A recent High Court ruling has left liquidators with a significant bill to pay after the liquidation of Harties Wine Club CC, a close corporation that was placed into voluntary liquidation in October 2019. The case, which was heard in the Mahikeng High Court in the North West Province, has raised questions about the liability of members of close corporations in the event of liquidation. According to the ruling, members of a close corporation are not automatically liable to pay for winding-up costs, leaving liquidators to foot the bill.
The case stems from the winding-up of Harties Wine Club CC, which had no assets and no creditors who submitted claims. Joint liquidators Kobus van der Westhuizen and Sonia Saffy filed a final liquidation and distribution account reflecting a nil estate, but the Master of the High Court in Mahikeng insisted that a R250 fee was payable. The Master argued that, in the absence of assets or creditors, members should contribute towards the costs of winding up, but the court disagreed.
Liquidation Costs and Member Liability
The court found that liability does not arise just because someone is a member of a close corporation. Instead, members are only liable when they have explicitly agreed to it in the founding statement, or have signed as surety, indemnitor, or guarantor for the entity’s debts. In the case of Harties Wine Club CC, there was no such provision, and the founding statement contained no clause imposing personal liability on members.
According to the Insolvency Act, the Master of the High Court is only entitled to charge fees when the value of an estate exceeds R5,000. In this case, Harties Wine Club CC had no assets, meaning that no fee was payable. The court drew a clear line at the law, stating that a taxing provision must expressly impose the obligation to pay, and that it may not be implied.
Implications for Liquidators
The outcome of the case has significant implications for liquidators, who may not always be able to recover their costs. In some cases, liquidators may be left with significant bills to pay, with no one to send them to. This could have a chilling effect on the willingness of liquidators to take on insolvent estates, particularly those with minimal assets.
Some of the key implications of the ruling include:
- No automatic liability for members of close corporations
- Members are only liable when they have explicitly agreed to it in the founding statement, or have signed as surety, indemnitor, or guarantor for the entity’s debts
- No fee is payable when the value of an estate is below R5,000
The ruling is a significant one, and is likely to have far-reaching implications for liquidators and close corporations in South Africa. As the South African Revenue Service notes, the Insolvency Act is designed to provide a framework for the winding up of insolvent estates, and to ensure that creditors are treated fairly.
