9 March 2006

Hanekom v Builders Market Klerksdorp (Pty) Ltd [2006] SCA 2 (RSA) concerns the validity of a suretyship passed by a CC. It has relevance to the registration of bonds, the law relating to suretyships, insolvency law, and close corporation law in general (an interpretation of the intention of s 52 of the Close Corporations Act is the key issue here).

LSL Konstruksie (Pty) Ltd ("L") buys goods from Builders Market. Hanekom is the sole shareholder of L (Pty) Ltd. As security for payment of the goods, two suretyships are signed; one by Hanekom in his personal capacity AND one by a close corporation, RTMC Marketing CC ("the CC"), of which Hanekom is the sole member.

L fails to pay and Builders Market sues on the suretyships. The CC is liquidated. At a meeting of creditors the issue is raised that the suretyship is void due to the wording of s 52 of the Close Corporations Act, which reads:

"(1) A corporation shall not, directly or indirectly, make a loan -
(a) to any of its members;
(b) to any other corporation in which one or more of its members together hold more than a 50 per cent interest;
(c) to any company or other juristic person (except a corporation) controlled by one or more members of the corporation,
and shall not provide any security to any person in connection with any obligation of any such member, or other corporation, company or other juristic person.
(2) The provisions of subsection (1) shall not apply in respect of the making of any particular loan or the provision of any particular security with the express previously obtained consent in writing of all the members of a corporation.
(3) Any member of a corporation who authorizes or permits or is a party to the making of any loan or the provision of any security contrary to any provision of this section -
(a) shall be liable to indemnify the corporation and any other person who had no actual knowledge of the contravention against any loss directly resulting from the invalidity of such loan or security; and
(b) shall be guilty of an offence.

Hanekom brings an application to court to declare the suretyship invalid. He loses the first round. He appeals. This is a summary of what the SCA ruled.

  • S 52's purpose is to protect other members of a CC not consenting to the signing of such a suretyship.
  • In the present case Hanekom was the sole member, and to apply the wording of s 52 literally will lead to an absurdity. (This will mean that the surety will have to be declared invalid because Hanekom did not give himself permission to sign the suretyship on behalf of the CC).
  • The court considered case law and principles as to when it will be in order to deviate from the literal meaning of a statute if it will lead to an absurdity to apply it.
The SCA decided that, in the circumstances, a deviation from the literal meaning of section 52 is in order. The suretyship is valid, despite the fact that the 'express previously obtained' consent of Hanekom as foreseen in s 52(2) had not been obtained.

Lizelle Kilbourn
Igqwetha Training Academy (Pty) Ltd

Full judgment

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