Dissolution After liquidation Master certificate Registrar gives notice Date of dissolution… May be declared void
Deregistration Section 26 Cancel founding statement No termination of CC Association of persons loses corp personality CC terminates by dissolution after winding up
Deregistration Decision of all the members CC has no assets or liabilities Registrar may start procedure Not affect members liability Section 26(5) Restoration by Registrar CK3 As if never deregistered
Cases for 10 April Klaas v Summers 2008: 4 SA 187 C Airport Cold Storage Ltd v Ebrahim 2008 2 SA 378 T. G&C Construction v De Beer 2000 2 SA 378 T. L&P Plant Hire v Bosch 2002 2 SA 662 SCA. Schwartz v Pike 2008 3 SA 431 SCA.
Q1(8 marks) Jane and Jill each hold a 50% member’s interest in Flight of Fancy CC (“FOF”), a catering business. In June 2010, FOF makes an equal cash distribution to both Jane and Jill utilising profits from the previous financial year. In July 2011, FOF is wound up on the basis that it cannot pay its debts. Will Jane and Jill be liable to FOF for the payment each received from FOF? In the course of your answer, discuss on which party the onus will lie with regard to the issue of liability.
1. Section 51 of the CC Act provides that any payment by a CC to any member by reason only of his/her membership of the CC may be made only if the CC meets the solvency and liquidity requirements of the CC Act after the payment is made. 2. The solvency and liquidity requirements are that (1) after the payment is made, the CC’s assets, fairly valued, exceed its liabilities, and (2) the CC must be able to pay its debts as they become due in the ordinary course of business. 3. In terms of section 51(2), a member is liable to the CC for any payment received contrary to any of the solvency and liquidity requirements. 4. In circumstances where the CC is wound up because it cannot pay its debts, the onus is on the members who received payment from the CC to prove that the solvency and liquidity requirements were met, provided that the payment took place not more than two years prior to the commencement of the winding-up.
5. If the members cannot show that the CC satisfied the solvency and liquidity requirements after the payment was made, the members will be liable to the CC for the payments made by the CC to them. 6. The members will therefore be required to repay the amounts paid to them by the CC. 7. In the present instance, Jane and Jill received a cash payment from the CC less than two years prior to FOF being wound up because it was unable to pay its debts. Accordingly, Jill and Jane bear the onus of proving that, when the payments were made, FOF satisfied the solvency and liquidity requirements of the CC Act. 8. If they cannot prove that FOF satisfied the solvency and liquidity requirements after the payments were made to them, they will be personally liable to repay the amounts they received from FOF to FOF.
Q2 (5 marks) Tony and Bill carry on business through a CC called Meat Madness CC (“MM”). However, the name Meat Madness CC does not appear anywhere on the premises from which Tony and Bill trade, or on any documentation or correspondence issued by them. In fact, the name “The Butcher Boys” appears on the sign above their business premises and on all business documentation and correspondence issued by them. MM purchases meat on credit from a number of suppliers, including Farm Fresh Products (Pty) Ltd (“Farm Fresh”). MM fails to pay Farm Fresh for meat purchased from it. Farm Fresh was under the impression that it was dealing with a partnership called The Butcher Boys when it contracted with MM. In the circumstances, will Farm Fresh be entitled to sue Bill and Tony for the debt owed to it? Explain fully.
1. A member of a CC can, in certain circumstances, be held personally liable for the debts of the CC. 2. Section 65 of the CC Act provides that a court may disregard the separate legal personality of a CC and hold its members personally liable where there has been an abuse of the CC as a juristic person. 3. In addition, section 23 provides that a member of a CC can be held personally liable for the debts of a CC in circumstances where the name of a CC is not used properly. 4. In the present instance, MM has not displayed its name on its business premises, documentation and correspondence, as is required by the CC Act. 5. In addition, the failure to display its true name and corporate identity has meant that a supplier has been misled into thinking that it was dealing with a partnership and not a CC. Thus, MM has abused its juristic personality and a court may disregard its juristic personality. Accordingly, in the circumstances Bill and Tony will be personally liable for the debt incurred to Farm Fresh.