. Although not expressly stated by the CPA, it can safely be assumed that an "auction" under the CPA would include a public auction of goods belonging to a liquidated company. It follows that the liquidators and trustees are likely to be protected from the ambit of the CPA were they do sell the estate's assets by public auction.
However, where a decision is taken to sell the goods by private treaty – often a sensible route where a higher price is likely to be obtained – the liquidator/trustee is potentially at risk under the CPA. In short, despite the liquidator's/trustee's relative lack of knowledge of the goods in question, they may still be held by a purchaser to the strict requirements of section 55(2) of the CPA.
Against this background it is essential for liquidators and trustees to ensure that the contracts, which they use for private sales, contain a voetstoots clause and, more importantly, that the purchaser/consumer expressly acknowledges that the goods are received in that condition. In order to achieve this it may well be prudent for liquidators/trustees to insist on purchasers conducting a detailed inspection of the goods before they are allowed to buy the item in question.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.