Dorklerk Investments (Pty) Ltd v Bhyat

• Jurisdiction: South Africa
• Judge: Philips AJ
• Judgment Date: 26 September 1979
• Citation: 1980 (1) SA 443 (W)
• Hearing Date: 12 September 1979
• Court: Witwatersrand Local Division

Philips AJ:

The applicant seeks an order declaring, in terms of s 424 (1) of the Companies Act 61 of 1973, as amended, that the respondent shall be personally responsible to the applicant for payment of the sums of R3 228,64 and R56 610, together with interest on those sums at 11 per cent C per annum, and orders that the respondent pay those sums with interest and costs.

Section 424 (1) provides as follows:

'When it appears, whether it be in a winding-up, judicial management or otherwise, that any business of the company was or is being carried on recklessly or with intent to defraud creditors of the company or creditors of any other person or for any fraudulent purpose, the Court may, on the D application of the Master, the liquidator, the judicial manager, any creditor or member or contributory of the company, declare that any person who was knowingly a party to the carrying on of the business in the manner aforesaid, shall be personally responsible, without any limitation of liability, for all or any of the debts or other liabilities of the company as the Court shall direct.'

E Counsel were not able to direct my attention to any reported case dealing directly with the provisions of s 424 (1). There are several important differences between the wording of the section and that of its predecessor, namely s 185 bis of the 1926 Companies Act. In particular, the present section introduces the word 'recklessly' for the first time, and that is important, for counsel for the applicant relied heavily on the alleged recklessness of the respondent.

F Clearly the onus of establishing recklessness or fraudulent conduct on the part of the respondent rests on the applicant. By the words 'defraud' and 'fraudulent purpose' in s 424 (1) I conceive that the Legislature had in mind the same concepts as were enunciated by MAUGHAM J In In re William G Leitch Brothers (1932) 2 Ch 71. At 77 the learned Judge said:

'If a company continues to carry on business and to incur debts at a time when there is to the knowledge of the directors no reasonable prospect of the creditors ever receiving payment of those debts, it is, in general, a proper inference that the company is carrying on business with intent to defraud.'

H Again, in the case of In re Patrick and Lyon 1933 Ch 786, the same learned Judge at 790 said that the words connote

'real dishonesty involving, according to current notions of fair trading among commercial men at the present day, real moral blame'.

See also Re Gerald Cooper (1978) 2 WLR 866 at 870, 871 per TEMPLEMAN J. The word 'recklessly' must connote something different.

The applicant's case is that the respondent carried on the business of the company recklessly and with intent to defraud the applicant as a creditor of the company. It alleges that his aim was to ensure that the company would have few or no assets left when it had failed, after four

Philips AJ

years of appeals, in resisting the applicant's efforts to eject the company from the property owned by the applicant. It maintains that he knew the company had no reasonable prospects of success in resisting those A ejectment proceedings, and that when its appeals had finally failed the company would face a very substantial claim for damages for holding over by the applicant. It points to the fact that the respondent and the other shareholders and directors of the company resolved on 27 September 1975, which was the day after the Appellate Division dismissed the company's final appeal, to apply for the winding-up of the company. The respondent B in his answering affidavit has admitted that the resolution was taken on that day, but has stated that once the company had failed in its appeal, it could not...