Selling a business, shareholding, or valuable asset can feel risky, especially when the buyer’s payment is deferred or staggered. In Lesotho’s commercial environment, this is common. Yet, trusting a buyer’s promise without legal protection can lead to financial exposure. Prudent sellers structure their sale agreements with enforceable safeguards that reduce the risk of non-payment and ensure they retain leverage until the full purchase price is settled.
Below are five key legal mechanisms sellers in Lesotho can use to protect their interests during high-value sales.
1. Pledge and Cession of Shares or Loan Accounts
One of the most effective tools available is a pledge and cession agreement. In this arrangement, the buyer or a third-party guarantor, cedes and pledges the very shares or shareholder loans being sold, as collateral in favour of the seller. This cession operates as security for all of the buyer’s obligations under the sale agreement.
Should the buyer fail to perform (e.g., default on an instalment), the seller may enforce the security and take ownership of the pledged shares. The seller may then dispose of the shares to recover the unpaid amount or retain them for future benefit.
2. Cession of Book Debts
Another form of security involves the cession of the buyer’s book debts, essentially, their accounts receivable. The buyer may cede its existing and future claims against its debtors to the seller as security.
If the buyer defaults on its payment obligations, the seller may enforce the cession by collecting the debts directly from the ceded debtors, thereby mitigating the financial impact of the breach. This option works particularly well for buyers with active receivables that can be monetised quickly.
3. Notarial Bonds Over Movables
Movable assets can also be used to secure performance through notarial bonds. A special notarial bond attaches to specifically identified movable items (e.g., a vehicle or piece of equipment), whereas a general notarial bond covers all of the buyer’s movable property, including future assets like stock-in-trade.
These bonds must be registered with the Deeds Registry to be enforceable against third parties. Once registered, they give the seller preference in liquidation or enforcement proceedings, offering real protection in the event of the buyer’s default.
4. Suretyships and Guarantees
Sellers may also require a third party, often the buyer’s director, shareholder, or related entity, to sign a suretyship or guarantee agreement. Though often used interchangeably, there is a legal distinction.
In terms of South African jurisprudence (which is often persuasive in Lesotho), a surety undertakes to fulfil the buyer’s obligations if the buyer defaults. A guarantor, by contrast, assumes an independent obligation to compensate the seller if the buyer fails to perform, regardless of whether the breach is contractual or otherwise.
For example, if Company B is buying shares from Company S, a guarantee from the majority shareholder of Company B provides additional assurance that the seller will be compensated if payment fails, whether or not the failure arises from a contractual breach.
5. Restrictive Governance Clauses and Suspensive Conditions
Until the purchase price is paid in full, sellers may wish to retain a degree of control over the target company’s decisions. This can be done by inserting restrictive conditions in the company’s articles of incorporation, such as requiring the seller’s written consent for certain transactions, board decisions, or capital expenditures.
These conditions are typically included as part of the suspensive conditions in the sale agreement and registered with the Registrar of Companies. Once the buyer has fulfilled all obligations, including full payment, the restrictions can be formally removed.
Final Considerations
Each transaction requires a tailored security structure, depending on the asset, the buyer’s financial standing, and the bargaining power of the parties. The options outlined above are not exhaustive, but they reflect some of the most commonly used protections under Lesotho law. Importantly, security agreements must be properly drafted and, where applicable, registered to ensure enforceability.
Before concluding any sale where payment is not made in full upfront, sellers should seek legal advice on how best to secure the transaction. With the right tools in place, sellers can proceed confidently, knowing they’re not handing over the keys without a safety net.