in this essay one is required to discuss whether section 163 (4) of the Companies Act, No 71 of 2008 codified the common law approach in piercing the corporate veil i.e. to what extent did the 2008 Act brought some certainty regarding to the grounds in which the courts will disregard the juristic existence of a company. To achieve this I’m going to first explore the position of common law in this field of law.
As a point of departure, the company is equal in law to a natural person. This is one of the cornerstones of South African company law, and has been since 1897 handed down in the Salomon case namely that a company is a legal entity distinct from its shareholders. It allows a company ...view middle of the document...
It is important to note than when the courts pierce the corporate veil, they would be doing so only to determine the rights, liabilities and obligations of the parties in the instance before it and, for all other purposes, the company’s separate existence and personality remains unaffected .
Trite law that the disregarding of the separate personality of the company is not to be done casually, as stated in Cape Pacific Ltd “It is undoubtedly a salutary principle that our courts should not lightly disregard a company’s separate personality, but should strive to give effect to and uphold it”
In the 1980 case, Lategan v Boyes the court gave a judicial affirmation of the veil piercing doctrine and said that there is no doubt that our courts would brush aside the veil of corporate identity time and again where fraudulent use is made of the fiction of legal personality . In addition to this the case of Amlin said that fraud, dishonesty or improper conduct could provide grounds for piercing the corporate veil. The court went further to say that veil could also be lifted where there is a façade i.e. where the company is a mere façade concealing the true state of affairs
In Clarkson Co v Zhelka the court ruled out that if a company is formed for the express purpose of doing a wrongful or unlawful act, or, if when formed, those in control expressly direct a wrongful thing to be done, the individuals as well as the company are responsible to those to whom liability is legally owed.
The case of Robinson v Randfontein illustrates that abuse of legal personality by directors to circumvent their fiduciary duties for personal aggrandisement can as well be a further instance of piercing the corporate veil.
More to the above, piercing can be accepted where the personality of the company is being used to avoid contractual obligations this was enunciated in the case of Gilford Motor Company .
Deciphering when the courts will and will not pierce the corporate veil seems to be the most confused issue surrounding the doctrine, mostly because there seems to be very little consistency in the application of this doctrine by the Courts.
In Lategan v Boyes , Loux J stated that fraud is the essential requirement for piercing the corporate veil and that a fraud committed by the company need always be present before the courts can pierce the veil. This was jettisoned in Botha v van Niekerk , where Flemming J stated that the statement in Lategan regarding fraud was incorrect. Flemming J formulated a test for veil piercing which was somewhat wider than the categorisation approach. The court held that there could be personal liability if it could be proved that the applicant had suffered an unconscionable injustice
More so the Cape Pacific case Smallberg J rejected the notion in Botha v Van Niekerk . The former case discarded by holding that the unconscionable injustice test is too rigid and that the needy of more flexible approach is necessary, under which...