Although the Close Corporations Act 69 of 1984 has become less and less applicable with no “new” close corporations being created and only governing those close corporations which have already been in existence, the Courts have continued to hear matters considering the interpretations and application of the Close Corporations Act.
Recently, the Supreme Court of Appeal has handed down an important judgement on Section 64(1) of this Act – Godfrey Goliath Nicholls N.O and Others v Magdalena Gaybba and Another1.
Section 64 empowers a court to hold members of close corporations personally liable if they knowingly carried on the business of a corporation recklessly, with gross negligence, or for the purpose of committing fraud.
In the Godfrey case, the court considered whether or not Section 64(1) of the Close Corporations Act could be construed as being a “debt” as defined in the Prescription Act 68 of 1969 under S10.
Brief Facts
On 12 April 2019, a Trust issued summons against inter alia an individual, alleging that as a member of a close corporation, her fraudulent conduct gave rise to personal liability on her part. The claim essentially stated that the Respondent and her deceased husband caused payments under fictitious descriptions to be paid into the close corporation by the Trust and another company.
The Respondent contended that the ‘debt’ had prescribed as it arose more than three years before the summons was issued against her. The High Court upheld this position i.e. that S64(1) of the Close Corporations Act was within the scope of S10 of the Prescription Act and that a “debt” in terms of S64(1) would prescribe within 3 years of the amount becoming due.
The Supreme Court
The Supreme Court was tasked with reviewing the High Court decision.
The Supreme Court criticized this view on the basis that S64(1) of the Close Corporations Act entailed a discretion for the court to exercise, and on the basis that the definition of a “debt” as provided for in the Prescription Act may need to be more fully explored.
Ultimately, the Supreme Court found that the High Court was correct in finding that S64(1) of the Close Corporations Act provides the right to a creditor to issue summons in terms of this section and stated the following: “…thus clearly gives a right to a creditor to issue summons for a declaration that such a person who was knowingly a party to the carrying on of the business in any such manner, shall be personally liable for all or any of such debts or [any] other liabilities of the corporation as the court may direct” (para 31).
However, the Supreme Court also found that the High Court erred in finding that a Section 64(1) claim is subject to prescription and as a result, ordered that the appeal be upheld and that the High Court judgement is replaced with an order dismissing the special plea.
The member was thus personally liable for the ‘debts’ of the close corporation.
The takeaway is significant: members who carry on a close corporation’s business recklessly or fraudulently cannot escape personal liability by relying on prescription, and creditors retain the right to hold them accountable no matter how much time has passed.
SWVG Inc has a team of commercial attorneys who specialise in drafting, reviewing and litigating over commercial matters of this nature. Should you need legal assistance and advice, kindly contact our offices on 011 486 2850 to speak to one of our attorneys.
- (865/2023) [2025] ZASCA 138; 2026 (1) SA 111 (SCA) (25 September 2025) ↩︎
