Close corporation - Section 51

In Hanekom v Builders Market Klerksdorp (Pty) Ltd and Others 2007 (3) SA 95 (SCA) the court was asked to bring clarity to the correct interpretation of s 51(1) and (2) of the Close Corporations Act 69 of 1984 (the Act).

Section 51(1) forbids a close corporation from making a loan or providing security to any of its members, or to another close corporation or company which is controlled by one of its members. Section 51(2) provides that the prohibition contained in s 51(1) does not apply ‘in respect of the making of any particular loan or the provision of any particular security with the express previously obtained consent in writing of all the members of a corporation’.

The issue in the Hanekom case turned on the proper construction of s 52 of the Act in circumstances where a close corporation has only one member.

Scott JA held that if a close corporation has only one member, a literal construction of the section would have rendered an absurd result, and it was therefore appropriate to read the section as not requiring a previous consent.

The appeal was accordingly dismissed with costs. (Source: www.derebus.org.za)

Liability for fraudulent or reckless trading

Section 424(1) of the Companies Act 61 of 1973 (the Act) includes provision for personal liability of persons who carry on the business of a company in a fraudulent or reckless manner. In Heneways Freight Services (Pty) Ltd v Grogor 2007 (2) SA 561 (SCA) the appellant instituted proceedings in the High Court for an order declaring the respondent personally liable for the debts of the company of which he was a sole director and manager.

The appellant maintained that the respondent was guilty of fraud and recklessness in that he provided creditors with post-dated cheques when he knew or ought reasonably to have known that there might not be funds in the company’s bank account to meet the cheques and also in issuing creditors with post-dated cheques that were stopped or dishonoured almost immediately after the due dates. (Read more...)