The legal obligation to provide for employee-related contingent liabilities when an enterprise is sold as a going concern

• Jurisdiction: South Africa
• Date: 25 May 2019
• Published date: 25 May 2019
• Citation: (2014) 26 SA Merc LJ 436
• Pages: 436-449
• Author: Wilhelmina Germishuys

THE LEGAL OBLIGATION TO PROVIDE FOR

EMPLOYEE-RELATED CONTINGENT

LIABILITIES WHEN AN ENTERPRISE IS SOLD

AS A GOING CONCERN

WILHELMINA GERMISHUYS*

Lecturer, Department of Mercantile Law, University of South Africa

MARIÉ MCGREGOR**

Professor, Department of Mercantile Law, University of South Africa

I INTRODUCTION

When a business or enterprise is disposed of as a going concern in South

Africa, various issues arise in labour law. But a related tax issue is the

deductibility of employee-related contingent liabilities for the purposes

of income tax under sections 197 and 197A of the Labour Relations Act

(LRA).

1

In terms of section 197, employers must provide for and pay

employee-related contingent liabilities when transferring a business as a

going concern.

Tax legislation mentioned here (though applicable to many other

scenarios) will be discussed only in relation to the position where a

business is transferred as a going concern. This was the context of

Ackermans Ltd v Commissioner, South African Revenue Service; PEP

Stores (SA) Ltd v Commissioner, South African Revenue Service (the

Ackermans case).

2

We will therefore focus on labour law and the obliga-

tion to provide for employee-related contingent liabilities in terms of

section 197 and 197A of the LRA. We will deal with the Income Tax Act

3

(ITA) only in a descriptive and restrictive manner.

* BCom LLB (UP) LLM (Unisa). Lecturer, Department of Mercantile Law, School of Law,

College of Law, University of South Africa.

** BLC (UP) LLB (Unisa) LLM (UP) LLD (Unisa). Professor, Department of Mercantile

Law, School of Law, College of Law, University of South Africa.

1

Act 66 of 1995 (LRA).

2

2011 (1) SA 1 (SCA).

3

Act 58 of 1962 (ITA).

436

(2014) 26 SA Merc LJ 436

© Juta and Company (Pty) Ltd