Member Article

With South Africa currently under a nationwide lockdown, practical challenges arise for parties to existing (or new) commercial transactions that are scheduled to “close” during this period. While physical closings are (generally) not currently possible, depending on the type of transaction and the closing deliverables involved, this challenge need not delay closing.

Practical challenges

Practical challenges that often arise in the context of closing a commercial transaction include the requirement to execute and exchange certain specified documents (such as board and shareholder resolutions, other agreements ancillary to the transaction and/or share transfer forms). The requirement to deliver certain original documents to a counterparty (for example, share certificates in respect of shares being transferred) is also often catered for – all of which in current circumstances may be difficult or impossible to comply with.

Parties may also encounter practical difficulties in respect of completion deliverables that require engagement with or cooperation from third parties, such as banks. In such instances, it would be advisable for the parties to engage with these third parties earlier than usual to attempt to arrange a practical solution to these issues, to the extent possible.

In many cases, the transaction document in question would contemplate a closing procedure to be followed by the parties, which would ordinarily contemplate physical closings and, ideally, electronically. If a particular transaction document does not cater for an electronic closing, or if the closing procedure contemplated is inadequate in light of the circumstances the parties now find themselves in (under lockdown), the parties can (and should) agree either to delay completion, or agree to a new electronic closing process. In the latter instance, this can be done by way of executing a written closing confirmation between them, amending the provisions of the transaction agreement and , if necessary, detailing the virtual closing process and evidencing by its terms that a transaction is completed or closed.

Electronic execution and exchange of documents

The Electronic Communications and Transactions Act, 2002 (“ECTA“) facilitates both electronic exchanges of documents and their validity, which would include usual closing deliverables. Among other things, ECTA provides that documents in electronic format have legal force and may be binding. If certain documents need to be signed, an electronic signature will suffice. ECTA defines an electronic signature as “data attached to, incorporated in, or logically associated with other data and which is intended by the user to serve as a signature”. For a signature to be recognised as a valid electronic signature, a link must be shown between the sender’s identity and that person’s intent to sign the document sent. ECTA is thus not prescriptive in relation to the format of electronic signature. A closing confirmation can be used to achieve just such a link.

Practically, and assuming your transactional document contemplates this, or if applicable, a closing confirmation was executed, one could structure a closing process where:

• parties who have access to a printer and scanner during the lockdown, they can print out the relevant documents, sign them by hand and then scan and circulate those signed documents to their counter-parts via email; or
• where parties don’t have access to printers, or scanners, nevertheless, in many cases it remains possible to sign documents using an electronic signature and one could circulate copies of those electronically signed documents.
  
  

It is important to bear in mind, however, that there are instances where an “advanced electronic signature” (as defined in the ECTA) is required and there are also exceptions for certain types of agreements that may not be validly concluded electronically, such as an agreement for the sale of immovable property. For more information on the legal validity of data messages and electronic signatures, please see an ENSight by our technology, media and telecommunications team here.

Delivery of original documents

Where original documents are contractually required to be exchanged (for example, share certificates), an electronic copy of this document can be exchanged via email and a provision contained in a closing confirmation that with effect from closing, the original document is held in trust for the party to whom it is to be delivered, with the party holding the document giving an undertaking to deliver the original document immediately after the lockdown has lifted.

Agreeing procedure and confirming closing

As indicated above, ideally one’s transaction document will provide for an electronic closing or, failing that, a closing confirmation should set out the agreed closing process to be followed by the parties, specifically that the parties can virtually exchange the closing deliverables between them, setting out details of any arrangements in respect of obligations which have been deferred until after the lockdown (e.g. delivery of original documents held in trust) and contain a confirmation by the parties that, by their execution of that closing confirmation, the transaction is agreed as being closed.

To facilitate closing going as smoothly as possible, parties should exchange closing documents and agree the form and content of the closing confirmation ahead of time. On the closing date, the parties can arrange a virtual meeting via an agreed digital conferencing platform (such as Skype for Business™, MSTeams™ or similar secure platform) where they confirm that all deliverables will be virtually delivered, confirmed as being satisfactorily completed and the (electronically) signed closing confirmation can then be exchanged between the parties, at or immediately after that virtual meeting thus confirming that closing has occurred.

The ability to exchange closing deliverables and sign documents electronically for the purposes of closing a commercial transaction depends on the nature of the transaction and the closing deliverables in question (for example, it is not possible to register property transfers during the lockdown). Specific legal advice should therefore be obtained in each instance where parties wish to close a transaction electronically.

Zeyn Bhyat Executive Corporate Commercial [email protected] +27 83 260 8778

Sarah Binge Senior Associate Corporate Commercial [email protected] +27 82 927 0846

COVID-19, also known as the Coronavirus, is an infectious disease caused by severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2) that was declared a pandemic by the World Health Organization on 11 March 2020. The disease has since been reported in over 190 countries.