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[2016] ZAGPPHC 66
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Mashiloane v Lopez and Others (25790/2014) [2016] ZAGPPHC 66 (26 January 2016)
IN
THE HIGH COURT OF SOUTH AFRICA
(GAUTENG
DIVISION, PRETORIA)
CASE
NO: 25790/2014
26/1/2016
REPORTABLE
OF
INTEREST TO OTHER JUDGES
REVISED
In
the matter between:
SITSOTI
ENOCK
MASHILOANE
Applicant
and
ANTONIO
AGUSTO SILVA
LOPEZ
1st
Respondent
LUKE
GABRIEL
SWARTS
2nd
Respondent
MAHLANGU
MAKIZIWE
XOLISWA
3rd
Respondent
NGCEBETSHA
XOLISWA
4th
Respondent
S
E MASHILOANE TRANSPORT
CC
5th
Respondent
THE
COMPANIES AND INTELLECTUAL
PROPERTY
COMMISSION
(THE
REGISTRAR OF
COMPANIES)
6th
Respondent
GOLDEN
RIBBON TRADING 297 (PTY)
LTD
7th
Respondent
JOHN
SINDISO
NGCEBETSHA
8th
Respondent
JUDGMENT
Bagwa
J
[1]
This is an application for an order declaring the membership interest
of the fourth respondent statutorily invalid and for the
restoration
of the status
quo ante
in the fifth respondent. The applicant
initially sought a
de bonis propiis
costs order against the
eighth respondent but has since amended that to seek a costs order
against all the respondents.
[2]
The background to the matter is briefly as follows. The applicant
founded the fifth respondent in 1998 and was initially the
sole
member of the close corporation.
[3]
In 2007 the applicant sold 50% of his membership interest to the
second respondent. Thereafter the first respondent joined as
a member
on a 25% basis sharing the membership sold to the second respondent.
[4]
The business was in the main transportation of coal on behalf of
Eskom and it initially started with a one horse and trailer
combination and later acquired four other horse and trailer
combinations.
[5]
In 2013 when the son of the applicant attended a meeting at the
offices of the sixth respondent, he came upon an agreement on
file
for the sale of membership interest between the third and fourth
respondents, the first respondent and the applicant. The
document was
unsigned and purportedly sold part of the membership interest to the
fourth respondent, to be held on behalf of the
seventh respondent.
The agreement was dated May 2012.
[6]
In terms of the agreement, the first and third respondent sold their
membership interest and the fourth respondent purchased
50% of the
membership interest in the fifth respondent for the sum of 2 million
rands which would be paid as set out in the agreement.
[7]
A second document was also found on the file which purported to be an
"addendum"
to the original agreement. This agreement
was purportedly signed by the second respondent on behalf of the
applicant.
[8]
A third document being an alleged resolution of members was also
found on file dated 27 November 2012. This document ostensibly
"ratified'
the sale of membership interest. The applicant
initially denied signing this agreement but subsequently retracted
the denial.
[9]
The position currently regarding members interest is that the
applicant holds 25% and the fourth respondent holds 50% members
interest. The first and third respondents resigned as members on 18
May 2012.
[10]
The issues to be decided in this matter are firstly whether a proper
case has been made out that the membership interest of
the fourth
respondent is null and void and secondly whether it should be
transferred back into the name of the fifth respondent
and on what
terms. This Court also has to decide whether the applicant is
entitled to costs as prayed and whether the conduct of
the eighth
respondent is subject to censure.
[11]
Section 29 (1) of the Close Corporations Act 69 of 1984 (as amended)
("the Act") provides as follows:
"29.
Requirements for Membership
(1) Subject to
subsection (1 A) 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."
[12]
Section 1 (A) states:
"(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-
(a)
no juristic
person 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
(d)
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."
[13]
The legal position is further elucidated by Henochsberg: Commentary
on the
Close Corporations Act when
the learned author states that it
was the intention of the legislature to preclude membership by
disqualified parties by any means
whatsoever and any machinery
whatsoever intended to circumvent the Section.
[14]
It is common cause that the purported sale of 50% members interest to
the fourth respondent was for and on behalf of the seventh
respondent
and is as such in direct contravention of the provisions of Section
29 (1) of the Act.
[15]
The eighth respondent states in his papers that the parties
"agreed'
to this transfer. There is nothing in the section to suggest that
any purported ratification could possibly legalise the actions
of the
other respondents involved in the transaction. The membership is
invalid and cannot be cured.
[16]
Regarding the liability for debt of the corporation, Section 63 (d)
provides as follows:
"63. Joint
Liability for Debts of Corporation
Notwithstanding
anything to the contrary contained in any provision of this Act, the
following persons shall in the following circumstances
together with
a corporation be jointly and severally liable for the specified debts
of the corporation . . ...
(d) where a juristic
person or a trustee of a trust
inter vivos
in
that capacity purports to hold, whether directly or indirectly,
a
member's interest in the corporation in contravention of any
provision of section 29, such juristic person or
trustee of a trust
inter
vivos
and any
nominee referred to in
that section shall, notwithstanding the invalidity of the holding of
such interest, be so liable for every
debt of the corporation
incurred during the time the contravention continues."
[17]
Henochsberg elaborates as follows under 63.5
"63.5.
Subsection (d)
These provisions
predicate a period during which the invalid holding of an interest
subsists, and concerns the incurrence of debts
during such period, ie
irrespective of the length of its duration.
The liability created
by the section attaches to the juristic person or to the trustee (or
either's nominee as envisaged by s 29
(1)) notwithstanding the
validity of the holding.
. . ."
[18]
According to Henochsberg the liability which arises in terms of these
prov1s1ons does not cease to exist once the relevant
invalid holding
is eliminated. It ceases only when the liability is discharged or
otherwise ceases to be enforceable against the
juristic person or
trustee (or either's nominee) concerned.
[19]
In
casu
the fourth and seventh respondent's current
relationship with the corporation illustrates precisely what is
referred to and discussed
by Henochsberg and provided for in Sections
29 (1) and Section 63 (d). A detailed account of the
relationship is given in
the affidavit deposed to by the eighth
respondent.
[20]
Section 49 (1) provides as follows:
"
49.
Unfairly Prejudicial Conduct
(1) Any member of a
corporation who alleges that any particular act or omission of the
corporation or of one or more other members
is unfairly prejudicial,
unjust or inequitable to him, or to some members including him, or
that the affairs of
the corporation are being
conducted in a manner unfairly prejudicial,
unjust or inequitable
to him, or to some
members including him, may make an
application to a Court for
an order under this section."
[21]
The applicant, after having taken other members on board in the
corporation, seems to have been given a rough ride or the short
end
of the stick with regard to the financial affairs and management of
the corporation. This is in my view what Section 49 refers
to
by
"unfairly prejudicial conducf'
which would
justify some relief in this regard.
[22]
Mr Rossouw for the respondents submits that the applicant had no
business in bringing this application as the members' interest
sold
to the fourth respondent was sold by the first and third respondents.
If this is accepted a member of a Close Corporation
would be left
powerless against other members acting in contravention of the law.
In my view the applicant derives his authority
to act from the
provisions of Section 49. The applicant derives authority also from
his membership of the corporation to act in
any situation where his
fellow members act in any manner that might be prejudicial to his
interests.
Mr
Rossouw has also made submissions regarding the applicant' s
credibility where he initially denied having signed the resolution
purportedly ratifying the sale of members' interest to the fourth
respondent. He at the same time conceded that the provisions
of
the law cannot be overridden by whatever question that might arise
concerning the applicant's credibility.
[23]
Mr Rossouw submits that the application stands to be dismissed in the
light of the judgment by my brother, Mr Justice Boruchowitz
in the
matter of the
South African Bank of Athens Ltd v Salvadora
Properties Nine Nine CC
2010 JDR 0542 (GSJ). Mr Kriel for the
applicant submits that the case can be distinguished from the present
case as it dealt with
a trust which is dealt with under sub Section 1
A inserted by Section 1 of Act 17 of 1990 and substituted by Section
2 of Act 25
of 2005. I accept Mr Kriel's submission.
[24]
The fact of the matter is that the respondents were aware even as
they purported to enter into the transaction
that the transaction was
not valid in law. Mr Rossouw conceded that the transaction
contravenes Section 29 (1). I cannot envisage
any manner in which the
situation can be viewed differently.
[25]
Regarding the applicant’s credibility Mr Kriel submits that his
act of signing the resolution, denying having signed
it and later
retracting his denial should be viewed in the light of his advanced
age. The main issue that I have to decide bears
no relation to the
applicant's credibility. For that reason I propose to confine my
order to that issue so as not to be seen to
be condoning any
credibility issues that have arisen.
[26]
A member's interest in an interest in the corporation. When a member
has sold his interest and then resigned from the corporation
the
member' s interest remains in the corporation. If it later transpires
that the sale transaction is for whatever reason void
or invalid, the
member's interest cannot for that reason revert to the member who has
resigned. It can only be returned to the
corporation. Any other
issues stand to be resolved between the departing member and
the buyer regarding the void transaction.
[27]
Regarding costs, the costs must follow the result
Order
[28]
In the result I make the following order:
28.1. A declaratory order
that the membership interest of the fourth respondent, held on behalf
of the seventh respondent, is null
and void.
28.2. An order that the
sixth respondent be and is hereby ordered and authorised to transfer
those membership interests alternatively
just the membership interest
of the fourth respondent back into the name of the fifth respondent.
28.3. In terms of Section
63 (d) the fourth and seventh respondent are jointly and severally
liable for all the debts of the fifth
respondent from the date on
which the fourth respondent became a member to date of this order.
28.4. Any purported
transfer of the member's interest of the fourth respondent to the
eighth respondent is null and void.
28.5. The second, fourth,
seventh and eighth respondents are ordered to pay the costs of this
application jointly and severally,
the one paying the other to be
absolved.
______________________________
S.
A. M. BAQWA
JUDGE
OF THE HIGHCOURT OF SOUTH AFRICA
GAUTENG
DIVISION, PRETORIA
Date
of Hearing
:
26 January 2016
Date
of Judgment
:
26 January 2016
For
the Applicant:
Adv. Z. F. Kriel
Instructed
b
y:
Ngcebetsha Madlanga Attorneys
For
the 2
nd
, 4
th
,
5
th
,
Adv. Z. F. Rossouw Adv
7
th
& 8
th
Respondents:
Adv T. Govender
Instructed
b
y:
Du Toit's Attorneys