IN THE HIGH COURT OF SOUTH AFRICA
WESTERN CAPE DIVISION, CAPE TOWN

Case Number: 13372/2023

In the matter between:

MARIANA BADENHORST Applicant

and

JACOBUS FRANCOIS DE KOCK Respondent


JUDGMENT


JANISCH AJ:

Introduction

1. This case is a good illustration of the pitfalls of doing business with members
of one’s own family.

2. The Applicant and the Respondent are sister and brother. The Respondent
was the sole director and shareholder of a n investment holding company

called Good Hope Holdings (Pty) Limited (“ GHH”). In November 2015, GHH,
represented by the Respondent , purchased shares and loan accounts from
the Applicant. Payment of the purchase price was to be made in instalments
over a pe riod of two years. Notwithstanding an interim settlement agreement
and two court orders, GHH failed to pay even a quarter of the amount owed to
the Applicant. On 25 January 2022, t he Applicant obtained a final liquidation
order in respect of GHH. The winding-up process of GHH is ongoing.

3. The Applicant now approaches this Court in terms of section 424 of the
Companies Act 71 of 1973 (“the 1973 Act ”), which section continues in force
pursuant to item 9 of Schedule 5 to the Companies Act 71 of 2008 (“the 2008
Act”), for an order that the Respondent is personally responsible for the debt
of GHH.

4. The quantum claimed by the Applicant is R9,285,000 plus interest. She
however asks the court to make provision for the effective reduction of th at
amount commensurate with any dividend that the Applicant may receive in the
winding-up of GHH.

5. The Respondent disputes his liability under section 424, as well as the
quantum of the debt if any liability is held to exist. The parties have however
agreed on the formulation of the relief, should I be inclined to grant it.

Application proceedings

6. The Applicant seeks final orders on motion. To succeed, she must establish
her case on the basis of the facts put up by the Respondent, together with
those facts averred by h er that the Respondent cannot deny. The factual
version put up by the Respondent w ill only be disregarded if, exceptionally, it
can safely be rejected on the papers alone (Plascon-Evans Paints Ltd v Van
Riebeeck Paints (Pty) Ltd 1984 (3) SA 623 (A) , Media 24 Books (Pty)
Limited v Oxford University Press Southern Africa (Pty) Limited 2017 (2)
SA 1 (SCA) in para [36]).

7. Although courts are enjoined to take a robust and common -sense approach
towards disputes of fact on motion, and not to hesitate to d ecide an issue on
affidavit merely because it may be difficult to do so ( Soffiantini v Mould 1956
(4) SA 150 (E) at 154G -H), this approach should be adopted with caution and
having regard to the potential for viva voce evidence to alter the court’s view
of the facts ( Canton Trading 17 (Pty) Limited t/a Cube Architects v
Hattingh NO 2022 (4) SA 420 (SCA) in paragraph [78]).

8. In the present case, the Applicant was content to argue the matter on the
papers and did not seek leave to refer any aspects to oral evidence.

The material facts and disputes

The Applicant’s investment in Bunker Hills

9. In or about 2009, the Applicant , with capital to invest from the sale of a
property, purchased a minority interest in a company called Bunker Hills
Investments 378 (Pty) Limited (“Bunker Hills ”) for R1 million. Bunker Hills’
main asset was a quarrying business (“Elsana Quarry”).

10. The Applicant contends that the Respondent advised her to invest in Elsana
Quarry (on th e basis that this carried virtually no risk and good revenue
growth) rather than in foreign “tech shares” as had been her plan . She took
that advice. The Respondent denies that he so advised her , and says that he
merely mentioned the investment opportunity to her , which she took up . This
contradicts an email sent by him (attached to the replying affidavit) where he
expresses a degree of responsibility “vir die belegging wat ek aanbeveel het”.

11. The Applicant contends that during the following years, certain things ( which
are not explained) came to light that “caused [her] to lose trust in the [Elsana
Quarry] business and in [her] brother”. She felt that she had missed out on the
growth that she w ould have realised had she rather invested the money in
tech shares as she had wanted to do . The Respondent, she says, eventually
offered to buy her Bunker Hills shares.

12. The Respondent says that what gave rise to the Applicant’s decision to sell
her Bunker Hills shares was partly “a family feud, which had been triggered by
a fallout between the Applicant and [ the Respondent’s] wife.” He says that the
subsequent acrimony escalated to the point where eventually (after the sale
agreement was concluded , it seems) the Applicant severed ties with the
Respondent and his wife.

Terms of the sale agreement

13. Discussions about the sale of the Bunker Hills shares by the Applicant to GHH
commenced. The Respondent says that he (in his capacity as director of
GHH) offered to buy the shares because this “ presented a good investment
opportunity for [GHH] ”. This conflicts with other evidence given by him in an
insolvency enquiry, as discussed below.

14. The parties agreed upon a price of R4,625,000 for the shares . It is common
cause that the price was based on the putative value the Applicant would
have had as at November 2014 if she had invested her original R1 million in
the JSE all share index instead of the Bunker Hills shares . Other amounts
contributing to the price were a loan account and an “ outstanding
management fee” owed to the Applicant, escalated at a notional interest rate.

15. The Applicant says that during the negotiations she expressed a wish to
receive the full purchase price immediately. However, the Respondent
“advised that GHH would not be able to pay the amount in full on the date of
the sale, but would pay capital growth in order to place [her] financially in the
same position [she] would have been in if [she] had invested the full purchase
consideration in a shares portfolio at the time of the sale .” A capital growth
clause was ultimately included in the agreement, as I point out below.

16. On 9 November 2015 , the Applicant and GHH (represented by the
Respondent) entered into a written agreement for the sale of the Bunker Hills
shares and loan account to GHH.

17. The purchase price was R 4,625,000. The parties agreed as follows regard ing
the payment of this amount:

“The Balance of the Price will be paid in monthly instalments over a period
not exceeding 24 months. Such instalments will not be less than R100 000
during the first 12 month period. After 12 months these instalments will be
increased to a minimum value of R250 000 per month until the balance of
the price is paid. If there is still an outstanding amount due at the end of this
term this will be paid in full in month 24.

The Price will accrue capital growth of R750 000 … per annum if not settled
on or before the 31st December of 2015.”

18. The Applicant explains that the agreement to make payment over 24 months
was entered into “ as respondent advised that GHH did not have the funds to
pay the amount in full at the time of the sale of shares.” She however goes on
to state that at the time of the sale agreement , the Respondent “never
mentioned that there was any risk in respect of the payment of the full amount
within the 24 month period and the intention was actually that it would be paid
in a shorter period. He certainly never mentioned that the payment was
subject to the success of any other business transaction”.

19. The Respondent’s case on this issue is different. He says the following:

“… I did not only advise the Applicant that [GHH] would not be able to pay
the full purchase price immediately, but I also explained the re asons why
[GHH] would not be able to make this payment. I explained to the Applicant
that [GHH] was an investment company and that it would have to realise
one of its investments in order to pay the purchase price , and that [GHH]
required time to do so.”

20. The Respondent contends that the Applicant understood and appreciate d
GHH’s inability to pay the purchase price immediately, but insisted on
compensation for this by way of adjustments to the purchase price – hence
the annual R750,000 capital growth amount that was agreed upon.

GHH’s default in payment

21. Almost from the very beginning, GHH failed to meet its payment obligations to
the Applicant. The Respondent explains the reasons as follows:

“The capital which [GHH] intended to employ in order to pay the purchase
price in terms of the sale of shares agreement, was indirectly invested in
Safety Protective Clothing (Pty) Ltd. Safety Protective Clothing was an
existing business which distributed, as the name indicates, protective
clothing. It was a profitable business with the potential for growth.

[GHH] had a loan account with Two Ships Trading 312 (Pty) Ltd (“Two
Ships”), and Two Ships held 60% shares and a loan account in Safety
Protective Clothing. Safety Protective Clothing was involved in a joint
venture with another company , and required capital to fund stock, for a
tender which had been awarded to it by Eskom. Unfortunately, the venture
partner received all funds from Eskom and failed to make any payment to
Safety Protective Clothing. As a consequence Safety Protective Clothing
faced a substantial financial predicament , because it was unable to pay its
suppliers or repay t he Two Ships loan account, as it intended to do. As a
further consequence of this development, Two Ships could also not repay
its loan account to [GHH]. The cumulative effect of these events was that
[GHH] was unable to realise an investment of approximate ly R10 million,
which would have been utilised to pay the purchase price of the shares and
loan account it had purchased from the Applicant”.

22. As the above foreshadows, GHH did not come close to meeting its payment
obligations under the sale agreement. During the 24 -month period in which
the entire purchase price was supposed to be paid, and despite two court
orders, GHH paid only R590,000 in five erratic instalments. This left
R4,035,000 outstanding.

23. Because the total amount had not been settled by 31 December 2015 ,
according to the payment provisions “capital growth” of R750,000 would have
accrued to the purchase price on that date , and each year thereafter. The
Applicant contends that the total a mount of capital growth that had so
accumulated by 31 December 2021 was R5,250,000.

24. Together, the Applicant therefore claims that GHH’s indebtedness to her
currently amounts to R 9,285,000, a nd remains unpaid notwithstanding
demand.

25. The Respondent contends that GHH’s inability to comply with its obligations
was “ unforeseen and explained to the Applicant ” and that she “ understood
and appreciated why [GHH] was unable, temporarily, to comply with its
obligations”.

The settlement agreement and the first Court order

26. The Applicant did not sit idle when GHH went into default on its payments to
her. On 16 May 2016, she instituted an action in this court to claim payment of
the outstanding instalments in terms of the agreement . She then applied for
summary judgment , whereafter the matter was settled (with the settlement
agreement being made an order of court) on the basis that GHH would pay
R100,000 by 22 July 2016 and two further amounts of R300,000 each by 7
September and 7 November 2016 respectively. This was over and above the
monthly instalments still owing under the agreement , which GHH had to
continue paying.

27. Clause 4 of the settlement agre ement – essentially an acceleration clause –
provides as follows:

“The entire amount still outstanding in terms of the agreement will become
due and payable immediately , in the event of [GHH] failing to pay any
instalment timeously.”

28. By the time the settlement agreement was concluded, the Respondent was
apparently already aware of the events involving Safety Protective Clothing
(“Safepro”), and does not suggest that he though t that this would be a source
of payment. However, he says that at around that time, a property owned by
GHH in the vicinity of Clanwilliam Dam was being expropriated and would
realise just shy of R1,3 million . The Respondent says that he had every
reason to believe that the money that GHH would be paid from this investment
“could be u tilised to comply with the terms of the settlement agreement, until
such time as [ GHH] would have realised another investment, in order to pay
the balance of the debt owed to the Applicant”.

29. The Clanwilliam payment however never materialised.

30. GHH failed to comply with the settlement agreement that had been made an
order of Court . It only made two payments of R100,000 each , in July and
September 2016 respectively.

The McCurdie AJ order and subsequent correspondence

31. The Applicant returned to Court to obtain an urgent order enforcing the
settlement agreement. The application appears to have been un opposed. On
25 October 2016, the following order was made by McCurdie AJ:

“That Respondent is directed to comply with the Provisions of the deed of
settlement made an order of Court under case no 8210/16 by paying the
applicant the sum of R4 225 000.00 (four million two hundred and twe nty
five thousand rand) plus interest at the prescribed rate of legal interest a
tempore morae.”

32. The issue of the abovementioned c ourt order did not much assist the
Applicant. The only further payments made by GHH thereafter were R100,000
on 4 May 2017 and R90,000 on 2 November 2017.

33. The Applicant contended that the Respondent is “by all accounts a wealthy
individual and a businessman of repute ,” and h as “ over many years …
deliberately delayed making payment to me and has strung me along”.

34. In support of this, the Applicant attached an e -mail trail between her and the
Respondent between February 2017 and July 2018 relating inter alia to the
payment of the purchase price for the shares . She summarises this
correspondence as reflecting that the Respondent never denied GHH’s
indebtedness to her , but “made excuses for GHH’s failure to pay ”. This
appears to be a fair reflection of the import of the email trail.

35. The Respondent denies any deliberate delay in payment and denies “stringing
[the App licant] along ”. He says that “ due to unforeseen circumstances,
[GHH’s] financial position was such that it was unable to fully comply with the
terms of the … court order.”

36. The Respondent goes on to say that the Applicant know that GHH was an
investment holding company with “solid investments ” in different businesses
“which [GHH] would, given sufficient time, be able to realise”.

Demand, liquidation and the insolvency enquiry

37. From the end of the abovementioned e-mail trail, there is a three -year gap in
the narrative until 27 July 2021 . On that day , the Applicant’s attorneys issued
a letter of demand to GHH . The letter stated that GHH remained indebted to
the Applicant in the sum of R 4,035,000 in respect of capital together with
interest thereon “ as well as penalties ”. Unless payment , or a payment plan
and security, was received by 3 August 2021, they said, “the necessary legal
proceedings to protect our client’s interests” would be taken.

38. The letter of demand was not responded to , and no further payment was
received. The Applicant states that “ due to GHH’s failure to pay me in
accordance with the agreement and in compliance with the court order ”, she
launched liquidation proceedings against GHH . A provisional liquidation order
was made on 7 September 2021 and a final order on 25 January 2022.

39. The liquidators of GHH caused an enquiry in terms of section 415 of the 1973
Act to be convened. The Respondent, as its sole director, was subpoenaed to
testify. He was examined on a range of topics . A transcript of his evidence at
the enquiry was included in the application papers. The Respondent accepted
that this could be admitted as evidence in the present proceedings in terms of
section 3(1) of the Law of Evidence Amendment Act 45 of 1988.

40. The following aspects of the Respondent’s evidence are relevant.

41. First, the Respondent testified that GHH is an investment holding company
that does not trade. It holds assets and loan accounts in a number of
companies. At the time of concluding the agreement for GHH to purchase the
shares from the Applicant, he was “working on liquidating a loan account that
was owed to [GHH] and I was under the impression that [GHH] should receive
that loan account in the foreseeable future”. He then said that repayment (of
the loan account) “didn’t happen, and ultimately never happened”. GHH lost in
the order of R10 million, which changed its position to the point where it could
not pay the Applicant.

42. The Respondent stated later that GHH “ doesn’t have income. It has on ly
assets in terms of loan accounts it [lent] to other companies and its ability to
pay its own liabilities is as strong as its ability to collect those loan accounts”.

43. Second, the Respondent stated that “every time” he made an agreement (i.e.
an agreement to pay the Applicant), he “ went to the underlying companies
and I put them on terms and asked them for repayment of [GHH’s] loan
accounts which they undertook to do as and when they were able to in terms
of their own cash flows . So these things just never happened. We went
through a difficult financial period in that time. We went through a Covid period
subsequently. So there were always externa l reasons why [GHH] couldn’t
collect its debts owed to [it] and therefore couldn’t pay [the Applicant]”.

44. Later, the Respondent testified that over time GHH would be in a position to
collect on its loan accounts and repay the debt, but that “ the nature of [GHH’s]
business was just never such that it could repay her”.

45. Third, although in his answering affidavit the Respondent says that the Bunker
Hills shares were good investments, in the enquiry he said that the shares
were “worth nothing” and that the company “ to this day is still worth nothing ”.
He testified that owing to the family tension caused by the lack of value in the
company, he said to her: “ Come up with a number. [GHH] is standing to
receive R10 million in a loan account shortly. I’ ll pay you out. She came up
with a number, I signed an agreem ent in good faith with her, full well knowing
her and me that the shares are worthless . They’re still worthless to this day
and I settled her with an amount.”

46. In his answering affidavit, the Respondent sought to explain this evidence by
saying that the Bunker Hills shares are worthless to third parties, but valuable
to GHH.

47. Fourth, the Respondent admitted that from 2016 GHH could not pay its
creditors as the relevant debts f ell due. He also admitted that GHH preferred
some creditors over others in that it made payments to other creditors despite
being indebted to the Applicant. He acknowledged that GHH was trading in
insolvent circumstances , and that he knew he should not do so , but should
rather commence business rescue or close GHH down.

48. Following the enquiry, an agreement was reached between the liquidators of
GHH and the Respondent (representing a subsidiary of GHH, Interactive
Signs, according to the Res pondent) for the purchase by him of GHH’s
shareholding in Two Ships for R3 million. He also bought from the liquidators
a vehicle (a Porsche sports car) which he says was an investment for GHH.

49. By the date of argument, the liquidators of GHH had not yet determined the
dividend payable to creditors , and no liquidation and distribution account ha d
yet been approved.

The Applicant’s contentions

50. The Applicant contends in her founding affidavit that the business of GHH was
at all relevant times carried on recklessly by the Respondent, and that he was
knowingly a party to this as envisaged in section 424 of the 1973 Act.

51. More particularly, she contends that as the sole director of GHH:

51.1. he (i.e. GHH) entered into the sale agreement and caused GHH to
take delivery of the Bunker Hills shares and loan accounts when he
knew, or when a reasonable businessman in his position would have
known, that GHH did not have the financial resources or ability to
pay the purchase price;

51.2. he (i.e. GHH) entered into a deed of settlement when there was no
reasonable prospect of GHH being able to comply with its terms;

51.3. he (i.e. GHH) traded in insolvent circumstances and preferred other
creditors over the Applicant , and notwithstand ing the order of Court
not only failed to comply with the order but paid other creditors
instead of the Applicant under the order;

51.4. the liabilities of GHH at all relevant times exceeded its assets, which
assets, insofar as they consisted of loan accou nts, were
subordinated and therefore of no real value;

51.5. he (i.e. GHH) did not adopt a resolution under section 129 of the
2008 Act (i.e. for the volun tary commencement of business rescue
proceedings) and did not del iver a notice to affected persons setting
out the criteria referred to in section 128(1)(f) of the 2008 Act (i.e. the
definition of “ financially distressed ” for purposes of the business
rescue provisions ) or the reasons for not adopting a section 129
resolution, but untruthfully certified in the annual financial statements
that GHH was able to continue as a going concern , whereas in truth
it did not possess assets or conduct a business fr om which it could
pay its debts as they fell due; and

51.6. he (i.e. GHH) provided security to unsecured creditors by way of
cessions while failing to make payment to the Applicant , and
purchased luxury vehicles for his own personal use and enjoyment.

52. On those grounds , the Applicant contended that the Respondent should be
declared personally responsible for the debts of GHH.

The Respondent’s defences

53. The Respondent’s defences fall in two main categories.

54. The first defence goes to quantum. H e con tends that the Applicant’s claim
against him is excessive. This pertains to the “capital growth ” portion of the
claim (i.e. R750,000 per year that the debt is not repaid) . Essentially , he
argues that the Applicant is not entitled to claim this amount , but only the
amount that was ultimately concretised in the order made by McCurdie AJ.

55. In amplification, the Respondent argues first that the Applicant waived any
right she may have had to claim the capital growth portion , and that this was
demonstrated inter alia by her not claiming this amount in any of the interim
litigation. S econd, he argues that the order of McCurdie AJ constituted a
novation of the sale of shares agreement, thereby extinguishing GHH’s
obligations under that agreement.

56. The Respondent’s second defence goes to the merits. He denies that he
carried on the business of GHH recklessly. He says that GHH’s operations
involved making investments in subsidiaries, funded by way of loan accounts,
with GHH becoming involved in those businesses in a strategic and advisory
capacity in e xchange for a management fee. The idea w as for th ose
subsidiaries’ businesses to succeed and repay their loan accounts. “ [GHH]
would in turn utilise the proceeds of these loans, to repay its own
investors/creditors”.

57. The Respondent contends that GHH was not factually insolvent. He says that
its assets far exceeded its liabilities. But “ due to the nature of [GHH’s]
business … it was no t always able to make payments in respect of loans it
had received from investors, as such payments fell due. I emphasise that at
all relevant times any non -payment in respect of such debt would be
restructured with a particular creditor , with the knowledg e, co -operation and
consent of all [GHH’s] other creditors, except for the Applicant”.

58. As regards the agreement with the Applicant, t he Respondent sa ys that the
intention was to liquidate the investment in Safepro (through the realisation of
loan accounts) to pay the purchase price within the agreed time frames. The
events that eventually precluded GHH from dong so were said to be “wholly
unforeseeable”.

59. The Respondent denies that it was unlikely that GHH would be unable to pay
all of its debts as they became due and payable within the immediately
ensuing 6 months. This was because of the support of GHH’s creditors “ in
addressing the temporary cashflow constraints that [GHH] experienced fr om
time to time”, and that this aspect of the business “ was always managed with
the knowledge, co -operation and consent of all the creditors, except for the
Applicant”.

Merits of the section 424(1) claim

60. I deal first with the merits of the Applicant’s claim – i.e. whether the
Respondent is to be declared personally responsible for any debts of GHH.
Only if the answer to that is in the affirmative does the quantum of the claim
arise for consideration.

Legal principles

61. Section 424(1) provides as follows:

“When it appears, whether it be in a winding -up, judicial management or
otherwise, that any business of the company was or is being carried on
recklessly or with intent to defraud creditors of the com pany or creditors of
any other person or for any fraudulent purpose, the Court may, on the
application of the Master, the liquidator, the judicial manager, any creditor
or member or contributory of the company, declare that any person who
was knowingly a p arty to the carrying on of the business in the manner
aforesaid, shall be personally responsible, without any limitation of liability,
for all or any of the debts or other liabilities of the company as the Court
may direct.”

62. In Ebrahim v Airport Cold Storage (Pty) Limited 2008 (6) SA 585 (SCA) in
paragraph [15], Cameron JA s aid this about the policy considerations behind
section 64 of the Close Corporations Act (which he had earlier stated to be
“for all intents and purposes identical to s 424 of the Companies Act 61 of
1973, at least as far as the underlying philosophy is concerned”):

“…it is an apposite truism that close corporations and companies are
imbued with identity only by virtue of statut e. In this sense their separate
existence remains a figment of law, liable to be curtailed or withdrawn when
the objects of their creation are abused or thwarted. The section retracts
the fundamental attribute of corporate personality, namely separate lega l
existence, with its corollary of autonomous and independent liability for
debts, when the level of mismanagement of the corporation's affairs
exceeds the merely inept or incompetent and becomes heedlessly gross or
dishonest. The provision in effect exact s a quid pro quo: for the benefit of
immunity from liability for its debts, those running the corporation may not
use its formal identity to incur obligations recklessly, grossly negligently or
fraudulently. If they do, they risk being made personally liab le.” (my
underlining)

63. Section 424 reserves its application for those who were “ knowingly a party to
the carrying on of the business as aforesaid ”. In Howard v Herrigel and
Another NNO 1991 (2) SA 660 (A) at 672H-674A, it was held that what must
be established is the director’s knowledge of the facts from which the
conclusion can properly be drawn that the business was carried on recklessly.
It is not necessary to show knowledge of the legal consequences of those
facts.

64. Put differently, as held in Philotex (Pty) v Snyman, Braitex (Pty) Ltd v
Snyman 1998 (2) SA 138 (SCA) at 143 B, “knowingly does not necessarily
mean consciousness of recklessness”.

65. The judgment of Howie JA in Philotex (supra) provides valuable guidance in
summarising the legal principles relevant to a section 424 claim.

66. As regards the test for recklessness, Howie JA first referred (at 143C–E) to
judicial formulations such as that “'recklessly' means 'grossly careless' ” and
that recklessness is “gross carelessness – the doing of something which in
fact involves a risk, whether the doer realises it or not; and the risk being
such, having regard to all the circumstances, that the taking of that risk would
be described as ‘reckless’”.

67. Having regard to these definitions, Howie JA stated (at 143G–I) that the test
for recklessness “is objective insofar as the defendant's actions are measured
against the standard of conduct of the notional reasonable person and it is
subjective insofar as one has to postulate that notional being as belonging to
the same group or class as the defendant , moving in the same spheres and
having the same knowledge or means to knowledge”.

68. The learned Judge went on to say the following (at 144A–C):

“In its ordinary meaning, therefore, 'recklessly' does not connote mere
negligence but at the very least gros s negligence and nothing in s 424
warrants the word's being given anything other than its ordinary meaning.

In the application of the recklessness test to the evidence before it a Court
should have regard, inter alia, to the scope of operations of the company, the
role, functions and powers of the directors, the amount of the debts, the
extent of the company's financial difficulties and the prospects, if any, of
recovery …”

69. Applying the test to section 424, the Court in Philotex endorsed the following
dictum of Van Deventer J in Ozinsky NO v Lloyd 1992 (3) SA 396 (C) at
414G–H:

“If a company continues to carry on business and to incur debts when, in
the opinion of reasonable businessmen, standing in the shoes of the
directors, there would be no reasonable prospect of the creditors receiving
payment when due, it will in general be a proper inference that the business
is being carried on recklessly.”

70. It is of course important not to apply section 424(1) in a manner that renders it
impossible for company directors to take entrepreneurial risk in carrying on
the business of a compa ny. Howie JA sought to draw the line in the following
way (at 146H–147D):

“Participation in business necessarily involves taking entrepreneurial risks
but s 424 only penalises the subjection of third parties to risk where (apart
from the case of fraudulent trading) it is grossly unreasonable. If,
therefore, in a given case there is some ground for thinking that creditors
will be paid but a reasonable businessman would nonetheless, because of
circumstances creating a material but not high risk of non-payment, refrain
from running that risk, the director who does run that risk by incurring
credit, and thus falls short of the standard of conduct of the reasonable
businessman, trades unreasonably and therefore negligently vis -à-vis
creditors. That departure from the reasonable standard could not fairly be
described as gross, however, and the director concerned would not be hit
by the section. By contrast, an instance that manifestly would fall foul of
the section is where the reasonable businessman would realise that in all
the circumstances payment would not be made when due. To incur credit
in that situation would, as a matter of degree, be so plainly more serious a
departure from the required standard than the conduct in the first example
that one has no diffic ulty categorising it as grossly unreasonable and
therefore grossly negligent. This second example, one must emphasise, is
an extreme one and it would, in my view, impose an unduly heavy burden
on a plaintiff in s 424 proceedings to require proof of circums tances in
which a reasonable businessman would assess non -payment as a virtual
certainty. So, if a plaintiff were to present evidence warranting the
conclusion that when credit was incurred there was, objectively regarded,
a very strong chance, falling sho rt of a virtual certainty, that creditors
would not be paid, that case would, I think, also involve the mischief which
the section was intended to combat. It is not possible to attempt to draw
the line between negligence and recklessness more exactly. Each case
must turn on its own facts and involve a value judgment on those facts .”
(my underlining)

71. In the same context, t he Respondent relied on the foll owing dictum from an
unreported English judgment of Buckley J in Re White and Osmond
(Parkstone) Ltd (30 June 1960, ChD):

'In my judgment, there is nothing wrong in the fact that directors incur
credit at a time when, to their knowledge, the company is not able to meet
all its liabilities as they fall due. What is manifestly wrong is if directors
allow a company to incur credit at a time when the business is being
carried on in such circumstances that it is clear that the company will
never be able to satisfy its creditors. However, there is nothing to say that
directors who genuinely believe that the clouds will roll away and the
sunshine of prosperity will shine upon them again and disperse the fog of
their depression are not entitled to incur credit to help them to get over the
bad time.'”

72. In Philotex, the Court also referred to that dictum, but immediately warned
against treating it as a licence for optimistic directors to escape liability for
reckless conduct. Howie JA said the following (at 147H–148E):

“Three points need to be made about that statement. The first is that when
it was relied on by counsel for the appellant in R v Grantham …, the Court
of Appeal said this of it (at 682G–683A (QB) and 170d–e (All ER)):

'We have been fortunate enough to run to earth a transcript of the
whole of that judgment. The Judge eventually decided in favour of the
trader on the basis that, although he mi ght have been guilty of
insufficient care and supervision of his business, he could not be said,
in the words of Maugham J, to have been guilty of real moral blame so
as to justify the Judge in saying that he ought to be liable for the debts
of the company without limit. In other words, he acquitted the trader of
dishonesty – an essential ingredient to liability. Insofar as Buckley J
was saying that it is never dishonest or fraudulent for directors to incur
credit at a time when, to their knowledge, the com pany is not able to
meet all its liabilities as they fall due, we would respectfully disagree.'

Quite clearly the proposition contained in the first sentence in the
statement of Buckley J was too widely stated and was rightly rejected by
the Court of Appeal. …

The second point, and again concerning the proposition in the first
sentence, is that it gives carte blanche to trading while commercially
insolvent. When one remembers that a company's inability to pay its debts
as they fall due, and despite its tec hnical solvency, may result in its
liquidation at the instance of creditors, this is indeed an extraordinary
proposition. The third point is that even had Buckley J's statement been
good law it had to do with fraudulent trading, as did that part of the
judgment in Carbon Developments in which Buckley J was quoted. They
did not have to do with reckless trading. ... Consequently, the genuine
belief referred to in the third sentence would, for reasons already
advanced, not avail if objective considerations non etheless established
recklessness.

It follows, in my view, that the Court below was wrong in relying on the
statement of Buckley J in assessing whether recklessness was proved in
the instant case.”

73. In summary, the incurral of debts on behalf of a compa ny at a time when no
reasonable business person would consider that the company would be able
to satisfy those debts when they fall due would prima facie demonstrate
reckless trading even if the directors bona fide thought otherwise.

74. In finding that the directors in Philotex were personally liable, the Court
concluded that the directors were “gambling with trade creditors’ money ” in
continuing to trade . There was no reasonable prospect of the payment of the
company’s debts when due. The c ourt held that the facts demonstrated “ an
attitude of such disregard for the fair, frank and reasonable dealing with
outsiders which [the company’s] insolvent circumstances demanded that, in
my view, it was reckless ” (at 186A –B), and that “[n]ot only was t here in all
these circumstances no reasonable prospect of payment of all [the
company’s] debts when due but the most acceptable inference is that there
was on the part of [the company’s] directors … an awareness that trade
creditors’ money was being unreas onably risked and … a wilful disregard of
the consequences of trade creditors” (at 186D–E).

75. In Anderson v Dickson and Another NNO (Intermenua (Pty) Ltd
Intervening) 1985 (1) SA 93 (N) at 110G, Booysen J approved of the
following passage in Henochsberg on the Companies Act 3 ed at 74:

“(T)he carrying on of any business of a company recklessly means carrying it
on by actions which evince a lack of any genuine concern for its prosperity.”

76. In Gordon NO and Rennie NO v Standard Merchant Bank Ltd 1984 (2) SA
519 (C), it was held that section 424 can apply in relation to a single reckless
transaction and does not necessarily envisage a continued course of conduct.
De Kock J stated as follows (at 527A-E):

“When one looks at the wording of the section one is immediately struck by
the wide terms in which it is cast. The section applies where it appears that
any business of the company was or is being ‘carried on’ in a reckless or
fraudulent manner. … The object of the provision is clearly to enable
creditors and ultimately the Court to exercise a restraining influence on
over-sanguine directors and to bring reckle ss and fraudulent persons to
book. … [T]he provisions of s424 are intended to provide a meaningful
remedy against the abuses contemplated by the Legislature and the Court
should, I consider, give the words of the section their full breadth.”

77. A consequence of giving the words of the section their f ull breadth is that a
director can be held personally responsible for the debts of the company
without there necessarily being proof of a cau sal link between his or her
conduct and those particular debts (Howard v Herrigel (supra) at 672E).

78. Counsel for the Respondent however relied on Saincic v Industro -Clean
(Pty) Limited 2009 (1) SA 538 (SCA) in support of the submission that where
there was no proven link between the debt owed to th e creditor and the
reckless conduct complained of, this is a relevant factor to take into account in
deciding whether a section 424 declaration is fair and equitable. In my view,
that is indeed the import of the judgments in Saincic. Harms JA gave the
example of proved reckless conduct that had occurred in the past, but a debt
on which the creditor bases its claim arose at a time when the company was
being properly operated. In such a case, the court would be loath to punish
the directors through a declaration of personal liability in relation to the current
debt.

79. Conversely, in my view, the closer the link between the debt and the reckless
conduct, the more likely the court is to exercise the discretion in relation to
that debt.

The section 424(1) claim: application to the facts

80. I now turn to apply the above legal principles to the facts of the present case.

81. Because the Respondent was at all relevant times the sole director of GHH ,
there is no dispute that he was the only person to whom the conduct of the
business of GHH could be attributed. No third parties were involved. Whatever
GHH did, it did through him.

82. Moreover, the Respondent did not contend that he was not “knowingly” a
party to everything that GHH did. As I understood the answering affidavit and
his evidence at the insolvency enquiry, t he Respondent knew of and takes
personal responsibility for every action of GHH , although he denies that his
conduct in this regard was reckless.

83. The primary question is whether, on the facts revealed by the affidavits in a
claim for final relief , the Respondent caused the business to be carried on
recklessly. If so, a second question will arise as to whether it is just and
equitable to make a declaration of personal responsibility for any debt of GHH.
Issues of causation will play a role in that decision.

84. In my analysis of the evidence, I focus on three areas:

84.1. First, the conclusion of the sale of shares agreement and the
associated incurral of indebtedness by GHH to the Applicant;

84.2. Second, the conclusion of the settlement agreement; and

84.3. Third, the general manner in which the Respondent carried on the
business of GHH over the period relevant to this application.

The sale of shares agreement

85. The Applicant contends that the Respondent’s act in causing GHH to enter
into the contract to acquire the Bunker Hills shares from her on the agreed
payment terms constituted reckless conduct.

86. Both parties understood that GHH was not in a position to pay the full
purchase price of R4,625,000 immediately. It was for this reason that
payment terms over two years were concluded.

87. The key question is however whether a reasonable business person in the
position of the Respondent would have assumed this debt and the instalment
payment obligations on behalf of GHH, having regard to GHH’s ability to meet
those payment terms.

88. It is clear that GHH was in fact not in a position to meet the obligations
undertaken on its behalf by the Respondent. It failed almost from the outset to
make the agreed payments , and ultimately paid less than a quarter of the
capital before it was placed in liquidation. The indications are that the liabilities
of GHH well exceed the fair value of its assets.

89. The question as to whether the incurral of the indebtedness was reckless
must however be decided on the facts and circumstances existing at the time
of concluding the sale agreement.

90. In this regard, the Respondent’s evidence was that GHH was an investment
holding company and that its ability to pay any capital indebtedness was
entirely dependent upon its being able to call up loan accounts with its
operating subsidiaries. As the Respondent said at the enquiry:

“[GHH] doesn’t have income. It has only assets in terms of loan accounts it
[lent] to other companies and its ability t o pay its own liabilities is as strong
as its ability to collect those loan accounts.”

91. Although in his answering affidavit the Respondent said that GHH provided
strategic and advisory services to subsidiaries in exchange for a management
fee, there was no indication that this was a source of income which would play
a role in paying any indebtedness arising from the sale of shares agreement.

92. The question then arises as to how the Respondent , as the sol e director of
GHH, reasoned that GHH would be able to meet the agreed instalments of at
least R100,000 per month for the first year and at least R250,000 per month
for the second year, with a total payment of R4,625,000 by the end of the
second year.

93. The Respondent’s evidence in this regard is unsatisfactory.

94. In his answering affidavit, the Respondent states that the “capital” that GHH
“intended to employ in order to pay the purchase price ” was “ indirectly
invested” in Safepro. He goes on to say that as a result of Safepro not
receiving payment from a joint venture partner, Safepro was unable to fund
suppliers or pay its loan account with Two Ships, which in turn was unable to
repay its loan account to GHH. Th is meant that a capital loan account
investment of some R10 million “ which would have bee n utilised to pay the
purchase price of the shares” could not be realised.

95. There are a number of difficulties with this evidence.

96. First, the event that is relied upon as the basis to render the loan repayment
possible is the provision of third -party funding to enable Safepro to acquire
trading stock. That seems on the face of it to relate to the funding of the
ordinary business operations of Safepro . It is not stated how success in
receiving that money and funding its ongoing trade would also have suddenly
enabled Safepro to repay a capital shareholder loan in the material sum of
R10 million. The position may have been diff erent if, for example, there were
evidence of an expectation that Safepro was going to dispose of its business
for a capital sum that could be used to repay its loan account with Two Ships,
or evidence that it was going to raise fresh capital from another source to
enable it to settle its loan account. There was however no evidence of any
such expectation.

97. Second, it is not sta ted how and when the Respondent considered that GHH
would in fact receive the funds out of the Two Ships loan account. This is
particularly important as he had committed GHH to meeting specified monthly
payment obligations , commencing immediately . If the i dea was for GHH to
pay the instalments out of the proceeds of a R10 million loan account
realisation, one would expect the loan repayment to be received before the
first instalment , or very soon thereafter . The Respondent however failed to
say what the expected timing of any repayment was , which gives the
impression that there was no reliable expectation of this.

98. Third, apart from saying that it was “intended” to use the capital from the
Safepro investment to pay the purchase price, and that that investment “would
have been utilised to pay the purchase price ”, there is in fact no clear or
concrete statement to the effect that the Respondent had a reliable
expectation of GHH receiving enough money from the realisation of the
investment to enable GHH to pay the instalments timeously.

99. The answering affidavit is therefore unacceptably vague in relation to the
crucial question as to how the R espondent considered that GHH would be
able to meet its substantial and newly assumed obligations. The court is not
given a proper basis to conclude, on the facts, that when the sale -of-shares
agreement was entered into, GHH had a reasonable or reliable expectation of
being able to meet its payment obligations to the Applicant as they arose ,
whether out of the proceeds of the Safepro / Two Ships loan account or at all.
On the contrary, it seems that , at best for the Respondent and o n his own
version, GHH was dependent on the success of Safepro’s ongoing
operational business , which was in turn dependent on the success of a
particular financing transaction that had yet to come to fruition , and tha t was
clearly subject to counterparty risk.

100. In the same vein, the Respondent testified in bald and vague terms as to what
caused GHH to be unable to m eet its payment obligations . He pinned the
blame entirely on the joint venture partner not paying an amount to fund stock
purchases by Safepro. However, he did not provide any objective evidence in
support of this, such as the defaulting party’s name, the terms of the deal, and
when th e breach occurred – aspects that would clearly have been in his
personal knowledge . One would have thought that a calamitous event or
breach that rendered Safepro unable to repay a loan account of R10 million
would have generated correspondence or legal proceedings that could easily
have been produced . The absence of any such corroboratory material casts
severe doubt on the reliability of the Respondent’s explanation.

101. The Respondent’s position is not helped by his evidence under oath at the
insolvency enquiry. What he said there was that , at the time of the sale -of-
shares agreement , he was “ working on liquidating a loan account that was
owed to [GHH]” and was “under the impression that [GHH] should receive that
loan account in the foreseeable future” (my underlining). This is the language
of hope and uncertainty, not that of a director who has a ny proper or reliable
expectation of how his company will meet its newly assumed obligations.

102. The material shortcomings in the Respond ent’s own version on this point are
amplified by the contents of an email written by him on 2 August 2018 which
was attached to the replying affidavit . The Respondent did not at any stage
suggest, whether by way of a fourth affidavit or in argument, that this email
was not penned by him. It was his attempt to explain his position vis-à-vis the
GHH debt to his family members.

103. In the email, the Respondent says that at the time of entering into the
purchase agreement on behalf of GHH, he was “besig … om eiendomme in
die mark te sit en vertrou op ‘n goeie inkomste uit Safepro in die toekoms. Dit
sou my die vermoe gee om maandelikese betalings to maak en dan aan die
einde van die 2e jaar die balans ” (my underlining) ( i.e. he was busy putting
properties on the market and trusted in a good income from Safepro in the
future. This would enable him to make monthly payments and settle the
balance at the end of the second year).

104. The clear impression created by this email is that the Respondent was
actively marketing properties (plainly to obtain a capital return ) and was also
expecting that Safepro would provide sufficient income in the future to pay the
instalments. What is missing from this account is any suggestion that the
purchase price would be funded out of the liquidation (in the “ foreseeable
future”) of R10 million in capital loan accounts in Safepro and Two Ships ,
which formed the cornerstone of the Respondent’s version in the answering
affidavit.

105. Moreover, in his same email the Respondent says that the problem that arose
with Eskom and “bemagtigings vennote ” of Safepro meant that “ dit het
natuurlik nie die maandelikse inkomste waarop ek gereken het ingebring nie ”.
This again does not tally with his version that the events at Safepro precluded
it from settling, in the short term, a R10 million capital loan account with Two
Ships.

106. For the reasons given above, the Respondent’s version as to his personal
state of mind regarding how GHH would meet its obligations under the sale -
of-shares agreement is vague, internally contradictory and bereft of any clear
plan or expectation, at the time of concluding the agreement, as to how GHH
was going to pay what the agreement required of it.

107. Nothing that the Respondent has said places the court in a position to
conclude that, objectively, circumstances existed that would have warranted
directors to think that there was a reasonable prospect of the Applicant being
paid in accordance with the agreement. The fact that GHH failed abjectly to
meet its obligations reinforces the inference that incurring the indebtedness
was at least grossly careless in the circumstances.

108. This conclusion is bolstered by the Respondent’s statements under oath at
the enquiry , and confirmed in his aforementioned email attached to the
replying affidavit, that the Bunker Hills shares that he caused GHH to acquire
at considerable expense were worthless.

109. The Respondent testified that Bunker Hills was “ worth nothing ” at the time;
that to avoid family tension he told the Applicant to “ come up with a number ”
for the shares ; that they concluded an agreement “ full well knowing her and
me that th e shares were worthless ”. In his email referred to above , the
Respondent said that “he” bought shares that “he” did not need at a price that
made no sense (“ aandele by haar te koop wat ek nie nodig het nie, teen ‘n
prys wat nie sin maak nie”).

110. An entrepreneurial acquisition of an asset by a company, effectively on credit
but where the source of repayment is not secured, is in my view less likely to
be viewed as reckless where the asset is of intrinsic value and capable of
being liquidated to settle debt in a worst-case scenario. But where the asset is
not regarded as having any value at all, the only conclusion is that the
company has knowingly assumed a liability without acquiring any
corresponding asset. All that has happened is that the company’s financial
position has been materially weakened.

111. On the above evidence, the Respondent is saying that , to appease a family
member, he caused a company of which he is the sole direct or to commit
itself to making substantial and onerous payments out of a source of funding
that was, at best, highly uncertain, in exchange for the acquisition of shares
that he knew were worth nothing. No director, acting reasonably, would ever
do that. It demonstrates a wanton disregard for the interest s of the company
and in my view cannot be seen as anything other than reckless.

112. I pointed out above that in his answering affidavit, the Respondent sought to
retract his evidence at the enquiry by saying that the shares may be worthless
to a third party but were valuable to GHH.

113. I find this explanation inherently unsatisfactory. Commercial assets such as
shares are capable of objective valuation. If they are worth nothing to a third
party, it is because the underlying business or assets of the company are
worthless. That indeed seems to have been the case with the Bunker Hills
shares. They cannot somehow regain their value because GHH holds them.

114. As stated, this court in proceedings brought on motion is enjoined to accept
the Respondent’s version unless there are proper grounds to disregard it. This
appears to be a proper case for doing so, at least in relation to the self-serving
statements that GHH regarded the shares as valuable assets or a good
investment, despite th eir lack of objective value . Apart from its inherent
illogicality, this contention is flatly contradicted by the Respondent’s own
earlier statements and evidence under oath on precisely the same topic. In
the absence of any facts that may justify this extraordinary proposition, I can
see no reason to conclude that any director, acting reasonably, would adopt a
similar view.

115. In summary, I believe that the inference is justified that in committing GHH to
acquire the Bunker Hills shares from the Applicant on the terms agreed, the
Respondent was party to the reckless carrying-on of the business of GHH.
Not only was this an arrangement that could only be detrimental to GHH
(given the lack of value in the shar es being acquired), and one that was
concluded first and foremost as a means of reducing personal or family
tensions rather than to advance the interests of GHH , but the absence of any
concrete or reliable expectation at the time that GHH would be able to meet its
payment obligations as they arose allows only for the conclusion that the
Respondent took an unjustifiable risk on behalf of GHH, and so acted at leas t
grossly negligently. To paraphrase Howie JA in Philotex (supra), there was,
objectively regarded, a very strong chance, even if falling short of a virtual
certainty, that the Applicant would not be paid (as turned out to be the case) .
This is indicative of reckless trading.

The settlement agreement

116. The second event relevant to the charge of the reckless carrying-on of
business by the Respondent is the conclusion of the settlement agreement
after GHH first defaulted on its payment obligations.

117. The settlement required GHH to catch up on its missed payments in three
instalments of R100,000, R300,000 and R300,000 respectively, while
continuing to make the originally agreed payments. Importantly, i t also
included an accelerated payment of the full outstanding amount in the event of
any default.

118. At the time th e settlement agreement was entered into, the alleged events
involving Safepro and its joint venture partner had occurred , and it would
therefore have been clear that no money (whether a capital loan repayment of
R10 million or any monthly income) would be forthcoming from the Safepro
investment. The Respondent nonetheless committed GHH to even more
onerous payment terms for the balance outstanding , and to this being an
order of court.

119. The only evidence put up by the Respondent in relation to how he envisaged
GHH would meet these obligations was that GHH was awaiting payment for
the Clanwilliam property. Even on that version, the amount to be realised ( just
below R1,3 million) was far below the total debt. There was no indication of
any other source of income to pay the balance of the instalments, let alone a
source of a large amount of capital if the acceleration clause w ere to be
triggered, as seemed inevitable.

120. The only con clusion that can be drawn is that the Respondent committed
GHH to fresh and more onerous payment obligations under the settlement
agreement with nothing more than a n unformulated hope that GHH might
somehow meet the vast majority of its future payment obligations from
disposing of other assets.

121. In this, too, I am of the view that the Respondent showed scant regard for the
success or well -being of GHH , and incurred debt on its behalf with no
reasonable prospect of being able to pa y it when it fell due. This meets the
requirements of recklessness as discussed in the cases.

The general conduct of GHH’s business

122. The above specific examples of what I consider reckless conduct must be
viewed in the context of the Res pondent’s own evidence as to how he carried
on GHH’s business more generally in the period that it was indebted to the
Applicant.

123. As stated, GHH did not have a real operating business but was in substance
an investment holding company. Its ability to pay its debts was dependent on
it receiving repayments of loan accounts from its operating subsidiaries.

124. The prospects of obtaining loan repayments from subsidiaries were largely
outside the Respondent’s or GHH’s control , as they were dependent on the
needs or abilities of the subsidiaries to pay . The inherent uncertainty and lack
of control is reflected in the Respondent’ s own evidence at the enquiry that
“every time I ma de an agreement [to pay a creditor] I went to the underlying
companies and I put them on terms and asked them for repayment … which
they undertook to do as and when they were able in terms of their own
cashflows” and that “these things just never happened”.

125. What this demonstrates is that the Respondent was generally prepared to
commit GHH to making payments before even approaching the operating
companies for the money it needed to do so , and without kn owing whether
there was any prospect of success in this regard.

126. Moreover, the Respondent chose not to capitalise his business through equity
but by loan s that were repayable to creditors on demand (the February 2021
annual financial statements state as follows in respect of long -term loans
received: “ Die lenings is oversekerd, dra rente soos van tyd tot tyd
ooreengekom en geen vaste terme van terugbetaling bestaan nie.”)

127. Given the apparent mismatch between GHH’s obligations to pay creditors
from time to time and its unreliable access to funds from subsidiaries’ loan
account repayments, it is clear that GHH was at all times dependent upon the
goodwill of its loan creditors to continue operating by agreeing extended
payment terms, often against further commitments by GHH.

128. This is in fact expressly acknowledged by the Respondent in his answering
affidavit where he states that “any non-payment in respect of such debt [i.e.
debts to loan creditors] would be restructured with a particular creditor , with
the knowledge, co-operation and consent of all [GHH’s] other creditors, except
for the Applicant”. Certain payments to other loan creditors of GHH , which the
Applicant argued preferred them over her, were stated by the Respondent to
be made “pursuant to the temporary restructuring of [their] loans”.

129. The Respondent complains elsewhere that the Applicant knew full well that
GHH would “eventually be able to fully comply with its contractual obligations
towards [the Applicant]”. The impression is that he expected the Applicant to
tolerate GHH’s default in the h ope that it would one day be able to pay her
what it owed , and to continually extend payment terms accordingly , as other
creditors seemed to be prepared to do.

130. In summary, the Respondent’s own evidence was that he had caused GHH to
adopt a business mo del that was dependent, for GHH’s survival, on the
goodwill, patience and acquiescence of creditors . As the Applicant s tated in
reply:

“If GHH’s business model was as Respondent contends(,) it is
unsustainable and unsuccessful and depended on external funding by
creditors who were forced into extending payment terms.”

131. The Respondent also readily co nceded at the enquiry that he had allowed
GHH to trade in insolvent circumstances since 2016 , because it was not
possible for GHH to pay its debts as they fell due.

132. I am satisfied that the ongoing conduct of the business of a n investment
holding company financed by external debt, without any clear plan for settling
that debt as it falls due save for the hope and expectation that creditors will
simply co -operate and extend payment terms , rather than liquidate a
commercially insolvent entity, is reckless in itself. It is not merely the adoption
of an acceptable entrepreneurial risk. Taking on substantial new and onerous
obligations to the Applicant in these circumstances, including stringent
instalment obligations, but without any enhanced expectation of income,
merely compounds this conclusion.

Conclusion on recklessness

133. I have concluded above that both in relation to GHH taking on debt towards
the Applicant and generally in relation to the conduct of the GHH busi ness,
the Respondent conducted himself in a manner so far removed from how a
reasonable director would operate as to justify the conclusion of recklessness.

134. I would add the following observations.

135. The fact that the Respondent chose to use GHH as the vehicle to achieve
personal objectives of appeasing the Applicant and soothing family tensions ,
by taking on an onerous obligation, suggests that he regarded GHH as his
personal instrument or alter ego. However, he was not entitled to ignore the
interests of GHH or hide behind its corporate personality. As stated in
Ebrahim v Airport Cold Storage (Pty) Limited (supra) in paragraph [15],
section 424 “ in effect exacts a quid pro quo: for the benefit of immunity from
liability for its debts, those running the corporation may not use its formal
identity to incur obligations recklessly, grossly negligently or fraudulently. If
they do, they risk being made personally liable.” The Respondent, in my view,
did not bring his side of that bargain and cannot expect protection as a result.

136. The overall impression one gets i s that, in the words of Strut Ahead Natal
(Pty) Limited v Burns 2007 (4) SA 600 (D) at 607F –608F, the actions of the
Respondent evince a lack of genuine concern on the Respondent’s part for
the prosperity of GHH.

137. Where a company incurs debts that it has no reasonable prospect of repaying
when due, that in my opinion evidences a lack of any genuine concern for its
prosperity, because it puts the company in a position of commercial
insolvency and exposes it to being wound up – the very opposite of prosperity.

138. For these reasons, I find that the Applicant has in principle established a basis
for relief against the Respondent under section 424.

The quantum of the indebtedness

139. The relief available under section 424 is a declaration of personal
responsibility for debts of the company. It is therefore necessary to determine
the extent of GHH’s debt to the Applicant.

140. The main issue in relation to quantum is whether the indebtedness of GHH to
the Applicant includes the R750,000 per annum “capital growth” portion of the
purchase price, as the Applicant contends, or whether it excludes that portion,
as the Respondent claims.

141. The facts pertaining to the various attempts by the Applicant to enforce he r
claim against GHH have been set out above. I noneth eless summarise the
key steps that preceded the application:

141.1. The purchase price for the shares was set at R4,625,000, payable in
accordance with clause 13.

141.2. Clause 13 required the payment of the purchase price in instalments
of at least R100,000 per month in the first 12 months, and at least
R250,000 per month in the second 12 months, with the full balance
being payable at the end of the period . The price would accrue
capital growth of R750,000 per annum if not settled on or before 31
December 2015.

141.3. When GHH defaulted on its payment obliga tions, the Applicant
issued summons in May 2016 claiming the outstanding monthly
instalments only , despite the first capital growth amount having
vested.

141.4. The litigation was settled by way of a written agreement dated 18
July 2016 , which required the payment of the outs tanding monthly
instalments and the continuation of current instalments. The
agreement however introduced a new feature, namely an
acceleration clause (which had not been in the sale -of-shares
agreement) to the effect that the full amount outstanding in terms of
the agreement would be payable immediately in the event of a
default on any instalment.

141.5. When GHH again defaulted, the Applicant applied for and obtained
an order on 25 October 2016 that GHH must pay the sum of
R4,225,000 (i.e. the purchase price less the instalments actually paid
to date) plus interest at the prescribed rate a tempore morae. There
was no mention of the “capital growth” amount being payable.

141.6. The claim for payment that gave rise to the McCurdie AJ order was
supported by an affidavit that alleged that the “ entire amount still
outstanding” was R4,225,000. Judgment in this amount, p lus mora
interest, was claimed.

141.7. The McCurdie AJ order said nothing about a capital -growth amount
being payable.

142. It was common cause that the originally agreed capital-growth amount (i.e.
R750,000 per annum) was intended to take the place of interest on the
purchase price. In other words, the Applicant was to be compensated for any
delay in receiving payment of the full amount , not in the form of interest, but
through an annual lump sum amount.

143. The settlement agreement introduced an acceleration clause for the capital
amount in the event of a breach. If it had not been for that clause, it would not
have been possible for the Applicant to obtain the order from McCurdie J for
the payment of the full amount , since only 11 months had passed since the
original agreement was signed and the maximum liability would have been
R1,100,000 at that stage (of which R400,000 had been paid).

144. The order made at the behest of the Applicant by McCurdie AJ was also
inconsistent with the original agreement as the former required interest to be
paid a tempore morae (which, in context, can only mean from the date on
which the accelerated capital portion became payable).

145. The debt that had arisen under the sale -of-shares agreement was in my view
therefore overtaken by the terms of the settlement agreement, which was in
turn overtaken by the terms of the McCurdie AJ order.

146. The interest component of the order (which remains in force and binding on
GHH) plainly serves the same purpose as the “ capital growth” component. I
cannot see that the terms of the order can co -exist with the original capital -
growth obligation.

147. I am in agreement with the argument made by the Respondent that by virtue
of how the Applicant conducted herself in relation to the original litigation, the
settlement agreement and the McCurdie AJ order, the Applicant waived any
right she may have had to pursue the capital -growth component
independently of the claim finally encapsulat ed in the order. At no stage did
she seek to enforce payment of the capital -growth portion independently of
the purchase price; she originally only sought an order to pay the outstanding
instalments, even though the first R750,000 amount had vested; she entered
into a settlement agreement that also made no mention of the capital -growth
amount, altered the payment arrangements and introduced an acceleration
clause; and when there was a default on that agreement, she asked for, and
obtained, an order of court based on the settlement agreement, and sought
and obtained a judgment for interest that is wholly inconsistent with the
continued existence of the capital-growth portion.

148. I therefore conclude that the Applicant did indeed conduct herself in a manner
irreconcilable with an intention to claim the capital-growth amounts
independently of the outstanding sum and the interest now imposed through
the McCurdie AJ order. T he proven objective facts allow of no other
reasonable hypothesis (cf. Road Accident Fund v Mothupi 2000 (4) SA 38
(SCA) in paras [15] to [19]).

149. Moreover, t he order of McCurdie AJ , with its provision for the payment of
interest on the outstanding capital amount a tempore morae , effectively
created a cause of action enforceable by the Applicant against GHH that was
new and independent when compared to how the parties had regulate d the
issues of payment and interest in the sale -of-shares agreement. In that
respect at least, it seems to me that the McCurdie AJ order necessarily
novated the sale -of-shares agreement (cf. MV Ivory T irupati: MV Ivory
Tirupati v Badan Urusan Logistik (aka Bulog) 2003 (3) SA 104 (SCA) in
para [31]). This rendered it incompetent for the Applicant to seek to enforce
the “capital growth” claim where an entitlement to mora interest on the same
amount had been established.

150. In the circumstances, I find that the debt that GHH owed to the Applicant was
in effect the debt reflected in the McCurdie AJ order , less any payments made
pursuant to that order.

151. The unpaid portion of the debt bears interest at the prescribed rate a tempore
morae. As I understand the position, GHH paid the first instalment owing
under the first court order ( based on the settlement agreement) but defaulted
on the second instalment by paying only R100,000 of the R300,000 due on 7
September 2016 . The acceleration clause then took effect and the entire
amount became owing immediately. The mora date in respect of the unpai d
amount is therefore 7 September 2016.

Exercise of the discretion

152. Where the requirements of section 424 are met, the court retains a discretion
as to whether to declare the Respondent to be responsible for any debts of
the company, and as to the amount of any such liability.

153. I consider such a declaration to be warranted on the present facts.

154. Since only the Applicant has brought an application for such relief, I cannot
make a declaration in relation to any other debt of GHH. At the same time, I
see no reason to limit the order to anything less than the amount established
to be owed by GHH to the Applicant.

155. The question as to whether a direct causal link has been established between
the Respondent’s recklessness and the de bt in issue is relevant to the
exercise of the discretion ( cf. Saincic (supra)). In my view, the Applicant has
shown such a link to exist. In any event, having regard to the general conduct
of the GHH business, there is a marked similarity between acquirin g the
Bunker Hills shares on credit and taking on long -term loans without a reliable
plan to meet the indebtedness – other than a hope the creditors will give GHH
time to pay. That criticism of the Respondent’s business plan applies equally
to the assumption by GHH of indebtedness to the Applicant.

156. In the premises, I consider that the Respondent should be declared personally
liable for the total indebtedness of GHH to the Applicant.

The order

157. As stated at the outset, the parties have agreed a formulation for the relief
sought that takes account of the possibility that the Applicant will receive a
portion of what is owing to her by GHH as a dividend in the insolvent estate. I
agree that there is no reason why the Applicant should effectively obtain a
double benefit in respect of the same debt , and I consider it just that the
Respondent’s liability should be reduced by the amount of any such payment
received.

158. I therefore make the following order:

1. In terms of the provisions of section 424 (1) of the Companies Act 61 of
1973 read with item 9 of Schedule 5 to the Companies Act 71 of 2008 ,
it is declared that:

1.1. the Respondent is personally liable for the debt owed by Good
Hope Holdings (Pty) Ltd (in liquidation) (“GHH”) to the Applicant
in the amount of R4 035 000.00 (the “capital amount”);

1.2. the Respondent is to pay the Applicant the capital amount plus
interest o n any outstanding balance from time to time at the
prescribed rate from 7 September 2016 to date of payment;

1.3. should any dividend be payable to the Applicant by the
liquidators of GHH pursuant to an approved liquidation and
distribution account:

1.3.1. when the capital amount, interest and costs had
already been paid in full by the Respondent to the
Applicant, then the Applicant shall against receipt of
such dividend pay same to the Respondent; or

1.3.2. when any part of the capital amount, interest a nd costs
has not been paid in full, such dividend shall be applied
first in payment of the outstanding capital amount, then
interest and then costs and the balance (if any) after
payment as aforesaid shall be paid by the Applicant to
the Respondent.

2. The Respondent is to pay the party and party costs of this application,
with allowance of costs of senior counsel, on Scale B as taxed or
agreed.


-----------------------------
M W JANISCH
Acting Judge of the High Court
Western Cape Division


APPEARANCES:

For the Plaintiff: L M Olivier SC
Instructed by: DKVG Attorneys

For the Defendants: P Viviers SC
Instructed by: Lucas Dysel Inc

Date of hearing: 12 November 2024
Date of judgment: 18 December 2024