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Further clarity: recklessness under the Companies Act

McLuckie v Sullivan 2011 (1) SA 365 (GSJ)

Section 424 of the Companies Act, 1973 (the “Act”) provides that when it appears that any business of a company was or is being carried on recklessly or for any fraudulent purpose, the court may on application declare that any person who was knowingly a party to the carrying on of the business in this manner be personally responsible, without any limitation of liability, for all or any of the debts or other liabilities of the company as the court may direct.

In this case before the South Gauteng High Court (the Court), McLuckie  (McLuckie) had in terms of an agreement, paid an amount to a company (the Company) of which Sullivan (Sullivan) was the sole director. The Company did not perform its obligations to McLuckie and shortly thereafter applied for liquidation.

McLuckie applied to recover his debt from Sullivan based on section 424(1) of the Act. The Court found that Sullivan, as the sole director and shareholder of the Company, was aware that there was no possibility of the Company being able to perform its obligations without his financial input and despite this knowledge, purposely caused the Company to be wound up, fully aware that McLuckie could not expect to receive any dividend from the insolvent estate of the Company.

The Court concluded that Sullivan’s conduct fell within the definition of ‘reckless conduct’ as described in the Act as it was “an entire failure to give consideration to the consequences of one's actions, in other words, an attitude of reckless disregard of such consequences.”

Accordingly, the Court made an order in favour of McLuckie and held Sullivan personally liable.

in this issue

  • Drafts of the Credit Rating Services Bill and Financial Markets Bill released for public comment Drafts of the Credit Rating Services Bill and Financial Markets Bill released for public comment
  • The Pension Fund, Collective Schemes and Security Services industries exempted from the Consumer Protection Act The Pension Fund, Collective Schemes and Security Services industries exempted from the Consumer Protection Act
  • Draft amendments to binder regulation published for public comment Draft amendments to binder regulation published for public comment
  • Further clarity: recklessness under the Companies Act Further clarity on recklessness under the Companies Ac
  • A mortgagee has a right to be joined in proceedings that affect property in which it has a real right, but may not have the right to relief A mortgagee has a right to be joined in proceedings that affect property in which it has a real right, but may not have the right to relief
  • The right of a credit provider to terminate debt review in terms of the National Credit Act  The right of a credit provider to terminate debt review in terms of the National Credit Act
  • The Court examines the effect of contractual undertakings pursuant to bridging finance The Court examines the effect of contractual undertakings pursuant to bridging finance 
  • The Supreme Court of Appeal reiterates the principles of prescription The Supreme Court of Appeal reiterates the principles of prescription
  • The Courts take a closer look at default interest provisions The Courts take a closer look at default interest provisions
  • The Constitutional Court declares default judgment unconstitutional  The constitutional challenge against provisional sentence procedure
  • Recent Deals Recent Deals
       
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    Senior Associate | Banking and Finance
    Lithemba Velleman
    (Senior Associate)
    Lithemba Velleman is a Senior Associate in the Banking and Finance Department of Bowman Gilfillan. Lithemba has advised local and international banks and investment houses on Acquisition and Leveraged Finance, Asset Finance (Rail) and syndicated and single-lender bank lending, on both local law and foreign law-based transactions.

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