The claim by a company, that had done business with a clearing and forwarding agent company, made under section 218(2) of the Companies Act, 2008, which was based on the company having carried on its business recklessly, failed. Section 218 creates liability for any person “who contravenes any provision of this Act”. The claimant failed to identify a provision of the Act that had been contravened by the directors themselves in order to invoke section 218(2).

The court dealt with the legislative scheme in the Companies Act. Section 1 defines a company as a juristic person incorporated in terms of the Act. Section 19 dealing with the legal status of a company and its powers and capacity states that “a person is not, solely by reason of being an incorporator, shareholder or director of a company, liable for any liabilities or obligations of the company except to the extent that this Act or the company’s memorandum of incorporation provides otherwise”. Save for a personal liability company and a situation where the corporate veil is pierced under section 20(9) or the common law, the long-standing legal principle that a company’s legal persona cannot be ignored at the choosing of a party is no mere technicality. It is foundational to company law.

Section 218(2) does not create liability in itself. It imposes liability in the event of a contravention by the defendant of some other provision of the Act. The fact that the company carries on business recklessly, imposes a duty on the company and not on its directors under the Act. Section 22(1) is not capable of infringement by the directors themselves.

Section 77(3)(b) creates liability for a director for damages sustained by the company if pursued by the company. Section 76(3) creates a duty to act in good faith and in the best interests of the company, but these duties are owed to the company. The company is the proper claimant in all these claims relating to a failure of the directors to act in the way stated. The Act astutely preserves certain common law principles including the separation of liability between companies and its directors to third parties.

Without any identified provision of the Companies Act that has been contravened by the directors personally, no claim lies under section 218(2). Even if the company traded recklessly as alleged, there would be no claim against the directors by a third party which dealt with the company.

[Venator Africa (Pty) Ltd v Watts and Another [2024] ZASCA 60]

https://www.saflii.org/za/cases/ZASCA/2024/60.html