MRL2601 Assignment 2 Semester 1
Leonard Makombe
QUESTION 1
With reference to the relevant legislation and case law, indicate what Themba would have to prove in
order to hold Tendai Munyai liable.
What can be deduced from the facts is that Bad Boys, owned by Tendai Munyai, is a close corporation.
Another glaring fact is that Themba thought he was employed by the Men’s Club, only to be told that he
was employed by Bad Boys when he went for conciliation. Additional facts show that it was not clear to
Themba, who had employed him. Furthermore, it is clear from the presentations made to Commission
for Conciliation, Mediation and Arbitration (the CCMA) and subsequently for arbitration that Themba
cited both Bad Boys and Men’s Club.
It is clear from the facts that Tendai owns both Bad Boys and Men’s Club but what is not clear and has to
be proven in court is that while employed by either company, Tendai Munyai is liable for paying Themba
for unfair dismissal. The fact that one is looking at what proof has to be made to make Tendai liable for
an unfair dismissal by a company he owns shows that issues of lifting/piercing the corporate veil are
involved here.
This is similar to what the court was seized with in the Prinsloo v Expidor 163 CC t/a The League of
Gentlemen and Another What. Prinsloo was unfairly dismissed and he sought remedy but the employer
insisted that while he owned the companies he was not liable. Themba has, in this case, an onus to
prove to the courts that Tendai was his employer.
The Prinsloo v Expidor case is relevant here because by declaring insolvency, Tendai is implying that the
company he owns will not be able to honour its debts to creditors. As was held in L & P Plant Hire BK v
Bosch the move to lift the corporate veil is called for because Tendai is no longer able to meet the debts
and “it should be of no concern to the creditor if the person who acted on behalf of the close
corporation has been reckless or even fraudulent, as the creditor’s only interest is to recover the debt
owed to him.”
In this regard, it is incumbent upon Themba to prove that Tendai was so enmeshed in the business of
the respondent company that the respondent could be regarded as the real employer of the applicant
as was held in the Plascon-Evans Plaints (TVL) Ltd v van Riebeck Plaints (Pty) Ltd.
Given that Tendai was enmeshed in the companies, Themba would also have to prove that there was an
abuse of separate juristic personality. The Close Corporation Act 69 of 1984, provides that “if what a
company does constitutes a gross abuse of the juristic personality of the corporation as a separate
entity, the Court may declare that the corporation is to be deemed not to be a juristic person in respect
of such rights, obligations or liabilities of the corporation…”
What Themba has to do is to aver to the court that the way that Tendai was enmeshed in the two
companies and the way he acted after conciliation and arbitration shows a gross abuse of juristic
personality. This is so because from the first place, Themba was not even aware of who was employing
him and in addition, it is clear that while claiming that he was employed by the other entity, Tendai was
using own resources to prop up the companies.
Furthermore, Themba may also aver that he was only told his real employer at the moment he was told
because Tendai wanted to avoid the obligations of paying him for unfair dismissal.
Other points which prove that Tendai was his real employer are:
• Tendai was involved in running Bad Boys (as shown by financial support)
• The assets of the two companies are inseparable from Tendai
• Tendai attended the conciliation and arbitration, showing that he was tied to the companies
• Tendai accepted the arbitration ruling but wanted to evade paying by separating the company
from his personal life
• The identity of the actual employer was withheld and only revealed when necessary to avoid
payment.
QUESTION 2
Advise the members regarding the following:
2.1 The scope of the fiduciary duties that are owed by a member of a close corporation.
The advice one may give is guided by the Close Corporations Act 69 of 1984. The member’s fiduciary
duties towards the close corporation are spelt out in Section 42 of Close Corporations Act 69 of 1984.
According to this section, a member is supposed to:
i) exercise powers to manage or represent the corporation in the interest of the corporation;
ii) not act without or exceed such powers;
iii) avoid a conflict of interest between his or her own interests and those of the close
corporation and in particular
iv) not derive any personal financial gain to which he or she is not entitled by virtue of being
members of the close corporation;
v) disclose any material interest in a transaction to the other members of a close corporation
as soon as possible
vi) not compete with the close corporation’s business activities in any way
2.2 With reference to the relevant statutory provision, what the other members would have to prove
to successfully apply for a court order remove Puseletso as a member of the close corporation.
In terms of Section 43 of the Close Corporations Act 69 of 1984) it has to be established if Puseletso’s
actions led to the corporation suffering a loss. It was stated that Puseletso’s actions were ‘detrimental’
to the corporation which means that a loss was incurred as a result of the said actions. Having
established this, members or a member of the corporation may proceed to institute action against
Puseletso. One of the remedies available to members of close corporations include termination of
another members’ interest, this is according to Section 36 of the Close Corporations Act 69 of 1984. To
effect this, the member instituting the termination of membership should do so through a court order.
To enable the court to issue an order for the cessation of Puseletso’s membership it is required that
there is a full authorization through a members’ resolution of at least 51 percent. The route of getting
assistance from the court is available to a member and this was the case in the Gatenby vs Gatenby case
of 1996 case it was held that the court enjoys a wide discretion in the order it make to provide relief to
the victim of oppressive conduct.
