ONR 314
Close Corporations
Chapter 29: External relations
• Members as agents:
• Section 54
• Every member is an agent of the CC
• Any act of a member binds the CC
• If member had no power – still
binding on CC and third party
UNLESS…
• A bona fide outsider is not affected by
the internal restrictions of power if
they have no knowledge of it
• BUT may be bound by contract that
falls outside the scope of business
• EVEN if the contract was not
authorized or ratified
• Eg. If 3rd party did not have or should
not reasonably have know of the lack
of authority
• 3rd party’s are entitled to assume that
each member has the necessary
authority to act on behalf of the CC
Non-members as agents
• S54 deals with power of members to
bind the CC
• CC may authorize non-member to act
as agent
• Express or implied authority
• CC can ratify the agreement
Regulation of loans and provision of
security
• Par 29.23 – 29.33 Self study for short questions
Chapter 30 : Personal
liability
• Personal liability as sanction:
• CC-Act creates few criminal sanctions
• Act = self-regulating
• Nb sanction = personal liability
• Main provisions giving rise to
personal liability:
• Section 63 - for specific
contraventions
• Section 64 - for reckless and
fraudulent trading
• Section 65 - for abuse of corporate
juristic personality
Section 63
• Contravention = automatic liability
• CC not relieved of primary liability
• Creditor may sue CC or offender for
debt
• Joint and several liability:
• Use of the identifying abbreviation
• Delivery of contribution
• Membership
• Payment in respect of acquisition of
member’s interest
• Financial assistance
• Management by disqualified person
• Accounting officer vacancy for more
than 6
Section 64
• If any business was carried out
recklessly, with gross negligence or
fraudulently,
• court may declare person personally
liable for debts/liabilities
• Could be criminal offence
• Test for recklessness
• is objective
• is subjective (Philotex v Snyman)
• Other factors:
• Scope of operations
• Role, function & powers of members
• Fin position of the CC
• What is reckless trading?
• Debt incurred dishonestly =
fraudulent trading
Section 65
• Incorporation or any act of the CC a
gross abuse of its juristic personality
• Rights, obligations or liabilities of CC
or any of its members
• If distinction between CC and its
controllers being fraudulently,
dishonestly or improperly abused
• To the unfair advantage of the
controllers
Other Instances of Personal
liability
• Correct use of name on cheques
and documents –person who
issues or authorizes
• Deregistration – If CC deregistered
while outstanding debts, all debt must
be payed
Members liable to
compensate CC if:
• Breach of fiduciary duty or duty of
care and skill towards the CC
• Granting of loans in contravention of
section 52
• Distribution to members that will
result in CC not being solvent and
liquid.