Piercing the veil under section 20(9) of the Companies Act 71 of 2008: A new direction

• Jurisdiction: South Africa
• Author: Rehana Cassim
• Date: 25 May 2019
• Pages: 307-337
• Citation: (2014) 26 SA Merc LJ 307
• Published date: 25 May 2019

PIERCING THE VEIL UNDER SECTION 20(9)

OF THE COMPANIES ACT 71 OF 2008: A NEW

DIRECTION

REHANA CASSIM*

Senior Lecturer, Department of Mercantile Law,

University of South Africa

I INTRODUCTION

The separate legal personality of a company is the very foundation on

which company law rests. The Companies Act 71 of 2008 (‘the Compa-

nies Act’) has introduced into South African company law, for the f‌irst

time, a statutory provision permitting inroads to be made into this

fundamental principle. Section 20(9) of the Companies Act permits a

court to disregard the separate legal personality of a company and to

pierce the corporate veil in instances of ‘an unconscionable abuse of the

juristic personality of the company as a separate entity’.

While this provision is to be welcomed, it does raise many questions

and uncertainties. For instance, the section fails to def‌ine the term

‘unconscionable abuse’ and to provide any guidance on the circum-

stances that constitute an ‘unconscionable abuse’ of the juristic person-

ality of the company as a separate entity. It is also not clear from a

reading of the section whether section 20(9) overrides the common law

or the judicial instances of piercing the corporate veil, or whether

piercing of the veil must still be regarded as an exceptional remedy to be

used only as a last resort, as is the case at common law. Moreover, section

20(9) does not provide guidance in regard to who would constitute an

‘interested person’ within the scope and ambit of the section.

In the recent case of Ex parte Gore and Others NNO

1

(‘Gore’) the

Western Cape High Court, per Binns-Ward J, delivered the f‌irst

judgment on section 20(9) of the Companies Act. The case dealt with the

issue of piercing the corporate veil in the context of company groups.

The court applied section 20(9) of the Companies Act to the facts before

it and resolved to pierce the corporate veil. In the course of its judgment,

the court answered some of the questions set out above, and usefully set

* BA (cum laude) LLB (cum laude) LLM (cum laude) (Witwatersrand). Senior Lecturer,

Department of Mercantile Law, School of Law, University of South Africa. Attorney and

Notary Public of the High Court of South Africa.

1

2013 (3) SA 382 (WCC).

307

(2014) 26 SA Merc LJ 307

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out some important guidelines in regard to the interpretation and

application of section 20(9) of the Companies Act.

The f‌irst part of this article will examine some of the guidelines

provided by Gore for the interpretation of section 20(9) of the Compa-

nies Act. It will be argued that the wording and the interpretation of

section 20(9) of the Companies Act as decided in Gore result in giving

courts very wide powers to pierce the corporate veil, which hitherto

never existed under the common-law remedy of piercing the corporate

veil. Even though some of the questions and uncertainties regarding the

interpretation of section 20(9) of the Companies Act may have been

addressed in Gore, what remains unclear is the general effect of the

exercise of this power on the remedy of piercing the corporate veil in

South African law.

The second part of this article will argue that, in the light of the

extensive powers given to courts to pierce the corporate veil under

section 20(9) of the Companies Act, in applying the section it is of

fundamental importance that courts do not disregard the separate legal

personality of a company too easily, and that they ensure that the correct

balance is struck between piercing the corporate veil and upholding the

overarching principle of the separate legal personality of a company

enshrined in section 19(1) of the Companies Act. As stated above, courts

must exercise caution and wisdom to ensure that they do not develop a

disproportionate and inappropriate application of the doctrine of

piercing the corporate veil in South African law.

Finally, the third and f‌inal part of this article will contend that courts

must interpret and apply section 20(9) of the Companies Act in a way

that results in clarity and simplicity in the statutory doctrine of piercing

the corporate veil. Two ways in which this may be done are suggested

in the third part of the article.

As the court in Gore emphasised, the Companies Act enjoins that its

provisions be construed with appropriate regard to section 5(2) of the

Companies Act, which provides that, to the extent appropriate, a court

interpreting or applying the Companies Act may consider foreign law.

2

Accordingly, where relevant, this article will refer to recent trends in

foreign law in regard to the doctrine of piercing the corporate veil that

may serve as guidelines to the interpretation and the application of the

doctrine in South African law.

2

Idem para 32.

(2014) 26 SA MERC LJ308

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