HELPFUL TIPS FOR BRPs FACING A "RETENTION OF OWNERSHIP" CLAIM BASED ON AN AGREEMENT AND/OR INVOICE
A recent urgent application, in which we represented a company in business rescue and its practitioner, raised an important question: when do materials supplied by a third party cease to be movable property and become part of the building to which they were attached?
We successfully opposed the application, which was dismissed. The dispute reflected a recurring difficulty for practitioners: an ownership claim resting on a retention-of-ownership clause alone in an invoice or agreement.
THE LAW
Accession occurs when a movable item is incorporated into immovable property to such an extent that it loses its separate legal identity and becomes part of that property, with ownership vesting in the owner of the immovable property.
The traditional test, set out in MacDonald Ltd v Radin NO and The Potchefstroom Dairies and Industries Co Ltd 1915 AD 454, considers:
- the nature and purpose of the item;
- the manner and degree of its annexation; and
- the intention with which it was annexed.
No single factor is decisive; the enquiry is practical and considers the circumstances as a whole.
In Konstanz Properties (Edms) Bpk v Wm Spilhaus & Kie (WP) Bpk 1996 (3) SA 273 (A), the Court confirmed that intention is an objective enquiry. A party cannot undo the physical and commercial reality of an installation by asserting, after the event, that permanence was never intended.
A CLAUSE CANNOT ALWAYS UNSCREW A FIXED ASSET
Suppliers commonly rely on retention-of-ownership clauses providing that goods remain their property until paid in full.
- Such a clause may hold while the goods remain easily identifiable.
- The position can change once they are incorporated into a fixed property or other substantial structure.
- The agreement remains relevant but is not conclusive: once materials become part of the building, accession may prevail over the parties' contractual description.
- The claimant must still identify the property clearly and precisely.
Third-party ownership claims often arrive during preparation of the business rescue plan, or shortly before a sale of the company's property. The practitioner should not, without further investigation, accept the claimant's assertion of ownership, and must test it against the documents and the physical installation. The initial enquiry should establish:
- what item is claimed and where it is situated;
- who supplied and paid for it;
- what the agreement covers, and how and when the item was installed;
- whether it can be readily identified and removed without damage; and
- how it has been treated in the company's records.
Invoices alone prove that goods were supplied, not that the supplier remains their owner. Request the agreement, delivery notes, proof of payment, plans and photographs. A site inspection often beats lengthy correspondence: bolts, welding, foundations and electrical connections reveal more about accession than the labels the parties have used.
BUSINESS RESCUE TIGHTENS THE BOLTS
An ownership claim can have consequences beyond the immediate dispute. Removing an installed structure may:
- damage the property;
- reduce the value available to creditors;
- interrupt operations;
- undermine the rescue plan; or
- prejudice a purchaser or financier.
The practitioner should establish whether the item was included in a valuation, offered for sale, or treated as operational infrastructure. Where a sale is contemplated, any unresolved claim should be dealt with expressly in the sale agreement, so the purchaser knows what is included and excluded, and who bears the risk.
OWNERSHIP DOES NOT UNLOCK THE DOOR
Even a genuine ownership claim must be considered within the business rescue framework. Section 133 of the Companies Act 71 of 2008 restricts legal proceedings against a company in business rescue and proceedings relating to property it owns or lawfully possesses, so the practitioner's written consent or the leave of the court may be required. Section 134 similarly restricts the exercise of rights over property lawfully possessed by the company, even where another person alleges ownership. A claimant must therefore establish both a substantive right to the property and a procedural entitlement to enforce it.
BEFORE ANYONE REACHES FOR THE SPANNER
When confronted with a removal demand, the practitioner should:
- require the claimant to identify every item claimed;
- preserve the relevant contracts and records;
- photograph and inspect the installation;
- weigh the effect on operations and creditors;
- avoid conceding ownership before the enquiry is complete; and
- obtain technical evidence where the installation method is disputed.
The difference between a loose piece of equipment and a permanent fixture can materially affect the rescue and the return to creditors.
THE FINAL FIXTURE
Accession is not merely an abstract property-law doctrine. In business rescue, it may determine which assets are available for continued operations, restructuring or sale. A claimant must do more than produce a retention-of-ownership clause: it must identify the property, prove its rights and show that the item has retained its separate character as movable property.
For the practitioner, the lesson is simple: before allowing anything to be removed, establish whether it is still legally capable of being taken away.
