Section 218(2) of the Companies Act 2008 provides for civil liability against any person who contravenes the provisions of the Act. A creditor of a company attempted to pursue a damages claim against the directors of the company alleging that section 22(1) prohibits reckless trading by a company and that the directors were guilty of such a contravention. The creditor had a contractual relationship with the company. The claim failed.

The Supreme Court of Appeal recapped the relevant principles underpinning the Companies Act. Section 1 defines a company as a juristic person incorporated in terms of the Act. Section 19 provides the company, as a juristic person, with all the legal powers and capacities of an individual subject to certain exceptions. Section 19(2) expressly states that “a person is not, solely by reason of being an incorporator, shareholding or director of a company, liable for any liabilities or obligations of the company, except to the extent that the Companies Act or the company’s Memorandum of Incorporation provides otherwise”. In the case of unconscionable abuse of the juristic personality of the company as a separate entity, section 20(9) provides that the court may declare a company not to be a juristic person in respect of a right, obligation or liability and to make any further order it considers appropriate. This is the so-called ‘piercing of the corporate veil’. Section 20(9) does not replace the common law, it supplements the common law.

These provisions emphasise the long-standing legal principle that the company’s legal personality cannot be ignored at the choosing of a party. This is foundational to company law. A person cannot simply disregard the corporate veil; it must be permitted by law to do so. Against that backdrop, the court found that section 218(2) does not itself create liability. It imposes liability in the event of a contravention of some other provision of the Companies Act. The section relied on, section 22(1), plainly imposes a duty on the company, and not its directors, to refrain from carrying on its business recklessly, among other things. As the claimant had been unable to identify a provision that had been contravened by the directors in relation to the claimant to invoke section 218(2), the claim was dismissed.

There have been previous similar decisions. Section 218(2) is not the catch-all that some thought it would be.

[Venator Africa (Pty) Ltd v Watts and Another [2024] ZASCA 60 (24 April 2024)]