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

Case number: A137/2024

In the matter between:

GERRIT DEON KAP S First Appellant

SOPHY MAPHOSA Second Appellant

MARLIEN DE BONT Third Appellant

MOSAIC FUNER AL GROUP OF COMPANIES (PTY) LTD Fourth Appellant

And

MORAPEDI DONALD SERIPE First Respondent

SAMUEL SELLO MANGANO Second Respondent

MAYIBONGWE CAROLINE MAGANO Third Respondent
_______________________________________________________ ______________
Coram : Allie J et Da Silva Salie J et Rala rala J
Date of Hearing : 22 January 2025 OFFICE OF THE CHIEF JUSTICE
REPUBLIC OF SOUTH AFRICA

Written Judgment delivered : 15 May 2025
Counsel for Appellants : Adv. J S Griessel
Instructed by : Messrs VFV Attorneys
Counsel for Respondent s : Adv. M H Masilo
Instructed by : Messrs Ntsamai Attorneys Inc.


JUDGMENT ELECTRONICALLY DELIVERED ON 15 MAY 2025


DA SILVA SALIE J:

Introduction:

[1] This is an appeal against the judgment and order granted in the above matter on
31 October 2023 , in which the first appellant’s ownership of the shares in the fourth
appellant Mosaic Funeral Group of Companies (Pty ) Ltd, ( ”MFG”) was declared unlawful
and set aside . The appellants were also ordered to pay the costs of the application
under Part B of the Notice of Motion.

[2] At the heart of the matter is the dispute which centre s around the incorporation of
MFG by the first appellant, Mr. Gerrit Kaps (“Kaps”) the 100% shareholder , who had
registered the company and allotted the full shareholding to himself at the time of the
incorporation of the company. The subsequent misrepresentation of the company’s B -
BBEE statu s was a central issue which the respondents relied upon as the basis upon
which to prove that Kaps’s acquisition or ownership of the sh ares at the time of
allotment was fraudulent and/or unlawful.

Factual background :


[3] MFG is a private company which holds the intellectual property and trademarks
for the Mosaic Funeral Group . Independent funeral parlour s who wish to conduct
busine ss under the name Mosaic Funerals , enter into License Fee Agreements with
MFG, in terms of where they are entitled to make use of MFG’s intellectual property and
trademarks against payment of an agreed license fee. On 28 November 2017 , Kaps
attended to th e incorporation and regist ration of the company as sole incorporator and
allotted to himself 100% of the issued shares. Kapp was the sole director of MFG at the
time of incorporation. The respondents were appointed as co -directors of MFG a few
months late r, during February 2018.

[4] Following their appointment as directors in February 2018 , but not shareholders,
Kaps submitted documentation through the company appointed auditor, Mr. Bampa,
asserting that the company qualified as a Level 2 B -BBEE contrib utor. This is so
despite the respondents holding no economic interest or shareholding in the company.
A Level 2 B-BBEE contributor refers to a business that has achieved a high score on the
Broad -Based Black Economic Empowerment (“B-BBEE”) in terms of the Broad -Based
Black Economic Empowerment Act 53 of 2003 (the “B -BBEE Act”). The B-BBEE Act is
designed to advance economic transformation and enhance the economic participation
of the black population in South African , defined in the Act as African, Coloure d and
Indian persons who are citizens of South Africa. Its objective is to promote economic
participation by black South Africans and aims to redress historical inequalities caused
by apartheid , encourage inclusive growth and equitable access to the econom y.

[5] The representation and listing of MFG as a Level 2 B -BBEE contributor,
represented that the company was 51% black -owned , just one level below the highest
level (Level 1) . This status represents and illustrates a strong commitment to
empowerment. For companies with less than R10 m per year turnover, as in the case
of MFG, the shareholding had to be at least 51% black owned.

[6] It is not disputed that no formal shareholders’ agreement had been concluded at
the time of incorporation, nor were any shares transferred or allotted to the respondents

thereafter. It is not in dispute that MFG has 1 000 authorised ordinary shares which
were issued and allocated to Kap s upon incorporation on 28 November 2017.

[7] The respondents, however, drew part icular attention to the circumstances which
had led to the incorporation and registration of MFG in November 201 7. MFG was
sought to be incorporated when dissatisfaction brew amongst several busines s owners
and franchisees of Martin’s Funeral s. The latter is a funeral service provide r with a
nationwide network of franchise locations. Certain of the franchisees had
unsuccessfully attempted to re -negotiate the renewal of their franchise agreements with
Martin’s Funerals. It was understood amongst them and other interested business
owners in the industry that a new association of independent funeral parlours would be
incorporated and formed under the name Mosaic Funerals. Kaps attended the
incorporation and registration of MFG. However, the respondents only became aware
in June 2020 that Kaps owns 100% of the shares in MFG . This is so as the
respondents were appointed as directors a few months after the incorporation of the
company and because since their appointment as directors, no regular board meetings ,
if any, were held over the ensuing period until tensions mounted in June 2020. Kap s
called a disciplinary meeting against the respondents in his capacity as director and
sole shareholder in June 2020 . The respondents were removed as directors during th is
meeting.

[8] In proceedings for urgent interdictory relief (Part A) and for the relief as set out in
Part B (the subject of this matter), t he respondent s only took issue with the fact in its
replying affidavit that due to lack of non -compliance with S ection 51 of the Companies
Act 71 of 2006 (the “Companies Act”), the certificate of shares was only signed by Kap s
and that the share allocation was unlawful for want of compliance with section 5 1(1)(b) .
The nub of the respondents’ grievances was set out in its founding papers that the
share allocation to Kap s was tainted by fraud and was unlawful.

Submissions on appeal:


[9] Counsel for the appellants submitted that the allotment of shares to Kaps at the
time of incorporation was legally permissible under section 36 of the Companies Act, as
he was the sole incorporator, and no contrary agreement existed which barred him from
doing so.

[10] It was further submitted on behalf of the appellants that although the respondents
were appointed as directors, they had no vested or contractual right to shareholding,
and their reliance on alleged verbal understandings of future shareholding of MFG was
legally insufficient .

[11] The appellants conceded that the representation of MFG as a Level 2 B-BBEE
contributor was unlawful and wrong, however it was submitted on their behalf that it had
no retrospective effect on the validity of the company’s foundational structure or the
initial share allocation.

[12] The respondents argued that the incorporation and allocation of shares to Mr.
Kaps was a breach of an oral agreement whereby all parties would be shareholders
once professional restraints upon them to hold shareholding had terminated . Stated
differently, the respondents contended that the 100% share allotment to Kaps was
contrary to a prior understanding that they would join as shareholders upon the expiry of
their professional obligations elsewhere.

[13] The second bow in the respondents’ arrow was in the argument that their
exclusion from shareholding , while simult aneously using their association with the
company as directors or former directors, to secure a Level 2 B-BBEE status (as 51%
black owned) , amounted to exploitation and fronting, violating both the Companies Act
and B -BBEE legislation. The misrepresentati on was relied upon as an illustration that
the shareholding could not have been a correct reflection with Kaps being 100%
shareholder.


[14] On these grounds the respondents sought an order invalidating the initial share
allotment and a declaration of equa l shareholding, or alternatively, referral to regulatory
bodies for further action.

Findings of the Court a Quo:

[15] The Court a quo found in favour of the respondents, accepting that a tacit
agreement existed between the parties for equal shareholding. It held that the
appellant’s sole allotment of shares was contrary to this understanding.

[16] The Court a quo also found that the B -BBEE misrepresentation tainted the
incorporation and supported the finding of unlawful conduct warranting intervention . In
the result it ordered that the shareholding be restructured to reflect the original
understanding and referred the matter for further investigation by the B -BBEE
Commission. The respondents’ submissions that the issue of shares did not comply
with Secti on 51 of the Companies Act found favour with the Court a quo. I shall deal
with this later in more detail.

Issues in dispute:

[17] The following questions arise for determination:

(a) Was the allotment of 100% shareholding to the appellant at incorpor ation
valid and lawful?

(b) Does the subsequent misrepresentation of the company’s B -BBEE status
render that allotment invalid or tainted?

(c) What consequences flow from the February 20 18 declaration of Level 2 B -
BBEE status?


The allotment of shares:

[18] In terms of section 36 of the Companies Act 71 of 2008, a company may issue
shares as determined by its board of directors, subject to any limitation in the
Memorandum of Incorporation (MOI). Where the incorporator is the sole director at
inception, i t is legally permissible to allot all shares to oneself, provided no prior
agreement prohibits such action.

[19] Shares in a company can indeed be allotted at the time of incorporation and
registration and thereafter the certificate of securities, must be signed by two persons,
authorized by the Board, in terms of section 51(1) (b) of the Companies Act. The latter
statutory provision is applicable after the incorporation of the company. The Companies
Act contemplate s two distinctly different position s, that being: where no formal allotment
is required at time of incorporation , since the initial shareholding is part of the formation
process. The Companies and Intellectual Property Commission (CIPC) will reflect these
shareholders upon registration. In other words, when a company is incorporated, the
Companies Act contemplates that the founding shareholders may subscribe to shares
as part of the initial incorporation documents, the Memorandum of Incorporation or MOI.

[20] The other manner of share acqui sition occurs through uncertifica ted securit ies
recorded in a register by the CIPC.

[21] Whilst there is no specific section in the Companies Act which expressly states
that share s are issued upon incorporation, the authority for the initial issue of sh ares at
incorporation is implied through sections 13 (incorporation with MOI), section 36
(authorised shares) and the filing process with the CIPC that includes details of initial
subscribers. It is common practice that the CIPC accepts incorporation docu ments
which list the initial shareholde rs and their shareholding. These shares are treated as
being issued upon registration and reflected in the company’s securities register as
provided for in Section 50.


[22] The position that prevailed when Kap s had all the shares issued to him on
incorporation, is different to that which could occur after incorporation, when the
company issues further shares . In that instance, it must issue share certificates in
terms of section 51(1)(b) and it must be record ed in the securities register as proof of
registration of shareholding.

[23] Having considered the provisions of the Companies Act in the allotment of
shares above , Counsel for th e respondents, submitted that the share allotment was
unlawful for lack of comp liance with Section 51(1) (b), failing that argument, that , the
shareholding was unlaw ful because Kap s allotted to himself, the 100% shareholding
allegedly, fraudulent. Firstly, t his contention does not take into consideration that the
form and method of allocation by Kap s, at the time of incorporation , is permis sible and
acceptable . In any event, the non-compliance with Section 51(1)(b) argument was not
relied upon by the respondent s in their founding affidavit. It is trite that in motion
proceedings the founding affidavit constitutes the pleadings and the evidence in support
thereof. An applicant must accordingly stand or fall by its founding affidavit. It need s to
be stated that the respondents’ case in its founding is not that the share certificate i s
invalid due to non -compliance with Section 51(1)(b) of the Companies Act . The
founding papers were primarily focused on submissions to support Part A for
interdictory relief, and apropos Part B (the subject of this hearing before the Court a
quo) was mo re broadly contended as b eing fraudulent and/or unlawful in contravention
of the alleged agreed terms concerning respondents becoming shareholder. The
argument that the allocation of shares was irregular for lack of compliance with Section
51(1)(b) was su bsequently raised and became a central feature of the finding of the
judgment a quo . For the reasons set out below, the findings are misguided.

[24] Secondly, t he respondents’ case was framed and based on the averment that the
first appellant’s acquisiti on of the shares as reflected in the share certificate , is
fraudulent and unlawful. Insofar as the argument is that the allotment was tainted by
fraud , it must be proven and cannot be stated bald ly without proper substantiation. The
fact that the respond ents had asked Kaps to attend to the registration of the company

does not and cannot mean, without further ado, that the terms of this request or
“mandate ” was to the effect that he w as to only register the company with the minimum
1% share allocation to him with the bulk of the share allocation to be made at a later
stage. The onus to prove that such an agreement existed and the specific terms in
relation thereto , rests up on the respondents once proven, the allegation of fraud would
have had to be proved by the respondents. There is no onus on the appellants to prove
that the first appellant’s acquisition or ownership of the shares was not fraudulent. The
onus rests on the respondents (applicants in the Court a quo ) to prove that the first
appellant’s a cquisition or ownership of the shares was fraudulent and/or unlawful. In its
reasoning however, the C ourt a quo approached the matter on the basis that there is an
onus on the appellants to prove that Kap s’s ownership of the shares was valid and thus
lawful. This approach creates a reverse onus on the appellants to prove that there was
no fraud or unlawfulness and it is misplaced.

[25] The party who is brought to Court, cannot be expected to figure out what is
meant by fraudulent and/or unlawful. If the case is that the ground of unlawfulness is
based on the non -compliance or breach of a mandate or agreement between the parties
that the shares had to be allocated in a certain apportionment, that alleged agreement
had to be proved by the respondents being the applicants a quo . In Gihwala and Others
v Grancy Property Ltd and Others 2017 (2) SA 337 (SCA) the Court confirmed that
rights of shareholding arise not from informal or moral understandings but from formal
legal acts of allotment and registration on the share register. The reasoning of the
Court in Gihwala underscores the position in our law that it is necessary that a form al
proce ss supported by a shareholder’s agreement of Memorandum of Incorporation, is
used in establishing shareholding rights.

[26] The respondent did not tender any evidence of a contractual or fiduciary
obligation that prohibited the appellant from allotting shares solely to himself. In the
absence of that proof , the allotment must be regarded as valid and binding.


[27] In considering whether a tacit term ought to be read into the request or
agreement between the parties that Kap s was to attend to the registration of MFG , I am
guided by the seminal authority in Alfred McAlpine & Son (Pty) Ltd v Transvaal
Provincial Administra tion 1974 (3) SA 526 (A) at 532A –533A , where the Appellate
Division held:

“The court does not readily import a tacit term. It cannot make contracts for
people. It cannot supplement the agreement of the parties merely because it
thinks it would have been r easonable to include such a term. A term can only be
imported if the Court is satisfied upon a consideration of the express terms of the
contract, the surrounding circumstances and the admissible evidence, that an
implication necessarily arises that both p arties must have intended the term to
form part of their contract.”

[28] This principle remains entrenched in our law. It serves as a caution against
judicial overreach and affirms the primacy of party autonomy in contractual dealings. In
the present matte r, no basis exists on the evidence to support the respondents’
understanding that Kaps was to register the company with shares set aside for the
respondents nor is there a basis for inferring that a tacit term , to that effect was created.
An alleged contract must be properly pleaded, thereafter be interpreted and enforced
according to its express provisions. In my view t here was no evidence placed before
the Court that the parties had concluded an agreement man dating Kaps to register the
company with the allotment of shares to b e held over. Nothing prohibited Kap s from
allocating the 100% shareholding to himself upon the registration of the company in
November 2017.

Misrepresentation of the B -BEE status:

[29] The Broad -Based Black Economic Empowerment A ct 53 of 2003, as amended,
defines fronting as any practice that undermines the Act’s objectives, including claiming
BEE credentials based on black representation in roles lacking genuine participation or

economic interest. BEE fronting undermines the aut hority and legitimacy of BEE
criteria, and the constitutional objectives aimed at in terms of the B -BBEE Act. Fronting
is a deliberate circumvention o r attempted circumvention of the B -BBEE Act and the
Codes.

[30] Section 13 0 of the Act creates a crimi nal offence for knowingly engaging in
fronting practices, and section 13J empowers the B -BBEE Commission to investigate
such conduct.

[31] The February 20 18 representation that the company had achieved Level 2
status —despite there being no black ownership or benefit flowing to black persons —
was a material misrepresentation that constitutes fronting.

What is the effect of the misrepresentation on the share allotment?

[32] The Court must distinguish between the act of incorporation and share allotment,
and the later unlawful B-BBEE misrepresentation.

[33] In Odendaal v Ferraris 2009 (4) SA 313 (SCA) it was held that fraudulent conduct
in one transaction does not retrospectively invalidate a prior lawful act, absent a causal
nexus or inducement linked to th e fraud.

[34] In my view there is no evidence that the B-BBEE misrepresentation in 20 18 was
used to retrospectively justify the share allocation at inception. During the hearing of
this matter, it was not disputed that there are not sufficient facts plac ed before the Court
to make out a specific finding as to why and how the company auditor , Mr. Bam pa, had
issued a B -BBEE level 2 certificate. I can take it no further than to say that on the
totality of the facts, the certificate was a misrepresentation. This was in any event not
disputed by the appellant s. To this extent it warrants referral to the B-BBEE
Commission for investigation , however, this Court is not able to make a more specific
finding than what it is called upon to do so.


[35] In my view, t he B-BBEE misrepresentatio n does not invalidate the original
allotment of shares to Kaps, nor can it be held to retrospectively , to undo the allocation
of the shares at the time of incorporation and registration. The se two events : the
allocation of shares on the one hand; and the B -BBEE misrepresentation on the other ,
are separate and distinct.

Conclusion

[36] The allotment of 100% of the shares issued to the first appellant was valid and
not contrary to the Companies Act nor was it a breach of any express or implied term of
an agreement, as no agreement was shown to exist that would contain the terms
contended for. The misrepresentation of the B-BBEE Level 2 status in February 20 18,
whilst disconcerting and sanctionable in law , does not affect the val idity of the earlier
share allocation.

[37] For these reasons I would uphold the appeal against the portions of the judgment
and order by the Court a quo in which the first appellant’s shareholding in MFG was
declared unlawful and set aside , including the order of costs made against the
appellants.

[38] For the reasons set out above I would uphold the appeal and propose an order
by setting aside the order of the Court a quo and substituting it as follows:

Order

(i) The appeal is upheld with costs.

(ii) The or der of the Court a quo is set aside and substituted as follows:

(a) The application under Part B of the Notice of Motion is dismissed.


(b) The applicants are ordere d to pay the costs in respect of the application
under Part B of the Notice of Motion, joi ntly and sever ally, the one paying the
other to be absolved.


____________________________ _____
DA SILVA SALIE J
JUDGE OF THE HIGH COURT
WESTERN CAPE DIVISION

I AGREE:
_________________________________
RALARALA J
JUDGE OF THE HIGH COURT
WESTERN CAPE DIVISION

I AGREE AND IT IS SO ORDERED:

_________________________________
ALLIE J
JUDGE OF THE HIGH COURT
WESTERN CAPE DIVISION