Company, Commercial and Insolvency Law
Company law
The Companies Act 28 of 2004 governs incorporation, the memorandum and articles, share capital, directors and winding up; the Close Corporations Act 26 of 1988 governs close corporations. A company is a separate legal person, so members are not liable for its debts save for unpaid share capital or personal guarantees. Directors owe fiduciary duties and duties of care and skill. The veil may be pierced where the company is used as a mere instrument of fraud or improper conduct. Shareholders who are oppressed may seek relief; a derivative action may be brought on the company's behalf.
Commercial practice
Sale, lease, agency, security and negotiable instruments are governed by common law and statute. Security commonly takes the form of mortgage bonds, notarial bonds and cessions. The Competition Act 2 of 2003 regulates anti-competitive conduct.
Insolvency
The Insolvency Act 24 of 1936 applies. Sequestration requires a claim, an act of insolvency under section 8, and a benefit to creditors. Provisional sequestration is followed by final sequestration, creating a concursus creditorum. A trustee collects and distributes the estate, secured creditors are paid from their security, and preferent claims rank before concurrent claims. Dispositions without value, undue preferences and collusive dealings may be set aside.
Worked example
Before sequestration, a director uses company funds to pay his own personal debt. The liquidator may attack the disposition as one without value or as an undue preference, and the director may be personally liable for breach of fiduciary duty. The reasoning turns on harm to creditors, not on the director's intention alone.
Traps
Assuming shareholders are liable for company debts; forgetting the "advantage to creditors" requirement; and treating a close corporation as a partnership.