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[2010] ZAGPJHC 37
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South African Bank of Athens Limited v Salvadora Properties Ninety Nine CC (2009/41058) [2010] ZAGPJHC 37 (7 May 2010)

REPUBLIC OF SOUTH AFRICA
SOUTH GAUTENG HIGH COURT, JOHANNESBURG
CASE NO:
2009/41058
In the matter
between -
THE SOUTH
AFRICAN BANK OF ATHENS LIMITED
Plaintiff
and
SALVADORA
PROPERTIES NINETY NINE CC
Defendant
(Registration Number: 2004/013002/23)
J U D G M E N T
BORUCHOWITZ, J
:
[1] This is
an application for the winding up of the respondent close corporation
on the grounds of its inability to pay its debts
as envisaged by
section 68(c) as read with section 69(1)(a) of the Close Corporations
Act 69 of 198
4
(the Act).
[2] The
applicant is a bank. Its claim against
the respondent arises from a deed of suretyship in terms of which the
respondent purported to bind itself as surety and co-principal
debtor
in favour of the applicant for the due payment by JAV Opencast Mining
CC (JAV) of all amounts which it then or in the future
owed to the
applicant from whatsoever cause arising. JAV, the principal debtor,
is said to be indebted to the applicant in an
aggregate amount of R4
701 683,88 arising from certain instalment sale agreements entered
into with the applicant.
[3] The
respondent challenges the validity of the deed of suretyship and
consequently the debt relied on by the applicant. It
is common cause
that the deed of suretyship was signed by a Mr Jacobus Arnoldus
Viviers (Viviers) on 2 July 2008 in his capacity
as a member of the
respondent. Viviers, who deposes to the respondent’s answering
affidavit, states that the entire member’s
interest of the
respondent is held by an
inter
vivos
trust known as the JAV Familie Trust (the trust) of which he is one
of three trustees, the others being Mrs Catharina Petronella

Viviers and a Mr Petrus Johannes Botes. He further states
that in terms of the relevant trust deed, the consent of the
majority
of the trustees was required in order to bind the respondent and that
his fellow trustees did not authorise him to enter
into the deed of
suretyship. His reluctance to sign the deed was in fact conveyed to
a representative of the applicant who assured
him that he need not
worry and that there would be no problems if he appended his
signature thereto.
[
4]
The respondent relies on the well-established common law principle
that trustees must act jointly, unless the trust deed provides

otherwise, in order to bind the trust (See
Nieuwoudt
NO v Vrystaat Mielies (Edms) Bpk
2004 (3) SA 486
(SCA) at para [16];
Land
and Agricultural Development Bank of SA v Parker
2005 (2) SA 77
(SCA) at paras [11] and [15]). But these cases cannot
avail the applicant. The legal position in the present matter is not
governed
by the common law but by the provisions of the Act. When
executing the deed of suretyship, Viviers did not act on behalf of
the
trust but as the holder of the entire member’s interest in
the respondent. In terms of a certificate issued by the Registrar
of
Close Corporations, Viviers is reflected as the holder of 100% of the
member’s interest in the respondent, in his capacity
as the
representative trustee of the trust. The member’s interest is
described in the certificate as being held by “
Viviers,
Jacobus Arnoldus as a trustee of JAV Familie: jointly: CP Viviers
PJ Botes
”.
[
5]
The requirements for the holding of membership in a close
corporation are set out in section 29 of the Act. The relevant
portions
thereof, for present purposes, read as follows:
“
29.
Requirements for membership.–
(1)
Subject to subsection (1A) or (2)(b) and (c), only natural persons
may be members of a corporation and no juristic person or
trustee of
a trust
inter
vivos
in that capacity shall directly or indirectly (whether through the
instrumentality of a nominee or otherwise) hold a member’s

interest in a corporation.
(1A) A
natural or juristic person in the capacity of a trustee of a trust
inter
vivos
may be a member of a corporation: Provided that –
no juristic personal shall directly or indirectly be a beneficiary
of that trust;
(b) the member concerned shall, as between himself or herself and
the corporation, personally have all the obligations and rights
of a
member;
(c) the
corporation shall not be obliged to observe or have any obligation
in respect of any provision of or affecting the trust
or any
agreement between the trust and the member concerned of the
corporation; and
if at any time the number of natural persons at that time entitled
to receive any benefit from the trust shall, when added to
the
number of members of the corporation at that time, exceed 10, the
provisions of, and exemption under, this subsection shall
cease to
apply and shall not again become applicable notwithstanding any
diminution in the number of members or beneficiaries.
…
…
A corporation
is not concerned with the execution of any trust in respect of any
member’s interest in the corporation.
”
[6] To
facilitate a proper understanding of the section, and of a further
argument advanced on behalf of the respondent to which
I will
presently refer, it is necessary to set out the legislative history
of the section.
[
7]
Section 29(1) originally provided as follows:
“
Subject
to the provisions of sub-section (2)(b) and (c), only natural persons
may be members of a corporation and no juristic person
shall directly
or indirectly (whether through the instrumentality of a nominee or
otherwise) hold a member’s interest in
a corporation.”
[
8]
The exceptions in sections (2)(b) and (c) are trustees of a
testamentary trust and representatives of insolvents, deceased
estates or mentally disordered or incapable persons.
[9] On 11
January 2006, an amendment was promulgated retroactively to 13 April
1987 which inserted immediately after the words
“
no
juristic person
”,
the words “
or
trustee of a trust inter vivos in that capacity
”.
The amendment was introduced by section 3(1) of Act 64 of 1988 and
made retroactive to 13 April 1987 in terms of section
3(2).
[10] Section
29(1A) was introduced by section 1 of Act 17 of 1990 and provided
that section 29(1) was not to apply to membership
of a corporation of
a natural person who held that membership for the benefit of a trust
inter
vivos
if immediately before 13 April 1987 a natural person held membership
of a corporation for the benefit of the trust and subject
to the
limitations that are presently found in section 29(1A).
[11] Thus
from 1990 until the amendment by Act 25 of 2005, the position was
that there was a prohibition, introduced with effect
from 13 April
1987, against a trustee of a trust
inter
vivos
in that capacity holding a member’s interest in a corporation.
Section 29(1A) provided for an exception for natural persons
who held
for the benefit of a trust prior to 13 April 1987 when the
prohibition was introduced.
[1
2]
Section
2 of Act 25 of 2005 amended section 29(1) by making it subject also
to sub-section (1A). The amendment further amended sub-section
(1A)
by permitting a trustee of a trust
inter
vivos
to be a member of the corporation subject to the limitations in
paragraphs (a) to (d) of that sub-section. The limited exception
for
members holding before 13 April 1987 was done away with and trustees
of a trust
inter
vivos
were generally permitted to be members of the corporation subject to
the limitations referred to above. The two relevant limitations
are
those in sub-paragraphs (b) and (c) above.
[13] Section
29(1) presently provides that subject to sub-section (1A), no trustee
of a trust
inter
vivos
shall hold a member’s interest. Sub-section (1A) provides that
a person in such capacity may be a member provided certain

requirements are met and adhered to. These are that the member
personally `has all the rights and obligations of a member between

himself and the corporation (section 29(1A)(b)) and further that the
corporation is not obliged to observe or have any obligation
in
respect of any provision of or affecting the trust or any agreement
between the trust and the member of the close corporation
(section
29(1A)(c)).
[14]
Following the promulgation of Act 25 of 2005 the Registrar of Close
Corporations issued a practice note (Cipro practice note
No. 1 of
2006) which lays down certain procedures that are to be followed when
the trustee of a trust
inter
vivos
wishes to acquire a member’s interest in a close corporation.
It provides, among other things, that in the case of multiple

trustees, an originally signed special power of attorney by each of
the trustees appointing one of them as the representative of
the
trustees for purposes of holding and dealing with the member’s
interest in the close corporation concerned must also
be lodged with
the form CK2 or CK2A, as the case may be. A letter by the trustee,
or in the case of multiple trustees, the representative
trustee must
be furnished giving among other things the name, registration number
and address of the trust as well as the names
of all the trustees of
the trust. As is evident from the certificate issued by the
Registrar of Close Corporations in respect
of the respondent these
details were provided to the Registrar when Viviers was appointed the
representative trustee holding the
member’s interest in the
respondent.
[
15]
As a matter of law, the respondent’s assertion that the trust
is the holder of the member’s interest in the respondent
is
incorrect. That interest is held by Viviers in his capacity as the
authorised representative trustee. Section 1 of the Act
defines a
member as a person qualified for membership of a corporation in terms
of section 29, including “
a
trustee
”
or other legal representative. That definition envisages membership
of the person representing the trust and not the trust
itself.
[16] As the
designated holder of the entire member’s interest in the
respondent, Viviers would have had lawful authority to
represent the
respondent when contracting with third parties and in executing the
suretyship on the respondent’s behalf.
[17] In a
final attempt to demonstrate that Viviers lacked the requisite
authority, respondent’s counsel, in an ingenious
argument,
sought to rely on the wording of section 29(1A)(c) of the Act, which
provides as follows:
“
the
corporation
shall not be obliged to
observe or have any obligation
in
respect of any provision of or affecting the trust or any agreement
between the trust and the member concerned of the corporation;
and …”
[Underlining my emphasis]
[
18]
He submitted that sub-section 29(1A)(c) of the Act does not prohibit
a close corporation from observing or having an obligation
under a
trust deed. He argued that the ordinary literal and grammatical
meaning of the words used in the sub-section, and especially
the
phrase underlined above, is that the corporation may choose to
observe or have an obligation in respect of any provision of
the
trust deed, but it is not necessarily obliged to do so. He further
submitted that on the facts, Viviers had explicitly, or
at least
implicitly, chosen on behalf of the respondent to observe the
provisions of the trust deed at the time of signing the
suretyship by
alerting the applicant’s representative to the fact that he was
acting without the authority of the trust.
In consequence, it was
open to the respondent to contend that Viviers was not authorised to
bind it as a surety in favour of the
applicant without the consent of
the majority of the trustees.
[19] The
construction attributed by the respondent to sub-section 29(1A)(c)
is, in my view, untenable. To interpret it in that
manner would run
counter to a principal objective of section 29(1A), which is to
ensure that the corporation concerns itself only
with the holder of
the member’s interest and not with the beneficial holder of
such interest. This is evident from the wording
of sub-section 29(4)
which provides that a corporation is “
not
concerned with the execution of any trust in respect of any member’s
interest in the corporation
”
(see the discussion concerning the effect of this sub-section in
Guide
to the Close Corporations Act and Regulations
,
Geach & Schoeman at 534;
Henochsberg
on the Close Corporations Act
(Vol 3) Meskin at Com-70).
[19] The
fiduciary capacity in which the member becomes a member is something
which has nothing to do with the close corporation.
The primary
fiduciary relationship which is owed is owed by the member personally
to the close corporation. This is apparent
from the wording of
sub-section 29(1A)(b).
[2
0]
The use of the word “
shall
”
(as opposed to “
may
”)
is a general indication that sub-section 29(1A)(c) was intended to be
peremptory and not permissive in nature. The ordinary
meaning of the
word “
obliged
”
is “
legally
liable” or “to be forced or compelled to do so
”
(see
Anglo
African Shipping Co (1936) Ltd v Harris
1977 (2) SA 213
at 216). And the ordinary meaning of the word
“observe” is to “
fulfil
”
or “
comply
with
”.
[2
1]
Simply put, and having regard to the aforegoing considerations, the
phrase “
shall
not be obliged to observe or have any obligation”
means, in my view, that a close corporation shall not be legally
liable to fulfil or comply with any obligation that a representative

member of a trust might have in terms of an underlying trust deed.
Accordingly, any transaction in which the close corporation

voluntarily undertakes to observe the provisions of a trust deed
would be contrary to the provisions of sub-section 29(1A)(c) and

void. Where this occurs the member concerned can no longer be said
to satisfy the requirements of sub-sections (b) and (c) of
section
29(1A), and the membership of such trustee would be rendered invalid.
[22] For
these reasons there is no merit in the respondent’s contention
that Viviers acted without the requisite authority
when executing the
deed of suretyship in favour of the appellant. In any event, and
even assuming the correctness of the respondent’s
contentions,
there is nothing in the affidavits to suggest that the respondent in
fact elected to observe or comply with the provisions
of the trust
deed or assumed any obligation thereunder.
[
23]
The application was also resisted on the ground that the respondent
was not insolvent and able to pay its debts, including
the debt owed
to the applicant. That indebtedness is substantial, amounting in
aggregate to some R4,7 million. Notwithstanding
delivery of a demand
envisaged in section 69(1)(a) of the Act, on 23 August 2009 the
respondent has failed to pay the sum claimed
or to secure or compound
for it to the reasonable satisfaction of the applicant. It is thus
deemed to be unable to pay its debts.
Apart from bald and
unsubstantiated allegations, no attempt has been made to rebut the
presumption or to show that the respondent
has the financial means to
satisfy the applicant’s claim.
[24] The
respondent therefore falls to be placed under winding-up in terms of
section 68(c) of the Act.
[
25]
The following order is granted:
1. The respondent is placed under final winding-up in the hands of
the Master of the High Court.
2. The costs of the application are to be in the winding-up of the
respondent.
_____________________________
P
BORUCHOWITZ
JUDGE OF THE SOUTH GAUTENG
HIGH COURT, JOHANNESBURG
COUNSEL
FOR THE APPLICANT
ADV
JOHN PETER
INSTRUCTED BY K G TSERKEZIS
INC
COUNSEL FOR THE RESPONDENT ADV H
P WEST
INSTRUCTED BY VAN DER
WESTHUIZEN ATTORNEYS
DATE OF JUDGMENT 7 MAY 2010