Van Zyl NO and Another v Currin and Others (15047_2018) [2018] ZAWCHC 189 (15 October 2018)

The case involves a dispute between the applicants, Thomas Christopher Van Zyl and Lebogang Michael Moloto, acting as liquidators of Company Worx Group (Pty) Ltd, and the respondents Wesley Aviant Currin, Richard Paul Kronk, Myles Kronk, and Cloud CFO (Pty) Ltd. The applicants seek relief under Section 424 of the Companies Act, No. 61 of 1973, holding the first to third respondents personally liable for the debts of Company Worx Group. Wesley Currin was a director of Company Worx Group; Richard Kronk was a director of Cloud CFO; Myles Kronk worked at Cloud CFO; and Cloud CFO provided accounting services.

The applicants allege that the respondents were involved in reckless conduct with the intent to defraud creditors of Company Worx Group. Shaun Currin, a former director of Company Worx Group, was owed a significant amount by the company. The respondents are accused of transferring the business and assets of Company Worx Group to Cloud CFO to avoid paying debts, including the amount owed to Shaun Currin.

Wesley Currin, as a director of Company Worx Group, failed to produce financial statements, and Richard Kronk, the general manager, registered as Cloud CFO while still employed at Company Worx Group, engaging in direct competition. Richard Kronk also took over the telephone number, website brochure, and business start-up packages of Company Worx Group for Cloud CFO. Myles Kronk denied being employed by Company Worx Group.

The evidence presented at insolvency inquiries by Wesley Currin and Richard Kronk was used to establish their involvement in the alleged misconduct. However, the evidence given by Richard Kronk was found inadmissible against the Cloud CFO. The court found Wesley Currin and Richard Kronk personally liable for the debt owed to Shaun Curr

The core legal principle underlying the decision in this case is the application of Section 424 of the Companies Act, No. 61 of 1973, which holds directors and others personally liable for any business of the company carried on recklessly or with intent to defraud creditors or for any fraudulent purpose. The court determined that individuals who were knowingly a party to the carrying on of the business in such a manner could be held personally responsible, without limitation of liability, for the debts or other liabilities of the company.

This quote is significant because it highlights the court's interpretation of what constitutes reckless conduct under Section 424 of the Companies Act. It underscores the principle that directors and others in control of a company's affairs have a duty to act in a manner that does not jeopardize the company's ability to meet its obligations to creditors. The court emphasizes that continuing business operations under circumstances where it is clear that the company cannot fulfill its financial obligations is a form of reckless conduct that can lead to personal liability for those responsible. This principle is central to the court's decision to hold Wesley Aviant Currin and Richard Paul Kronk personally liable for the debts of Company Worx Group due to their involvement in transferring the business and assets in a manner detrimental to the company's creditors.

The court applied this principle to find Wesley Aviant Currin and Richard Paul Kronk personally liable for the debts of Company Worx Group due to their involvement in transferring the business and assets of Company Worx Group to Cloud CFO in a manner that was deemed reckless and with the intent of defrauding creditors, specifically in relation to the debt owed to the insolvent estate of Shaun Norman Currin.

Furthermore, the decision underscored the importance of the fiduciary duties of directors and employees towards their company, emphasising that actions taken against the company's interests, such as competing with the company or misappropriating its assets for personal gain or the benefit of another entity, can lead to personal liability under Section 424 of the Companies Act.

The decision also highlighted the procedural aspect regarding the admissibility of evidence given at insolvency inquiries, clarifying that such evidence is admissible against the person who gave it but not necessarily against other parties or entities, unless specifically proven to be applicable to them. This was particularly relevant in the court's decision to dismiss the application against Myles Kronk and Cloud CFO (Pty) Ltd., where the evidence provided was not deemed sufficient to establish their liability under the same section.

In its reasoning process, the court referred to several cases to support its judgments and interpretations of the law, particularly regarding the principles of fiduciary duty, the admissibility of evidence, and the application of Section 424 of the Companies Act, No. 61 of 1973. Below are some of the cases cited, along with their neutral citations where available:

1. Plascon-Evans Paints Ltd. v. Van Riebeeck Paints (Pty) Ltd 1984 (3) SA 623 (A). This case is pivotal for its establishment of the principle known as the "Plascon-Evans rule," which guides courts on how to approach disputes of fact in motion proceedings.

2. Ebrahim and Another v. Airport Cold Storage (Pty) Ltd 2008 (6) SA 585 (SCA). This case was referenced for its discussion on the notion of reckless conduct under a similar provision in the Close Corporations Act, which parallels Section 424 of the Companies Act.

3. Howard v. Herrigel, NO 1991 (2) SA 660 (A). This case was used to elaborate on the affirmative duty of directors to safeguard and protect the affairs of the company, highlighting how a director's inaction could amount to concurrence in reckless or fraudulent conduct.

4. Lynn NO and Another v. Coreejes 2011 (6) SA 507 (SCA). This case was cited for its interpretation of Section 386(4)(a) of the Companies Act, regarding the powers of liquidators to bring or defend legal proceedings on behalf of the company and the possibility of retrospective authorization.

5. O’Shea NO v. Van Zyl and others NNO 2012 (1) SA 90 (SCA). This case was referenced in the context of discussing the admissibility of evidence given under Section 65 of the Insolvency Act, emphasizing that such evidence is admissible against the person who gave it but not against other parties.

6. Rhodesian Corporation Ltd. v. Globe and Phoenix Gold Mining Co. Ltd. 1934 AD 239. This case was mentioned in relation to the principle that statements made by an agent or officer of a corporation in one case are not automatically admissible against the corporation in a subsequent case.

These cases were instrumental in the court's analysis and application of legal principles to the facts of the case, guiding its decisions on issues of personal liability under Section 424 of the Companies Act, the duties of directors and employees, and the procedural aspects of litigation.