Spar Group Limited v Sea Spirit Trading 162 CC T/A Paledi and Others

The first and second respondents were two close corporations operating a supermarket (Paledi Superspar) and a bottle store (Paledi Tops). Mr Vermaak acquired a 50% member's interest in November 2013. The third and fourth respondents (Mr and Mrs Vermaak) were employed as managers of the businesses. Spar supplied trading stock on credit and on 4 December 2013, two general notarial covering bonds were registered over the movable property of the close corporations as security for their indebtedness to Spar. The bonds entitled Spar to take possession and carry on the business in the event of default. By June 2015, the businesses owed Spar R6,510,032. On 24 June 2015, Mr Vermaak informed Spar they could not meet their financial and wage obligations and would close down. On 30 June 2015, Spar obtained a High Court order perfecting the notarial bonds. From 1 July 2015, Spar took possession and ran the businesses, conducting a stock take and crediting stock back to its account. On 13 July 2015, Spar offered the Vermaaks temporary management agreements at reduced salaries for three months, which they rejected. On 22 July 2015, Spar appointed a new manager and requested the Vermaaks to leave. Spar eventually sold the businesses to Erasmus Group Holdings as going concerns in April 2016.

• Whether the perfection of a notarial bond by a creditor over movable property of a debtor constitutes a transfer of business as a going concern in terms of section 197 of the Labour Relations Act
• Whether the dismissal of the third and fourth respondents was automatically unfair in terms of section 187(1)(g) of the LRA
• Whether a creditor perfecting a notarial bond assumes the obligations of an employer vis-à-vis the debtor's employees
• What constitutes a 'transfer' from an 'old employer' to a 'new employer' within the meaning of section 197 of the LRA

The judgment of the Labour Court was set aside. The claim of the third and fourth respondents (the Vermaaks) was dismissed. There was no order as to costs.

The perfection of a notarial bond by a creditor over movable property of a debtor does not constitute a transfer of business as a going concern in terms of section 197 of the LRA where: (1) the creditor assumes responsibility for conducting the business temporarily with the limited purpose of recovering its debt; (2) the creditor is authorized only to realize its security and not to acquire ongoing responsibility for the business; (3) the business continues to be conducted in the name and for the account of the debtor; (4) responsibility would revert to the debtor upon settlement of the debt; and (5) any surplus revenue would be for the benefit of the debtor. A transfer under section 197 requires a transfer from an 'old employer' to a 'new employer' as two separate entities. Where a creditor acts qua creditor and not qua employer, there is no such transfer. Requiring creditors perfecting notarial bonds to assume responsibility for employment contracts would render this form of security unduly burdensome and less effective.

The Court observed that a creditor perfecting a notarial bond may in certain instances exceptionally assume ongoing responsibility for a business for reasons other than the recovery of its debt, stating 'That is not to say that a creditor perfecting a notarial bond may not in certain instances exceptionally assume ongoing responsibility for a business for reasons other than the recovery of its debt. It will depend on the circumstances.' The Court also noted that the situation bears resemblance, in a limited respect, to a change in shareholders through the sale of shares, where the new shareholder gains control of a business but the business (i.e. the employer) remains intact and does not transfer to the new shareholder. In such cases, section 197 does not apply because control or responsibility may shift but the legal identity of the employer remains the same.

This case is significant in South African labour law as it clarifies the scope and application of section 197 of the Labour Relations Act regarding transfers of business as a going concern. It establishes that a creditor perfecting a notarial bond over a debtor's movable property does not ordinarily become a new employer for purposes of section 197, even when the creditor temporarily assumes operational control of the business. The judgment protects the effectiveness of notarial bonds as a form of commercial security by preventing creditors from automatically assuming employment obligations when exercising their rights under such bonds. The decision distinguishes between assumption of control for the limited purpose of debt recovery and a true transfer of business. It reinforces that section 197 requires a genuine transfer from one employer to another as separate entities, and that the purpose and substance of the transaction must be examined, not merely its form. The case provides important guidance on when a change in control or responsibility for a business triggers section 197 protections.