Piercing the corporate veil

In Department of Agriculture, Forestry and Fisheries and Another v B Xulu and Partners Incorporated and Others [2022] 1 All SA 434 (WCC) if there is in fact no distinction between the separate juristic personality of a juristic entity and those controlling it improperly, a piercing is justified.

By Merilyn Rowena Kader LLB (Unisa), Legal Editor at LexisNexis South Africa.

Company law - Piercing the corporate veil: In Department of Agriculture, Forestry and Fisheries and Another v B Xulu and Partners Incorporated and Others [2022] 1 All SA 434 (WCC), the first respondent (BXI) was a firm of attorneys, whose principal member was the fifth respondent (BX). Protracted litigation between the applicants and BXI resulted in a judgment in which BXI and BX were held jointly liable to repay over R 20 million to the applicants, from whose bank accounts the money had been taken. In the wake of that judgment, BX contested his liability to pay the money jointly and severally with BXI.

The fact that BX was the sole director of BXI did not inevitably lead to a piercing of the corporate veil and holding him jointly and severally liable. Lifting the corporate veil entails ignoring the distinction between the company and the natural person behind it and will happen where it is shown that the natural person has abused the corporate personality of the corporate entity. Section 20(9) of the Companies Act 71 of 2008 is the statutory basis for piercing the corporate veil, requiring an unconscionable abuse of the company’s juristic personality. It broadens the basis on which relief may be granted, so courts will now resort to the remedy where justice requires it and not just where there is no alternative remedy.

Case law shows that where controllers of companies use the companies for improper purpose, and in that process, treat the entity such that there is no distinction between the separate juristic personality of the entity and those controlling it, that would constitute the required unconscionable abuse.

Applying the above principles to the facts of the case at hand, the court found the conduct of BX to satisfy all the requirements for piercing the corporate veil and holding him jointly and severally liable with BXI. The facts showed that he had, under guise of settling BXI’s liabilities, appropriated funds from BXI, channelling it to himself, friends, family and entities under his control. In application of the alter ego doctrine, the court found that BX acted not as an agent of BXI, but as the company’s actual persona. A proper case had thus been made for piercing the corporate veil and for holding BX jointly and severally liable with BXI or repayment of the funds. The court found further that BX acted wrongfully, with the requisite dolus, to warrant being held personally liable with BXI under the actio ad exhibendum.

Setting out the principles applicable to applications for joinder, the court also ordered that the sixth to ninth respondents be joined as parties to the proceedings. The fifth to seventh respondents were held jointly and severally liable with BXI for payment of the money to the second applicant.

Merilyn Rowena Kader
Legal Editor at LexisNexis