The Cape high court has established new law for the circumstances in which members and officers of a close corporation can be held personally liable for the corporation's debts.
Adam Harris, an insolvency law specialist attorney with law firm Bowman Gilfillan, said that generally, close corporations could be set up to ensure that members were not liable for its debts. "But this judgment is significant in that the court has confirmed that the corporate veil may be pierced where there are special circumstances, such as fraud. Members of a close corporation should not think of themselves as invulnerable to attack from creditors."
Brian Aronoff, a senior associate in litigation at law firm Mallinicks, who was the instructing attorney, said in Dialogue, the firm's quarterly publication, that his client, Airport Cold Storage, had sold and delivered imported meat products and frozen vegetables to Global Foods on credit.
The close corporation failed to pay for the goods and Airport Cold Storage successfully applied for its winding up for failing to pay a debt of R278 377. But it received no dividends because Global Foods had no assets.
Aronoff said that in the light of evidence obtained at an insolvency inquiry, Airport Cold Storage had instituted high court action to hold the close corporation member, Nizaar Ebrahim, and his father, manager Abbas Ebrahim, personally liable for the debt.
The company claimed that father and son had contravened the Close Corporation Act because they had carried on the business for reckless and fraudulent purposes or with the intention to defraud creditors.
full story from Business Report here