Reckless Trading still Impacted by the old Companies Act
- Sep
- 11
- 2012
- Posted by CoSec
- Posted in CoSec Blog
Many may not be aware but Chapter 14 of the Companies Act, 1973 is still very much alive and in force.
Chapter 14 relates to the winding up of companies and most notably contains Section 424 which tackles the personal liability implications of directors who knowingly participate in fraudulent conduct and reckless trading.
In the case of McLuckie v Sullivan 2011 (1) SA 365 (GSJ), McLuckie paid monies over to a Company of which Sullivan was the sole director. However, Sullivan knew at the time that the Company would not be able to meet its financial obligations without the monies received from McLuckie. Shortly after, the Company could not meet its obligations to McLuckie and subsequently applied for liquidation.
McLuckie applied to the Court to recover his debt from Sullivan by utilising Section 424(1) of the old Companies Act. The Court found that as Sullivan was the sole director and shareholder of the Company, he would have known that the Company would not be able to meet its obligations without the funds received from McLuckie. Despite knowing this information Sullivan continued to pursue liquidation even though he was aware that McLuckie would not receive a dividend from the liquidation process.
The Court found Sullivan guilty of reckless conduct of the affairs of the Company and ruled him to be personally liable to McLuckie for the debt incurred.
Directors must proceed with caution and continually review their actions to ensure that they are acting in line with their fiduciary duty to the Company.
Should you have any queries, please do not hesitate to contact either Dave or Alexis.
All material subject to our Legal Disclaimers.
Recent Posts
- Tax evaders should face jail time to curb rising non-compliance – Judge Dennis Davis 15/04/2021
- ASA Newsletter April 2021 – Article by Dave Rich 14/04/2021
- Domestic employees will now be entitled to compensation if they are injured or contract diseases while on duty 12/04/2021
- POPIA – ARE YOU READY? 08/04/2021
- Justice on 100 day countdown to be POPIA compliant 30/03/2021
- 2021/2022 MD Tax Card is now available!!! 16/03/2021
- Extended COVID-19 TERS relief for certain categories of employees 10/03/2021
- MD Accountants & Auditors Inc. | Budget 2021 25/02/2021
- MD’s Current News | February 2021 23/02/2021
- MD Accountants & Auditors Inc – Section 12J Webinar 16/02/2021
- Trusts welcome DTIC Minister Patel’s support for ownership schemes 15/02/2021
- FORFEITURE OF SEVERANCE PAY 12/02/2021
- MD’s Top Tax Savings Tips – Ahead of the Budget on 24 February 2021!!! 11/02/2021
- UIF launches e-compliance certificate system 10/02/2021
- MD’s Top Tax Savings Tips ahead of the Budget on 24th February 09/02/2021
- Potential taxes to fund the vaccine. Be prepared and plan now before the Budget! 08/02/2021
- Employment Equity Amendment Bill described as a “game-changer” 03/02/2021
- Are you being sold a dubious B-BBEE share option scheme? Hear what the B-BBEE Commission has to say… 01/02/2021
- FILING SEASON 2020: DEADLINE FOR ONLINE FILERS EXTENDED 29/01/2021
- Businesses reminded of City support to offer relief 26/01/2021
- 2nd 2021 Provisional Tax Information Request 18/01/2021
- Changes to the South African Exchange Control Rules 13/01/2021