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Thread: When the close corporation structure fails to protect the members.

  1. #11
    Platinum Member Marq's Avatar
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    My advise to you Vern would be to get some legal advise. (and for Sieg's piece of mind please pay for it and don't begrudge the fees)

    If you have sureties in place you can be held personally liable. If they can show negligent trading and breach of company law then it is also a case for personal liability. But if everything was above board and there are no ties to the shareholders then the cc's are separate entities and they will have to go the route of looking for their money there first in any case.

    In the meantime good luck with all of this.
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    Dave A (04-Dec-09), vern (04-Dec-09)

  3. #12
    Platinum Member sterne.law@gmail.com's Avatar
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    As a rule the creditor needs to claim against the cc. Where there are personal sureties it is a different story.
    There are a few options -

    Reach agreement on payment terms. Best done via letter (We have no money and if you continue the matter the costs etc you will get nothing. We propose R123 as settlement which can be paid as follows....
    You could have the house sale as a suspense condition for payment terms.
    If they reach agreement then that takes care of that.
    If you are really pressurized, you can serve a notice to defend the action which will give you time to come to an agreement. This is a simple document and is actually normally attached to the summons.
    Sorry - I see that there is no summons or writ yet, presumably a letter of demand. If you have no personal sureties you should be okay. Of course the option of persuing a settlement agreement has value in avoiding a judgement, so you need to weigh up those costs from a future perspective.
    Last edited by sterne.law@gmail.com; 09-Dec-09 at 03:59 PM. Reason: bas spelling-must type slower!
    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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    Dave A (09-Dec-09)

  5. #13
    Platinum Member sterne.law@gmail.com's Avatar
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    Pty vs cc.
    In PTY your liability to debt is limited to size of shareholding where as cc who ever has money pays. A cc generally offers no protection against debt as everyone makes you sign personal surety.
    As per other posts - if you contravene certain sections of company law you forfeit your protection. Negligience is the obvious fault and as an important reminder - negligience includes appointing an incompetent person. An example - the accountant makes a blunder, turns out you appointed your aunt as accountant and she only has a 1 year diploma and 3 years experience, yet you are a company employing 300 people and turning over R30 million a month. Chances are you will be found negligient for employing a person not capable of performing the job.
    The idea behind the cc was to offer some form of protection without the onerous obligations and costs of a pty. Obviously this is failing duee to personal sureties. There has been talk for some time about doing away with the cc as an entity.
    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.

  6. #14
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    CC Liability

    My wife and myself own a construction business in the leasure market, and due to the economic climate we have not had any contracts for months. We have been forced to look at liquidating the cc inorder to protect our house.

    The CC is in my wife's name and have had to apply to put her under debt review to protect the house as this is our only asset, and currently still have a bond over the property.

    Anybody know if this will be suficient protection.

    When does it become recless trading

  7. #15
    Site Caretaker Dave A's Avatar
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    The page on reckless trading may be brief, but describes what it is technically.

    In practice, once the members discover that the cc is technically insolvent, you're expected to do something about it - either ensure that the situation doesn't get worse by voluntary liquidation, or making efforts to reduce or remove the problem.

    It's when you continue to trade (after discovery) in a manner that will clearly make the situation worse that you run a serious risk of being held personally responsible.
    Last edited by Dave A; 09-Dec-10 at 09:40 PM.

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    Closed corporation liquidation

    Our closed corporation is going into liquidation, all current sumonses are issued in my personal name.

    My suppliers now claim that they were not aware that we were trading as a closed corporation and they were under the empression that they were trading with me as a sole prop.

    I have been dealing with these suppliers for the past 9 years and have paid them by cheques which clearly states the cc's ck number and trading names.

    I also have copies of fax comunications with them on our official letter head showing the ck number and trading names.

    Their supplier tax invoices also reflect the closed corporation's vat number.

    Will this be sufficient to rpoof in court that they were aware that they were trading with a closed corporation and not a sole prop, I amnot a member of the closed corporation.

    Please help not sure which way to turn at the moment

  9. #17
    Site Caretaker Dave A's Avatar
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    Quote Originally Posted by Rootz View Post
    Our closed corporation is going into liquidation, all current sumonses are issued in my personal name.
    Just making sure - you've applied for the liquidation of the cc, or have the creditors issued summons against you personally as the defendant?

    I've got a restaurant that's playing games at the moment where they gave no indication they were a cc until they sent a letter advising me they'd sold the cc and the new owner would be responsible for the outstanding bills, so I have a sense of where those creditors may be coming from.

    Now bear in mind I (and your creditors) need to prove my argument to the satisfaction of a court of law to support my action against the individuals rather than the cc. So let's look at what I'd present in my instance to give some clues as to where you might stand:

    1. In my case I have the signed service contract - with no indication I'm contracting with a cc. There's a trading name and it's signed by (let's call him) Joe Soap who also confirms by his signature he is duly authorised to enter into the contract on behalf of the [trading name] but does not provide his designation.
    2. Payments were cash, but even if they were by cheque, who deposited the cheque? Do you send the cheque to them or do you deposit it into their bank account yourself?
    3. There was no sign at the main entrance to their premises indicating the restaurant was trading as a cc. We happen to have a photo of the main entrance as part of our preliminary documentation of the site when we commenced servicing.
    4. I'm under no obligation to check who the VAT number you provided is registered to. It appears on my invoice because you require it for invoices over R3000.00 to claim the input VAT.
    5. Their website only lists the 4 partners, and talks of them as partners - no mention of incorporation of any form.
    6. The name of the cc is nothing like the trading name.

    I'd present points 1, 3, 5 and 6 in making my case, and be ready with points 2 & 4 if required to counter a defence if they, like you suggest here, raised them as part of their defence.

    Does that help any?
    Last edited by Dave A; 09-Dec-10 at 09:44 PM.

  10. #18
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    Quote Originally Posted by Rootz View Post
    My suppliers now claim that they were not aware that we were trading as a closed corporation and they were under the empression that they were trading with me as a sole prop.

    I have been dealing with these suppliers for the past 9 years and have paid them by cheques which clearly states the cc's ck number and trading names.

    I also have copies of fax comunications with them on our official letter head showing the ck number and trading names.

    Their supplier tax invoices also reflect the closed corporation's vat number.

    Will this be sufficient to rpoof in court that they were aware that they were trading with a closed corporation and not a sole prop, I amnot a member of the closed corporation.
    Were any account applications signed when you started buying from them? If so those details would be crucial.

    Next step. What name appears on the invoices, yours or the cc? How did you place orders with them? Verbally / fax /email?

    I agree with Dave in that the VAT number and the name on the cheques are irrelevant. A third party could pay the account and they have no reason to research the VAT number.

  11. #19
    Platinum Member sterne.law@gmail.com's Avatar
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    There is no clear position on how the courts decide how far a company or person should go to determine the status of a trading aprtner. They have on occassions used a subjective and on otehrs an onjective approach.
    As an example - in a case with Distell liquors the defendent had signed a contract saying he was duly authorized to sign. Because he was married in community of prop he needed his wifes consent. on this occassion the court ruled that Distell should have done more to find out the status, and not relied on the clause alone(Dave you may face a similiar situation - the "he had no authority to act" is a common defence, restaurants in particular) and consequently the husband had no authority to sign the papers and it was void.

    I think the nature of your invoice trail and paperwork could be the key element. It would all seem to indicate that you have not misrepresented yourself and that a reasonable person would have "presumed" you were a cc and not a sole prop. when they extended credit the onus was on them to protect themselves with the neccessary paperwork.


    The chances are they are taking a chance with the personal summons, which would obviously be easier than the cc route.
    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.

  12. #20
    Site Caretaker Dave A's Avatar
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    Quote Originally Posted by sterne.law@gmail.com View Post
    Dave you may face a similiar situation - the "he had no authority to act" is a common defence
    My counter to that argument is he also has no right to misrepresent...

    Sometimes the contract is signed by a manager - Would a history of the restaurant making payments on the contract up to default shore up the authority to enter into contract issue?

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