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Personal Liability of Close Corporation Members

24 May 2006 No Comment

I have written numerous articles on the personal liability of members of a deregistered Close Corporation in terms of Section 26(5) of the Close Corporation Act No.69 of 1984.

This was a particularly useful process for creditors dealing with debtors who were Close Corporations that had ceased trading with no real assets and where the creditor did not have a personal suretyship of the members. However it must now be noted that the legislature has changed the provsions of the Close Corporation Act to benefit members of such Corporations by allowing them to avoid personal liability after the re-register the Corporation in terms of the new subsection 26(7).

Section 26(7) reads:

“(7) The Registrar shall give notice of the restoration of the registration of a corporation in the Gazette, and as from the date of such notice:
(a) the corporation shall be deemed to have continued in
existence as from the date of deregistration as if it deregistered as if it had not been deregistered; and
(b) a member, or any other person having a material interest, may apply to a court for any one or more of the following orders:
(i) an order that the legal liability incurred by a member in terms of subsection(5) shall cease to exist;
(ii) an order that the corporation whose registration has been restored shall become liable for any liabilities incurred by any member of the corporation in terms of subsection (5);
(iii)an order that the corporation whose registration has been restored shall compensate a member who lawfully paid a claim that arose as a consequence of the provisions of subsection (5);
(iv) any other order that the court on the basis of fairness deems”

What this means is that should you successfully deregister a Close Corporation and sue the member for personal liability in terms of Section 26(5), they could apply to court to have the whole thing set aside. What the court’s attitude on such applications shall be awaits to be seen but in light of the history of judicial recognition of seperate liability for incorporated entities coupled with the fact that the legislature found it fit to pass this amendment to the Act I fear it they will view such applications rather favourably.

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