Going Concern(ed): Potential Challenges in Sale-Of-Business Transactions

• Jurisdiction: South Africa
• DOI: 10.10520/ejc-btclq_v16_n2_a2
• Author: Siyabonga Nyezi
• Pages: 1-8
• Date: 01 June 2025
• Published date: 01 June 2025
• Published By: Siber Ink

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© Juta and Company (Pty) Ltd

Going Concern(ed)

POTENTIAL CHALLENGES IN SALE-OF-BUSINESS

TRANSACTIONS

SIYABONGA NYEZI*

ABSTRACT

One of the fundamental tenets of any sale-of-business transaction is that the

business to be transferred must be a going concern, and be transferred as

such. Not only is the concept of a going concern given life in the provisions

of a sale-of-business agreement, it is also found in various pieces of legislation

that apply to the transfer of a business. Examples include the Value-Added Tax

Act 89 of 1991, the Labour Relations Act 66 of 1995 and, to some extent, the

Companies Act 71 of 2008. Each of these statutes contains provisions where

the status of a business as a going concern is a key consideration. As such,

one might expect that the term ‘going concern’ ought to be defi ned in each

of these Acts. That assumption would be incorrect, as none of these statutes

provide a direct and objective defi nition of the term ‘going concern’.

This article examines the absence of a defi nition for ‘going concern’ in

South African legislation applicable to the transfer of a business, and the risks

arising from the lack of legislative clarity. The article considers the relevant

provisions of the aforenamed statues. Absent a legislative defi nition, the article

examines the attempts made by the courts to defi ne the term ‘going concern’

in two cases, namely, Kopeledi (Pty) Ltd v Madontsela and Others (2009) 30 ILJ

158 (LC) and NEHAWU v University of Cape Town (2003) 24 ILJ 95 (CC), and

the challenges resulting from those defi nitions.

Thirdly, the article also explores the approach taken in the International

Accounting Standards (IAS), and discusses the challenges also present therein.

The article submits that, despite being an internationally accepted set of

standards, IAS is not particularly instructive to the present cause.

The article then delves into the potential impact of all these lacunae on

sale-of-business transactions, and concludes with an attempt at legislative

drafting, proffering a proposal for what a defi nition of ‘going concern’ might

look like.

Introduction

A sale-of-business transaction, where an acquirer purchases the business

of the seller and its assets as a going concern, is often preferable when

the acquirer does not wish to take over the seller or any of its other parts.

The sale-of-business provides the acquirer with a mechanism for a ‘clean’

extraction of the business without getting involved in the seller company

and its affairs. However, it is not without its challenges. As a starting point,

the parties to a sale-of-business agreement agree that the subject matter of

* Attorney of the High Court of South Africa.

2025 16(2) BTCLQ 1

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