Note on personal liability for the debts of a Close Corporation which is able to pay

• Jurisdiction: South Africa
• Author: David M Matlala
• Pages: 295-304
• Published date: 27 May 2019
• Date: 27 May 2019

NOTE ON PERSONAL LIABILITY FOR THE

DEBTS OF A CLOSE CORPORATION WHICH IS

ABLE TO PAY

David M Matlala

LLM LLM H Dip Tax

Associate Professor, University of the North.

1 Introduction

Section 64(1) of the Close Corporations Act

1

(‘‘the Act’’) states:

‘‘If it at any time appears that any business of a corporation was or is being carried on

recklessly, with gross negligence or with intent to defraud any person or for any fraudulent

purpose, a Court may on application of the Master, or any creditor, member or liquidator of

the corporation, declare that any person who was knowingly a party to the carrying on of the

business in any such manner, shall be personally liable for all or any of such debts or other

liabilities of the corporation as the Court may direct, and the Court may give such further

orders as it considers proper for the purpose of giving effect to the declaration and enforcing

that liability.’’

This section is based on and is in fact very similar to section 424(1) of

the Companies Act.

2

Although there are some differences in the wording

of the two provisions their essence and purpose appear to be the same. It

is submitted that cases decided under the one section are helpful in

understanding the meaning, effect and application of the other section.

Moreover, this also appears to be the approach of the courts, as the

discussion which follows will indicate.

2Harri v On-Line Hotel Management CC

In Harri and others NNO v On-Line Hotel Management CC and others

3

the plaintiffs were trustees of a trust (the lessor) which had leased certain

premises to a close corporation (first defendant). The plaintiffs claimed

damages against the corporation in certain specified amounts, this being

the fair and reasonable cost of reinstating the property to the condition in

which it was handed to the corporation as lessee. It was alleged that the

corporation had failed to comply with the provisions of the lease, in that

it had failed to maintain the property, furniture, fittings and operation of

the equipment, and had thereby caused the plaintiffs to suffer damage. In

addition, the plaintiffs claimed a further amount for unpaid electricity

1

69 of 1984.

2

61 of 1973.

3

2002 1 All SA 95 (T).

295

(2004) 15 Stell LR 295

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