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Thread: Close Corporation Membership dispute

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    Close Corporation Membership dispute

    In 2005 K was given 30% membership of a CC, upon signing the required forms, also signed a CK2 form ceasing to be a member. This was done for protection against the initial owner. There is no association agreement. K was employed as a driver, and had no rights or access of the management of the business. Over time K proved to be a incompetent and habitual liar. Dishonest and aggressive, he left in 2013, took the owner to CCMA and lost the case based on insufficient evidence. Since then has kept on harassing staff, ignoring police warnings and correspondence and stole the company vehicle. K was not removed as a member as the CK2 form was placed in safekeeping and only recently been retrieved. K wants money and has approached an attorney Pro Bono for defense accusing the majority of not paying him a salary, wants dividends and claims the company vehicle is his. I have told his attorney that it is all nonsense and have evidence of harassment, threats and manipulation. He even wants his job back, but the company does not have any vacancies. The company is not profitable, keeps trading for the simple reason of keeping people employed with the hope of growing. K is demanding and now threatened to take this story to the media, (in my opinion - trying to intimidate me). I told him I would see him in court. My question is how do I stop this man from harassment, when even the police have recorded that they do not take him serious. Should I close the business, and start up again and what rights do I have a majority holder in the business. The financial statements are not up to date and I am busy submitting documentation to the Accountant for review. I have personally loaned the business more than R200 000 to meets is obligations over the past few years and am of the opinion, the business is not worth more than R500 000. All suggestions and recommendations from members will be greatly appreciated.

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    Hi Laura7. There are probably more questions than answers.
    There is no association agreement. K was employed as a driver, and had no rights or access of the management of the business.
    I understand your sentiment, but to be honest there is no scope in the Act to make this workable. Such a provision in an association agreement would also be unenforceable. The Close Corporation Act states that every member is entitled to be involved in the carrying on of the business of the Close Corporation. Even an Association Agreement cannot state that certain members will have the right to represent the Close Corporation in its business dealings but others do not. Such a clause world mean nothing.
    he left in 2013, took the owner to CCMA and lost the case based on insufficient evidence.
    Did he resign or was he dismissed?

    Has his resignation as a member now been processed at CIPC, and if so what is the effective date?
    K wants money and has approached an attorney Pro Bono for defense accusing the majority of not paying him a salary, wants dividends and claims the company vehicle is his
    Has any dividend or any other payment been made to the other members based purely on them being members of the cc?

    Does he still have the vehicle? If he does, why has a charge of theft not been made at the SAPS?

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    He did not resign, he just walked out and then said we dismissed him and thus could not prove this and lost the CCMA case.
    The police were called in to get the vehicle back and it is now in our possession.
    I am trying to get his resignation approved by CIPIC and the date we have submitted is be September 2014. I am not sure if I can submit an early date.
    No dividends or any other payments have been paid to members as the business is operating at a loss.
    K received a monthly salary until he left in 2013.
    Basically he was only a driver for the business. K never had any dealings with the running of the business and is not capable of doing so. He is in my opinion a nuisance.
    Since the CCMA case in 2013 he has tried all sorts of underhanded methods to extort money from us.
    What would happen if I succeed in registering his resignation with CIPIC, would he still try and harrass us for money for the years he was registered as a member?
    Thanks again for trying to clarify this query, I am beginning to understand the severity of this.

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    Thanks to the new harrassment act you could consider a peace order.
    This act makes provision for protection against people who are not 'family' so seeing to the gap of the domestic violence act.

    If the cc is trading so badly perhaps telling him to cough up on his share of losses may see the dividends claim dissappear.

    An important lesson for all of us is to remember that the employment relationship and that of shareholder/member are 2 different relationships.
    Anthony Sterne

    www.acumenholdings.co.za
    DISCLAIMER The above is merely a comment in discussion form and an open public arena. It does not constitute a legal opinion or professional advice in any manner or form.

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    Thank you Anthony,

    I am going to act on your advise and hopefully I can get him removed from the business.

    I will post an update this week.

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    Hi Laura, it's important, especially if he has legal counsel, to take this one step at a time.

    I assume he was "given" a shareholding to enhance the cc's B-BBEE rating and I am guessing that his attorney is probably looking at it as fronting, taking into account a presigned resignation.

    As Anthony points out, employment by the cc, and membership of the cc are two very separate things. If, as an employee, he absconded, then that is a matter that applies to his employment as a driver and that is effectively that, as regards employment.

    If at the outset he had already signed an undated CK2 resignation, then the effective date, I would think, is the same as his resignation, because usually his membership is "conditional" on his employment. If you have already submitted it then you cannot really change it. CIPC have a turnaround time of 21 days on cc changes, so it it's exceeded that then you should escalate it. Important here too is that the share would have had some worth and if he paid nothing, and the cc did not appreciate in value, then he probably cannot claim payment for his share.

    As I pointed out above, the Act confers inalienable rights on members (responsibilities also) that you simply cannot ignore. In your circumstances these are broadly:
    - the right to manage, and in order to do so, the right to information. That he did not exercise that right back then, does not detract from any right to information regarding the cc's affairs during his tenure as a member.
    - the right to any payment, in accordance with his share ratio, that the cc may have made to members by virtue of their membership. If the cc made no such payments then that is that. If no dividends were distributed then he cannot claim any; dividends require authority by a majority of members.

    While his membership of the cc is in limbo, he can continue to be a pain in the butt and you will find it difficult to be shot of him. Once it is dealt with, it should be easier.

    It is important that you get signed financials for that years in which he was a member and that they attest to no profit appropriation whatsoever, so that there can be no claim in that regard. Bear in mind that dividends do not require profit, only solvency.

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    Thank you for the information, it does make a lot of sense now and I can really see that I do have a problem.
    He does have legal representation, pro bona, so I assume that they will not want to waste time and settle this dispute urgently.
    I have spoken to my auditor and we are busy preparing the financial statements, that would probably take another month or so to finalize. I had draft financials that reflect a loss and I am sure the audited financials will reflect the actual loss situation of the business.
    I have no doubt that the CC has occurred losses for many years. During his last two years of employment, he abused the company vehicle, harassed clients and that had an adverse affect. We actually lost contracts because of his inability. From the day that he was dismissed, the CC had to do a lot of damage repair, to keep the business from closing down. We have in the last two years secured new contracts, managed to get our old customers back and started to trade profitably.

    I have submitted the documents to CIPIC and will probably know the outcome later this week.
    As his attorney has not given me any documentation of his claim in writing, I am expecting to receive a letter this week.
    I am pleased to hear that as he did not pay for his share and did not exercise his right to manage the business from the beginning gives me a small advantage.

    Thank you so much for all this information, I am now beginning to understand the complexity of keeping accurate records and not ignoring problem areas.

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    Good Morning again,

    I now need to know how I can get him removed officially. I tried to complete the online forms through CIPIC and sent all documents including the old CK 2 where he signed but they want him to sign a new resolution and the new form. He will not sign and is as stubborn as always so does anybody know another way I can get this done. Do I have to get an attorney to apply at the courts to have him removed or go to CIPIC and explain the situation. I am not sure what an attorney would cost and have limited funds. Any suggestions. Many thanks again.

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