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Letters to the Editor

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Letters are not published under noms de plume. However, letters from practising attorneys who make their identities and addresses known to the editor may be considered for publication anonymously.

Closed corporation liability: Time of deregistration is crucial

I found the article by Perino Pama in the August issue of De Rebus very informative (2013 (Aug) DR 38).

I would like to point out that the last paragraph on p 38, going over into the first paragraph on p 39 is not entirely correct. Section 26(5) of the Close Corporations Act 69 of 1984, prior to the Companies Act 71 of 2008, read as follows: ‘If a corporation is deregistered while having outstanding liabilities, the persons who are members of such corporation at the time of deregistration shall be jointly and severally liable for such liabilities.’

Section 224(2) of the new Companies Act, which came into effect on 1 May 2011, substituted s 26 of the Close Corporations Act in its entirety to read as follows: ‘Sections 81(1)(f), 81(3), 82(3) to (4), and 83 of the Companies Act, each read with the changes required by the context, apply with respect to the deregistration of a corporation, but a reference in any of those provisions to a company must be regarded as a reference to a corporation for the purposes of this Act.’

Prior to the new Companies Act coming into effect, the members of a closed corporation (CC) were jointly and severally liable for the liabilities of a corporation that was deregistered, if such corporation was deregistered while having outstanding liabilities.

If one has regard to the abovementioned sections of the new Companies Act, the members are now no longer automatically liable jointly and severally with the corporation liable for such liabilities. Section 83(2) of the new Companies Act specifically provides that ‘[t]he removal of a company’s name from the companies register does not affect the liability of any former director or shareholder of the company or any other person in respect of any act or omission that took place before the company was removed from the register’. Having regard to the changes required by the context, one will therefore have to ascertain to what extent the members of a corporation were liable for the corporation’s liabilities prior to its deregistration.

A litigant will therefore have to determine when the corporation was deregistered, namely, before or after 1 May 2011 and thereafter thoroughly peruse and apply the provisions of either s 26(5) (if the corporation was deregistered prior to 1 May 2011) or ss 63 to 65 of the Close Corporations Act and apply to court to have the members declared personally liable in terms thereof.

If a CC was deregistered prior to the new Companies Act coming into effect on 1 May 2011, the members of the CC will still be liable in terms of s 26(5) of the Close Corporations Act, prior to its substitution. In fact, in the case of Mouton v Boland Bank Ltd 2001 (3) SA 877 (SCA), the Supreme Court of Appeal confirmed the principle that where members of a corporation become liable in terms of the provisions of s 26(5) (as it was prior to substitution), such members will remain liable even if the corporation is later reregistered.

In summary, the above statement made by Ms Pama in the article, is applicable only in respect of corporations deregistered prior to 1 May 2013. With regards to the liability of members of corporations deregistered on or after 1 May 2011, the liability will depend on the provisions of ss 63 to 65 of the Close Corporations Act.

Charl van Rensburg, attorney, Pretoria

On land registration and the owner of origin

South Africa has a negative system of land registration, which means that original owners are protected. Due to the excellent administration of the system there have been very few failures over the some 350 years that the deeds registry system, if I may call it that, has been in operation.

I recently received the following interesting e-mail message from a friend:

‘A lawyer to love – very rare

A New Orleans lawyer sought a Federal Housing Administration (FHA) loan for a client who lost his house in hurricane Katrina and wanted to rebuild. He was told the loan would be granted if he could prove satisfactory title to the parcel of property being offered as collateral. The title to the property dated back to 1803, which took the lawyer three months to track down. After sending all the information to the FHA, he received the following reply:

“Upon review of your letter adjoining your client’s loan application, we note that the request is supported by an abstract of title. While we compliment the able manner in which you have prepared and presented the application, we must point out that you have only cleared title to the proposed collateral property back to 1803. Before final approval can be accorded, it will be necessary to clear the title back to its origin.”

Annoyed, the lawyer responded as follows:

“Your letter regarding title in case no. 189156 has been received.

I note that you wish to have title extended further than the 194 years covered by the present application. I was unaware that any educated person in this country, particularly those working in the property area, would not know that Louisiana was purchased by the United States (US) from France in 1803, the year of origin identified in our application.

For the edification of uninformed FHA bureaucrats, the title to the land prior to US ownership was obtained from France, which had acquired it by right of conquest from Spain. The land came into the possession of Spain by right of discovery made in the year 1492 by a sea captain named Christopher Columbus, who had been granted the privilege of seeking a new route to India by the Spanish monarch, Isabella.

The good queen, Isabella, being a pious woman and almost as careful about titles as the FHA, took the precaution of securing the blessing of the Pope before she sold her jewels to finance Columbus’ expedition. Now the Pope, as I am sure you may know, is the emissary of Jesus Christ, the Son of God, and God, it is commonly accepted, created this world. Therefore, I believe it is safe to presume that God also made that part of the world called Louisiana. God, therefore, would be the owner of origin and His origins date back to before the beginning of time, the world as we know it, and the FHA. 

I hope you find God’s original claim to be satisfactory. Now, may we have our damn loan?”

He got the loan.’

In America, they also have a negative system of land registration, but they do not have an excellent system like we have of monitoring it. They have what is called ‘title insurance’, which is quite expensive and enables them to prevent the kind of problem that the lawyer faced in the extract above.

Arthur Schoeman, attorney, Paarl

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