Buying a business in South Africa: the staff, their old claims and the seller's creditors

If you buy a business in South Africa as a going concern, the staff come with it. Section 197 of the Labour Relations Act moves every employee's contract to you, with their years of service. For staff claims from before the sale, you and the seller both answer.

A real case below shows where the rule starts. A supplier that ran two stores for a limited time to recover its debt did not take over the staff under section 197. The buyer that then bought the stores as going concerns did, as its sale agreement said.

If the seller is a trader, a second rule protects the seller's creditors: section 34 of the Insolvency Act asks for public notices before the transfer. Without them, the transfer is void against those creditors for six months.

General information, not legal or tax advice. We read both Acts and the court decision on 29 October 2026. Ask a South African attorney about your own deal.

In short: four things before the deposit

1. A staff list. Start date, pay and leave built up, person by person. These people become your employees.
2. What the staff are owed today. The amounts, and who pays each, agreed in writing.
3. Insolvency. Is the seller insolvent or in an arrangement with creditors? Then a different section applies.
4. The sale notices. If the seller is a trader: the dated notices in the Government Gazette and in two issues each of an Afrikaans and an English newspaper.

What section 197 says, in plain words

Section 197 applies when a business passes from one employer to another "as a going concern": handed over as a working business, not only its goods. "Business" includes "a part of any business", so buying one shop out of several can count.

When it applies:

• Everyone employed the day before the transfer is your employee the day after (s. 197(2)(a)).
• Their years of service count with you, and so does what they are owed (s. 197(2)(b), (d)).
• An old dispute with the staff, such as a dismissal, becomes yours (s. 197(2)(c)).
• For staff claims from before the sale, you and the seller can each be held to the whole claim: the Act says "jointly and severally liable" (s. 197(9)).

There is one exception: a written agreement with the staff side, such as a registered trade union or the employees themselves (s. 197(6), s. 189(1)). A clause between you and the seller alone does not count.

Under section 187(1)(g), a dismissal is unfair if the reason is "a transfer, or a reason related to a transfer". Do not plan to let the staff go because of the sale.

A real case: the supermarket that changed hands twice

The Labour Appeal Court decided this case on 7 June 2018: Spar Group Limited v Sea Spirit Trading 162 CC t/a Paledi and Others, [2018] ZALAC 15 (full text on SAFLII, the Southern African Legal Information Institute). The facts are from the judgment.

• Two close corporations, a South African form of small business entity, ran a supermarket and a bottle store. Their managers were a married couple, employed by the two businesses; one of them also owned half of each. The stores owed money to their supplier, Spar. When the two businesses could not meet their financial obligations, the High Court on 30 June 2015 allowed Spar to take possession and run the stores.
• From 1 July 2015 Spar ran both stores under the same name, from the same premises, with its own store manager. It offered the two managers three-month contracts at a lower salary. They refused, and on 22 July 2015 Spar released them from duty.
• In April 2016 Spar sold both businesses to a buyer as going concerns. The sale agreement moved every existing employment contract to the buyer under section 197.

The two managers sued Spar, saying it had become their employer under section 197 and let them go because of the transfer. The Labour Court agreed and awarded them 12 months' pay as compensation. The Labour Appeal Court set that aside and dismissed the claim. Spar had run the stores for a limited time, to recover its debt, in the name of the two businesses and on their behalf. No business had passed to a new employer, so section 197 did not apply to Spar. The staff moved to a new employer only with the 2016 sale, as the buyer's sale agreement said.

Our reading for a buyer, not the court's words:

1. What happens to the business decides, not what the papers call it. The court asked whether the business "retained its identity", looking "at the substance, not at the form". If the shop keeps its name, premises, staff and work after you take over, plan as if section 197 applies.
2. Buying the company is a different deal. The court said section 197 does not apply when only the shareholders change: the employer stays the same company. If you buy the shares, what the company owes its staff stays inside the company you now own.

What the staff have earned (section 197(7))

The seller and you must agree the value, at the transfer date, of three things: the leave pay the staff have built up; the severance pay they would get if dismissed for operational requirements (the Act's words for the employer's economic, technological, structural or similar needs); and other pay earned but not paid. A written agreement must say who pays each amount. Each employee who moves must be told its terms.

Ask for the three amounts, person by person, from the payroll records, and whether the seller pays them or they come off the price. Put the answer in that agreement.

If the seller is insolvent: section 197A

If the seller is insolvent, or entering an arrangement with creditors to avoid being wound up or sequestrated (closed down or put into insolvency), section 197A applies instead. The contracts move to you, but the rights and obligations up to the transfer stay with the seller, and section 197(7), (8) and (9) do not apply. So ask about insolvency first: the answer decides which section your attorney reads.

The seller's creditors: section 34 of the Insolvency Act

Section 34 covers a "trader" who transfers a business, its goodwill, or goods that form part of it, other than in the ordinary course of business or as security for a debt. The trader must publish a notice of the intended transfer:

• in the Government Gazette, the state's official journal;
• in two issues of an Afrikaans newspaper and two issues of an English newspaper circulating in the district of the business;
• not less than 30 days and not more than 60 days before the transfer.

Without these notices, the transfer "shall be void as against" the seller's creditors "for a period of six months after such transfer": for them, it has no effect.

Two details matter for a buyer:

• Who is a trader. The definition is wide: it covers any business in which goods are bought or sold, building work, hotels and more. A person is deemed a trader unless proved otherwise.
• What counts as the transfer. Under section 34(4), it includes handing over possession, even when the goods stay where they are and only control changes hands (the Act's word is "constructive"). The day you take over the premises can be the date that counts.

If the seller is a company, ask your attorney how section 34 applies.

Before the deposit: what to ask the seller, in writing

1. A staff list. For each employee: job, start date, pay, terms and leave built up.
2. Owners and family on the payroll. Who is an owner or an owner's relative, and will they stay? In the 2018 case, the managers were a part-owner and the part-owner's spouse. Employees like these move to you too.
3. The section 197(7) amounts. Leave pay, severance pay and other unpaid amounts, person by person, and who pays each.
4. Disputes. Every open dismissal case, grievance or staff claim: they become yours (s. 197(2)(c)).
5. Union agreements and awards that bind the business: they bind you too (s. 197(5)).
6. Insolvency. Is the seller insolvent, or in an arrangement with creditors?
7. The section 34 notices. Copies of the Gazette notice and the four newspaper notices, with their dates. Set the transfer date 30 to 60 days after them.
8. Creditors in court. Has any creditor sued the seller over this business? The transfer can be void against that creditor (s. 34(3)).

Give the answers to your attorney before you pay. A missing answer does not prove a problem, but settle it first.

Where the listing fits

A listing rarely says who works in the business or what they are owed. Our free extension for Chrome and Edge reads a business-for-sale listing. "Open a business-for-sale listing and press “Download PDF”. You get a report on the 12 things a check of the business needs: what the listing says about each, and which ones it does not say." One of the 12 lines is staff. Another is what exactly is for sale: "the premises and equipment, or the company itself". "The extension does not guess: when the page is not clear, the line says “not stated”."

Each "not stated" is a question for your list above. The report "reads only the listing page and no official records", so the staff list and the notices are separate steps. Keep the PDF with the seller's written answers: together they show what you were told, and when.

Your next two steps

1. The extension. Add to Chrome — free or Add to Edge — free. "The extension works in Chrome or Edge on a computer."
2. Your account. "Saving a listing takes a My list account. In it, the listings you save from different sites sit in one place." Put two businesses side by side and see which one says nothing about its staff. Create my account.

What else to look at before you buy, from the lease to the permits, is in our due diligence guide.

Sources

1. Labour Relations Act 66 of 1995, sections 187, 189, 197 and 197A (Department of Employment and Labour, labour.gov.za) (retrieved 29 October 2026)
2. Insolvency Act 24 of 1936, sections 2 and 34 (Department of Justice and Constitutional Development, justice.gov.za) (retrieved 29 October 2026)
3. Labour Appeal Court, Spar Group Limited v Sea Spirit Trading 162 CC t/a Paledi and Others (JA47/2017) [2018] ZALAC 15, 7 June 2018 (SAFLII) (retrieved 29 October 2026)
4. Provenance Diligence, Free extension (retrieved 29 October 2026)