National Union of Mine Workers and Another v Van Rooyen and Another (56204/2008) [2015] ZAGPPHC 435 (10 July 2015)

80 Reportability

Company Law

Brief Summary

Close Corporations — Liability of members — Section 63(h) of Close Corporations Act — Plaintiffs sought to hold first defendant liable for judgment debt of Billard Contractors CC — Allegation of vacancy in office of accounting officer — First defendant claimed KPMG was still appointed accounting officer — Court found that KPMG did not perform required duties, resulting in a vacancy — First defendant held personally liable for debts incurred during vacancy.

Comprehensive Summary

Summary of Judgment

1. Introduction

This judgment concerns civil proceedings in the Gauteng Division of the High Court, Pretoria, in which the plaintiffs pursued an alternative claim for personal liability against a member of a close corporation, premised on the statutory consequences of an alleged prolonged vacancy in the office of the accounting officer of the close corporation.

The parties were the National Union of Mine Workers (first plaintiff) and Moroane S and 199 others (second and further plaintiffs), who were former employees of Billard Contractors CC (“Billard”), a labour broker. The defendants were Van Rooyen, Gysbert (first defendant) and Boltman, Shalk Jacobus (second defendant). Although summons was served on both defendants, what remained for determination in this hearing was the plaintiffs’ alternative claim directed only against the first defendant.

Procedurally, the plaintiffs’ main action sought to hold the members of Billard personally liable for a Labour Court judgment debt by invoking sections 64 and 65 of the Close Corporations Act 69 of 1984, alleging (in substance) abuse of juristic personality and reckless/negligent/fraudulent trading. A special plea of prescription was separated and determined under Uniform Rule 33(4), and Preller J held that the main claim had prescribed. The present judgment addressed only the plaintiffs’ surviving alternative claim based on section 63(h) of the Close Corporations Act.

The dispute’s subject-matter arose from an underlying Labour Court judgment (case number JS 929/02) granted against Billard following the dismissal of workers, and whether the first defendant could be held jointly and severally liable for that judgment debt on the basis of section 63(h).

2. Material Facts

Billard was incorporated on 26 November 1999. On incorporation, Billard’s founding statement reflected that its accounting officer was KPMG, and KPMG had consented in writing to act as accounting officer in a letter dated 18 October 1999. These aspects were treated as common cause.

During 1999, an agreement was concluded on Billard’s behalf with Midway Bricks (Pty) Ltd (“Midway”), under which Billard supplied labour to Midway. At that time, the second defendant (a practising attorney with an interest in labour work) and another person were members of Billard.

On 29 May 2002, after a series of unprotected strikes, Billard dismissed the second to the 199th plaintiffs. The employees challenged the dismissals in the Labour Court on 13 August 2002. During those proceedings there was an application to join Midway. The judgment records that the first defendant did not wish default judgment to be taken against Billard and accordingly took over the members’ interest; he became a member of Billard on 22 October 2002 and has since then been the sole member.

On 25 April 2006, the Labour Court ordered Billard to reinstate certain plaintiffs and to pay compensation to others, together with a contribution to costs. The High Court treated the relevant debt for present purposes as having been incurred on 26 April 2006, when the Labour Court gave judgment in the plaintiffs’ favour, including an order that Billard pay 25% of the plaintiffs’ costs.

When the plaintiffs sought performance on 26 May 2006, Billard did not comply and stated it had been dormant since 29 May 2002, with no assets and no clients. Billard was subsequently placed under final winding-up.

The plaintiffs’ alternative claim depended on the factual proposition that from 29 February 2000 to the present the office of Billard’s accounting officer had been vacant, that the vacancy existed when the first defendant became a member on 22 October 2002, and that he was aware of the vacancy and its duration. The first defendant denied this and pleaded that KPMG had been appointed as accounting officer since incorporation and was never removed.

The evidence relied on in the trial included testimony from Mr Stephanus Johannes Martinus de Beer, who was the plaintiffs’ only witness. It was common cause on the evidence that Billard did not trade after 29 May 2002 and that no annual financial statements were compiled for Billard during its dormancy. It was also common cause that KPMG never resigned as accounting officer.

The central factual dispute crystallised into a single issue: whether, notwithstanding KPMG’s recorded appointment and non-resignation, the accounting officer’s office was legally to be treated as “vacant” for purposes of section 63(h), particularly given the lack of financial statements and asserted non-performance of statutory functions.

3. Legal Issues

The central legal question was the proper interpretation and application of section 63(h) of the Close Corporations Act 69 of 1984, specifically whether Billard’s office of accounting officer was “vacant for a period of six months” in circumstances where an accounting officer was recorded as appointed and had not resigned, but where the accounting officer allegedly did not perform the functions contemplated in section 62.

A further required determination was whether the Labour Court judgment debt was a “debt of the corporation incurred during such existence of the vacancy” (as section 63(h) requires), and whether the first defendant satisfied the statutory conditions of being a member during the period, aware of the vacancy, and still a member at the expiration of the six-month period.

The dispute primarily concerned the application of law to largely common-cause facts (appointment of KPMG, Billard’s dormancy, lack of financial statements, non-resignation), and the legal characterisation of those facts as constituting (or not constituting) a statutory “vacancy” in office.

4. Court’s Reasoning

The court approached the matter through the statutory framework of the Close Corporations Act. It identified section 63(h) as imposing joint and several liability on a member in defined circumstances, namely where the office of the accounting officer is vacant for six months, and the member was aware of the vacancy and remained a member at the expiration of that period, with liability attaching to debts incurred during the vacancy and thereafter while it continues.

The plaintiffs’ contention was that a formal appointment alone was insufficient, and that where the purported accounting officer did not perform the section 62 functions “on a continuous basis” the office should be treated as vacant. In support, the plaintiffs relied on Airport Cold Storage (Pty) Limited v Ebrahim and Others [2007] ZAWCHC 25; 2008 (2) SA 303 (C), including the view expressed there that merely having a name listed as accounting officer could be inadequate if the statutory purpose is not met.

The court held, however, that on the common-cause facts of this case, failure to compile financial statements during the period of dormancy did not establish that the office itself was vacant. It reasoned that Billard had become dormant from 29 May 2002, and it was common cause that no annual financial statements were generated; but the court did not accept that this non-performance equated to a vacancy in the office. Similarly, although section 62(3)(a) provides for an accounting officer to report to the Registrar when a corporation is not carrying on business or has no intention of resuming operations, the court concluded that a failure to report as contemplated by section 62(3)(a) does not render the office “vacant”.

A significant aspect of the court’s evaluation was the distinction drawn between the present facts and those in Airport Cold Storage. The court accepted the first defendant’s submission that the earlier case was materially different, and it emphasised that in the present matter KPMG had been appointed as accounting officer since incorporation and had not resigned. The court further noted that the Supreme Court of Appeal in Ebrahim v Airports Cold Storage (Pty) Ltd [2009] 1 ALL SA 330 (SCA) found it unnecessary to consider the section 63(h) issue, which limited the utility of the earlier High Court reasoning for determining this dispute.

On the evidence, the court was not persuaded that the inference sought by the plaintiffs—namely that there was a statutory vacancy—was justified. It accepted that KPMG had been active in some respects associated with the accounting officer relationship, referring to the filing of provisional tax returns and the issuing of tax invoices and related remittance advices. In that context, the court rejected the submission that the office became vacant merely because annual financial reports were not compiled for a dormant corporation.

Accordingly, because the plaintiffs did not establish the foundational requirement of section 63(h)—a vacancy in the office of accounting officer for the stipulated period—the statutory basis for imposing personal joint and several liability on the first defendant was not made out.

5. Outcome and Relief

The court dismissed the plaintiffs’ alternative claim against the first defendant based on section 63(h) of the Close Corporations Act 69 of 1984. The claim sought an order declaring the first defendant jointly and severally liable with Billard for debts arising from the Labour Court judgment (case number JS929/02), but this relief was refused.

The dismissal was granted with costs in favour of the first defendant.

Cases Cited

Airport Cold Storage (Pty) Limited v Ebrahim and Others [2007] ZAWCHC 25; 2008 (2) SA 303 (C)

Ebrahim v Airports Cold Storage (Pty) Ltd [2009] 1 ALL SA 330 (SCA)

Legislation Cited

Close Corporations Act 69 of 1984 (sections 62, 63(h), 64, 65)

Rules of Court Cited

Uniform Rules of Court, Rule 33(4)

Held

The court held that, on the common-cause facts, Billard’s office of accounting officer was not shown to have been “vacant” for purposes of section 63(h) of the Close Corporations Act 69 of 1984 merely because KPMG did not compile annual financial statements during the period when Billard was dormant, or because KPMG did not report dormancy to the Registrar as contemplated in section 62(3)(a). Since the statutory requirement of a vacancy was not established, the first defendant could not be held jointly and severally liable for the Labour Court judgment debt under section 63(h), and the alternative claim was dismissed with costs.

LEGAL PRINCIPLES

Section 63(h) of the Close Corporations Act 69 of 1984 imposes joint and several liability on members only where the jurisdictional fact exists that the office of the accounting officer is vacant for six months, coupled with the member’s awareness of the vacancy and continued membership at the expiration of that period, and liability then attaches to debts incurred during the vacancy and thereafter while it continues.

A failure by an appointed accounting officer to perform certain duties contemplated by section 62, including the non-compilation of annual financial statements during a period in which the corporation is dormant, does not without more establish that the office itself is vacant for the purposes of section 63(h).

The application of authority concerning section 63(h) is sensitive to the underlying facts; where an accounting officer has in fact been appointed and not resigned, a court may distinguish cases addressing situations where no accounting officer was effectively in office, and may decline to infer a statutory vacancy solely from alleged non-performance of functions.