THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA

JUDGMENT

Case number: 485/2007

In the matter between:

NIZAAR EBRAHIM

First appellant

ABBAS EBRAHIM

Second appellant

and

AIRPORTS COLD STORAGE (PTY) LTD
Respondent

Neutral citation:
Ebrahim v Airports Cold Storage (Pty) Ltd (485/2007)
[2008] ZASCA 113 (25 September 2008)

BEFORE :

Harms ADP, Cameron JA, Ponnan JA, Mlambo JA
and Mhlantla AJA
HEARD :

Tuesday 26 August 2008
DELIVERED :
Thursday 25 September 2008

SUMMARY:
Corporation – Close Corporations Act 69 of 1984, s 64(1)
– reckless carrying on of business – liability for debts –
member of corporation and father – corporation run
without books or documentation – debt of another
corporation transferred to it without consideration –
reckless trading established

______________________________________________

ORDER
______________________________________________

On appeal from the High Court, Cape Town (Griesel J sitting as a
judge of first instance):

The appeal is dismissed with costs.

______________________________________________

JUDGMENT
______________________________________________

CAMERON JA (Harms ADP, Ponnan JA, Mlambo JA and Mhlantla
AJA concurring):

[1] The appellants, Mr Nizaar Ebrahim and Mr Abbas Ebrahim,
son and father, appeal with leave granted by Griesel J against
a judgment in the High Court in Cape Town in which he
declared them personally liable for a debt a close corporation
incurred during its short operational life in 2005.1  For three
months from March of that year the respondent (plaintiff)
supplied Sunset Beach Trading 232 CC (trading as ‘Global
Foods’) (the CC) with frozen meat, poultry and other
comestibles.  Payments initially flowed, but slowed to a trickle
and eventually dried up in June, when invoices totalling R278

1 Airport Cold Storage (Pty) Ltd v Ebrahim and others 2008 (2) SA 303 (C).

377,19 were still outstanding.  In response, the plaintiff moved
to liquidate the CC.  It obtained a final winding-up order in
September.  But the cupboard was bare:  despite recorded
deliveries invoiced at over R1,8 million, the cash in hand
totalled only R254,99.  The CC had no other assets.
[2] The plaintiff then brought this action to recover the debt from
Nizaar (Ebrahim junior), who was the CC’s sole member, and
his father Abbas (Ebrahim senior).  (The CC’s liquidator was
joined formally as third defendant, but takes no part in the
appeal.)  The plaintiff targeted Ebrahim senior on two and
Ebrahim junior on three alternative bases:
(a) That both were personally liable under s 64(1) of the Close
Corporations Act 69 of 1984 (the Act) because during the
period March to August 2005 the CC’s business was
conducted recklessly or for fraudulent purposes or with intent to
defraud its creditors.  Section 64 of the Act reads:
(1) If it at any time appears that any business of a corporation was or is being
carried on recklessly, with gross negligence or with intent to defraud any person
or for any fraudulent purpose, a Court may on the application of the Master, or
any creditor, member or liquidator of the corporation, declare that any person
who was knowingly a party to the carrying on of the business in any such
manner, shall be personally liable for all or any of such debts or other liabilities of
the corporation as the Court may direct, and the Court may give such further
orders as it considers proper for the purpose of giving effect to the declaration
and enforcing that liability.
(2) Without prejudice to any other criminal liability incurred where any business
of a corporation is carried on in any manner contemplated in subsection (1),
every person who is knowingly a party to the carrying on of the business in any
such manner, shall be guilty of an offence.

(b) That both were personally liable under s 65 because their
incorporation and use of the CC constituted a gross abuse of
the juristic personality of the CC as a separate entity.2
(c) That as a member Ebrahim junior was in addition liable
under s 63(h) of the Act because he allowed the office of
accounting officer of the CC to remain vacant for more than six
months.3
[3] At the trial, the plaintiff’s managing director, Mr Patrick
Gaertner, testified, as well as an accountant, Mr Derek John
Hanslo, who gave expert testimony on business practice and
bookkeeping requirements, and an employee from the firm of
liquidators managing the liquidation, Mr JJ Theron.  For the
defendants the only witness was Mr Nasief Price, an
accountant.  Neither of the Ebrahims gave evidence.  Plaintiff’s

2 Close Corporations Act 69 of 1984 s 65:
‘Powers of Court in case of abuse of separate juristic personality of corporation
Whenever a Court on application by an interested person, or in any proceedings in which a
corporation is involved, finds that the incorporation of, or any act by or on behalf of, or any
use of, that corporation, 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, or of such
member or members thereof, or of such other person or persons, as are specified in the
declaration, and the Court may give such further order or orders as it may deem fit in order to
give effect to such declaration.’
3 Close Corporations Act 69 of 1984 s 63:
‘Joint liability for debts of corporation
Notwithstanding anything to the contrary contained in any provision of this Act, the following
persons shall in the following circumstances together with a corporation be jointly and
severally liable for the specified debts of the corporation: …
(h) where the office of accounting officer of the corporation is vacant for a period of six
months, any person who at any time during that period was a member and aware of the
vacancy, and who at the expiration of that period is still a member, shall be so liable for every
debt of the corporation incurred during such existence of the vacancy and for every such debt
thereafter incurred while the vacancy continues and he or she still is a member.’

counsel had however examined them under sub-poena at the
statutory inquiry4 held in the wake of the CC’s liquidation, and
the transcript was admitted at the trial.5
[4] Griesel J found that despite denials by both Ebrahims, it was
clear that Ebrahim senior had actively assisted his son in
running the CC, as well as in various other family businesses.
Going back to 1997, he found, the father and the rest of the
family had used ‘a host of entities and trading names at
different stages’ to pursue their business interests, and that in
doing so they had ‘scant regard’ for the entities’ separate
corporate identities.  Griesel J upheld the action on all three
bases of complaint.  He found that the causes of action formed
part ‘of one composite complaint of abuse of the separate
juristic personality’ of the CC.  The CC had no accounting
officer; it was started for a fraudulent reason; and the Ebrahims
had traded recklessly through it, in insolvent circumstances,
without the requisite belief that it would be able to pay its debts
as they fell due.  Although they attempted to obtain the
advantages of separate identity, he found that they operated its

4 Companies Act 61 of 1973 s 415 ‘Examination of directors and others at meetings’
[which in terms of s 66 of the Close Corporations Act 69 of 1984 applies mutatis mutandis]
provides that any creditor who has proved a claim against a close corporation may at a
creditors’ meeting interrogate any person sub-poenaed ‘concerning all matters relating to the
company or its business or affairs’.
5 Section 68(1) of the Insolvency Act 24 of 1936, read with s 339 of the Companies Act 61 of
1973 and s 66 of the Close Corporations Act.

business as if it were their own and without due regard for or
compliance with statutory and bookkeeping requirements.  He
dismissed the Ebrahims’ belated challenge to the quantification
of the debt the CC owed, and gave judgment against them for
the full amount claimed.
[5] On appeal, the Ebrahims put in issue these findings, disputing
that there was abuse of corporate form or that, if there was, it
had any causal impact on the plaintiff’s claim.  They contend
moreover that the plaintiff was aware of the CC’s ‘normal’
trading practices – yet continued to trade with it until the
plaintiff was itself unable to supply further stock to the CC: this
they say precipitated the CC’s cash flow crisis, which in turn led
to its inability to repay the plaintiff.
[6] To take the proper measure of the defendants’ argument, it is
necessary to sketch the background to the parties’ dealings.
Gaertner testified that he had done business with the Ebrahims
since about 1997 (Ebrahim senior dated their connection back
to considerably earlier).  Though he dealt with the defendants
through various entities, the business was the same: the sale
of bulk imported frozen comestibles and other goods.  The
transactions were always concluded with Ebrahim senior –
each Monday he would meet with him to finalise orders.  It was

he who had to confirm the price, and who would thereafter
return the signed confirmation of sale to the plaintiff.
[7] During late 2004, Gaertner explained, the plaintiff required a
VAT number for the entity the plaintiff was then supplying, Zaki
Meat Market CC (Zaki).  The number Ebrahim senior gave to
Gaertner was invalid, but he volunteered that a different entity,
the CC, had a valid number.  Hence, Gaertner testified, the
plaintiff agreed to start channelling the Ebrahims’ orders
through the CC from March 2005.
[8] A considerable volume of business was transacted through the
CC from late March until, after payments faltered, the last sale
took place on 24 June 2005.  However, the evidence the
plaintiff presented revealed that the CC’s affairs were anything
but tightly run.
[9] Hanslo testified that the sole business records of the CC
consisted in Croxley invoice books.  Although the CC had
charged its customers value-added tax (VAT), no VAT returns
were submitted to the South African Revenue Services
(SARS), and no VAT payments were made.  Hanslo calculated
that some R200 543,59 was due to SARS.  The CC’s defence,
ineffectually advanced during Hanslo’s cross-examination and
in the evidence of Price, was that since VAT returns were

required to be submitted only every two months, and VAT paid
only once a year, the short operational life of the CC rendered
the omissions insignificant.  This ignores the fact that not only
did the CC fail to submit VAT returns, but it failed to record
anywhere that it was collecting VAT from its customers.  The
suggestive (if not compelling) inference is that there was never
any intention to pay VAT.
[10] The CC’s business appears to have been conducted with
blithe disregard of statutory requirements.  There were no
conventional books of account.  Apart from its payments to the
plaintiff and to a cold storage facility, there was not a single
record of any expense recorded in any documents provided
after liquidation.  Even though the employee complement
numbered between ten and twenty, there were neither payslips
nor pay-as-you-earn (PAYE) returns.  In violation of s 56 of the
Act, no proper ‘accounting records’ were kept; nor was there an
accounting officer.
[11] Payments to creditors totalled just over R1,4 million, against
income in excess of R1,8 million.  The latter figure – reflecting
Hanslo’s detailed examination of invoices against which
payment had been received – gave rise to two signal
conclusions set out in Hanslo’s evidence:

(a) The first was that only a small portion (less than 10%) of the
CC’s cash takings and other receipts was deposited into any
bank account.  (The portion that was, found its way into
another of the Ebrahims’ CCs.)  The reason the Ebrahims
advanced – avoidance of bank charges and cash deposit
fees – Hanslo treated with reserve, since, he pointed out, the
sheer volume of money received over the period in question
rendered the bank-free approach ‘most unusual’.
(b) The second conclusion to which Hanslo deposed was that
the CC’s vouched receipts and expenditures indicated that
when trading ended there should have been a positive
balance of some R300 000 ‘in a bank account or on hand’.
Instead, there was only R254,99.  This meant that some
R300 000 was missing.  Hanslo dryly suggested that ‘it’s
sitting in a drawer somewhere’.  Of course no one could
establish which drawer.  Taxed with this during his
examination at the inquiry, Ebrahim junior ingenuously
protested, ‘I mean, I don’t understand, are you trying to
accuse me of hiding cash?’  That was indeed the accusation,
and in the absence of any other explanation it sticks.
[12] To Hanslo’s exposition Theron added that while the fact that
the CC had no financial statements was explicable in view of its

short operational span, the sole record of trading activity was
the invoice books: there were no other management records or
reports of daily sales, itemised expenses, a trial balance or
balance sheet.
[13] On this foundation, the plaintiff contended it had established
that the business of the CC was ‘carried on recklessly’ within
the meaning of s 64 of the Act, and indeed that it had made out
a case of fraudulent trading.  Section 64 is for all intents and
purposes identical to s 424 of the Companies Act 61 of 1973,6
‘at least as far as the underlying philosophy is concerned’.7 The
case law on one provision therefore illuminates the other.8  The
Act adds ‘gross negligence’ to the Companies Act’s list of
impugned business methods.  Whether there is a meaningful
difference between recklessness and gross negligence in this
context need not be decided now.9

6 Companies Act 61 of 1973, s 424:
‘Liability of directors and others for fraudulent conduct of business
(1) When it appears, whether it be in a winding-up, judicial management or otherwise, that
any business of the company was or is being carried on recklessly or with intent to defraud
creditors of the company or creditors of any other person or for any fraudulent purpose, the
Court may, on the application of the Master, the liquidator, the judicial manager, any creditor
or member or contributory of the company, declare that any person who was knowingly a
party to the carrying on of the business in the manner aforesaid, shall be personally
responsible, without any limitation of liability, for all or any of the debts or other liabilities of the
company as the Court may direct.’
7 Saincic and Others v Industro-Clean (Pty) Ltd (229/05) [2006] ZASCA 83; [2006] SCA 77
(RSA) (31 May 2006) para 27 per Harms JA.
8 See the approach this Court adopted in L&P Plant Hire BK v Bosch 2002 (2) SA 662 (SCA)
para 39.
9 See the discussion in Philotex (Pty) Ltd v Snyman 1998 (2) SA 138 (SCA), where Howie JA
noted that ‘the ordinary meaning of “recklessly” includes gross negligence’ (at 143F), and that
recklessness itself connotes ‘at the very least gross negligence’ (at 144A).

[14] Acting ‘recklessly’10 consists in ‘an entire failure to give
consideration to the consequences of one’s actions, in other
words,
an
attitude
of
reckless
disregard
of
such
consequences’.11  In applying the recklessness test to the
running of a closed corporation, the Court should have regard
to amongst other things the corporation’s scope of operations,
the members’ roles, functions and powers, the amount of the
debts, the extent of the financial difficulties and the prospects
of recovery, plus the particular circumstances of the claim ‘and
the extent to which the [member] has departed from the
standards of a reasonable man in regard thereto’.12
[15] It need hardly be added that the function of the statutory
provision also shapes its application.  Although juristic persons
are recognised by the Bill of Rights – they may be bound by its
provisions,13 and may even receive its benefits14 – it is an
apposite truism that close corporations and companies are
imbued with identity only by virtue of statute.  In this sense their
separate existence remains a figment of law, liable to be

10 Philotex (Pty) Ltd v Snyman 1998 (2) SA 138 (SCA) 143F-G.
11 S v Dhlamini 1988 (2) SA 302 (A) 308D-E, applied in the corporate context in Philotex (Pty)
Ltd v Snyman 1998 (2) SA 138 (SCA) 143F-G.
12 Fisheries Development Corporation of SA Ltd v Jorgensen 1980 (4) SA 156 (W) 170B-C,
per Margo J, adopted in part in Philotex (Pty) Ltd v Snyman 1998 (2) SA 138 (SCA) 144B.
13 Bill of Rights s 8(2): ‘A provision in the Bill of Rights binds a natural or a juristic person if,
and to the extent that, it is applicable, taking into account the nature of the right and the
nature of any duty imposed by the right.’
14 Bill of Rights s 8(4): ‘A juristic person is entitled to the rights in the Bill of Rights to the
extent required by the nature of the rights and the nature of that juristic person.’

curtailed or withdrawn when the objects of their creation are
abused or thwarted.  The section retracts the fundamental
attribute of corporate personality,15 namely separate legal
existence, with its corollary of autonomous and independent
liability for debts, when the level of mismanagement of the
corporation’s affairs exceeds the merely inept or incompetent
and becomes heedlessly gross or dishonest.  The provision in
effect exacts a quid pro quo: for the benefit of immunity from
liability for its debts, those running the corporation may not use
its formal identity to incur obligations recklessly, grossly
negligently or fraudulently.  If they do, they risk being made
personally liable.
[16] This is a good case in point.  The CC was lifted from its shelf
existence in early 2005 for the expedient but legitimate purpose
of providing the Ebrahims’ creditors with a valid VAT number.
As Gaertner testified, it made no difference to him through
which entity his enterprise was credited for the comestibles the
Ebrahims ordered; he merely wished to supply a valid VAT
number when claiming his own input tax credits.  Thus far, the
change of corporate vehicle was contrived but permissible.  But

15 Paul L Davies Gower & Davies, Principles of Modern Company Law  8 ed 2008 ch 2 para
2–1, p 33.

the Ebrahims then over-stepped the bounds.  They transferred
to the CC the entire debt owed to the plaintiff by the entity with
which the plaintiff had till then been trading, Zaki.  This was an
amount in excess of R600 000.  The CC received no
consideration for taking over Zaki’s debt.  The Ebrahims just
did it.
[17] With commendable candour, Ebrahim junior avowed that he
regarded the transfer of Zaki’s debt to the CC as ‘just a
formality’.  This was plainly truthful.  For him the CC was simply
a shell and a shape, for ad hoc use at the convenience of the
Ebrahims’ trading circumstances. The transcription of the debt
was merely a book entry made against one book entity rather
than another.  But what this showed equally plainly is that he
had no conception of, nor respect for, the fact that the CC was
a distinct legal entity with a separate legal existence; that to
sustain its separateness the law exacts compliances and
formalities; and that it could not be used at will as the
receptacle of another entity’s accumulated debts.
[18] The statutory provision targets just such heedlessness of
corporate autonomy and form.  The transfer of Zaki’s debt
without any quid pro quo showed reckless disregard for the
CC’s solvency, for its ability to repay the debts it incurred, and

for its capacity as a legal entity to accumulate and preserve
assets of its own.  (It is no doubt with an eye to the importance
of a corporate entity’s independent asset-accumulating
capacity that Henochsberg says that ‘recklessly’ means
carrying business on ‘by conduct which evinces a lack of any
genuine concern for its prosperity’.)16
[19] Having started by fecklessly encumbering the CC with a
massive debt, everything else the Ebrahims did in relation to it
manifested more of the same.  Their stewardship failed to pay
heed to the consequences of their actions for the CC’s
independent well-being.  Its entire existence was, in Ebrahim
junior’s telling words, ‘just a formality’.  This explains the failure
to keep any records or accounts or to keep track of cash and
other receipts.  The consistent disregard of the independent
well-being of the CC as a separate entity constituted reckless
carrying on of its business as contemplated by s 64.  And it is
clear that this manner of doing business is what left the plaintiff
out of pocket.17

16 Henochsberg on the Companies Act, edited by JA Kunst and others, service issue 27, June
2008, p 916.  The statement has been judicially approved on more than one occasion.
17 Saincic and Others v Industro-Clean (Pty) Ltd (229/05) [2006] ZASCA 83; [2006] SCA 77
(RSA) (31 May 2006) para 29 per Harms JA, pointing out that ‘the provision could not have
intended that causation [between the impugned conduct and the unpaid debt] does not play
any role at least as far as creditors are concerned’.

[20] The Ebrahims’ defence on the Zaki debt transfer – that
Gaertner and the plaintiff were party to the re-invoicing of the
amount owing – finds no purchase.  Gaertner was not running
the CC.  More pertinently, he was not privy to the
arrangements the Ebrahims might properly have made for
securing the CC’s legitimate interests when the debt was
transferred.  His interest, as a creditor, was in getting paid.  No
more was expected from him.  There was no suggestion that
he participated in a scheme to defraud the CC or colluded in
the Ebrahims’ management of the enterprise.  In the absence
of such evidence his knowledge of the transfer cannot diminish
the plaintiff’s entitlement to be repaid.
[21] It is equally ineffectual in response to the invocation of s 64
to say that the plaintiff and Gaertner could have safeguarded
their risk by exacting suretyships from the Ebrahims for the
CC’s debts.  That may have saved the plaintiff a lot of trouble,
as well as the expense of a protracted trial.  But it is no answer
to a creditor’s legitimate reliance on s 64 to say that it could
have chosen a shorter or wiser route.  The provision’s
objectives, which are both compensatory18 and punitive,19 play

18 MS Blackman and others Commentary on the Companies Act (2002, with updates) vol 3
14–524
19 Philotex (Pty) Ltd v Snyman 1998 (2) SA 138 (SCA) 142H-I.

an important role in reminding those who run corporations, and
those knowingly party to their business methods, that the
shadow of personal liability can fall across their dealings.
[22] In contrast with the United Kingdom, where it seems the
equivalent provisions have in recent years ‘been very rarely
used’ to fasten directors with personal liability,20 the
jurisprudence of this Court evidences claimants’ spirited
reliance on the provision.  Though courts will never ‘lightly
disregard’ a corporation’s separate identity,21 nor lightly find
recklessness,22 such conclusions when merited can only help
in keeping corporate governance true.  They are certainly fitting
here.
[23] The finding by Griesel J that Ebrahim senior was deeply
involved in the running of the CC entails ineluctably that he had
knowledge of the relevant facts23 and thus that he was
‘knowingly a party to the carrying on of the business’ in the
statutorily offensive manner.  The evidence fully warranted the
trial judge’s conclusion that the CC was ‘essentially a family
business or a conglomerate of associated family businesses’.

20 Ad Valorem Factors Ltd v Ricketts [2003] EWCA Civ 1706, [2004] 1 All ER 894 (CA) para 2
per Mummery LJ.
21 Cape Pacific Ltd v Lubner Controlling Investments (Pty) Ltd 1995 (4) SA 790 (A) at 803H.
22 Philotex (Pty) Ltd v Snyman 1998 (2) SA 138 (SCA) 143F and 142H-I.
23 Howard v Herrigel NO 1991 (2) SA 660 (A) 673I-J.

So too was the corollary, that reckless disregard of corporate
form and requirements and accountability pervaded the
management of the family business.
[24] There can be no doubt that both Ebrahims were knowingly a
party to this style of business: each was independently and
both were jointly responsible for it.  They worked in close
association with each other in running the CC’s affairs.
Ebrahim senior was the mastermind and guiding hand behind
the group of entities.  But Ebrahim junior was more than merely
a cipher.  He was the sole member of the CC, signed the
plaintiff’s credit application, and remained involved in the
practical arrangement of the CC’s business.  He, too, was
knowingly a party to the reckless trading.
[25] This conclusion makes it unnecessary to go further and
make a finding as to whether the Ebrahims’ conduct also
amounted to fraud.  It is likewise unnecessary to consider the
application of s 65 (abuse of separate juristic personality) and s
63(h) (no accounting officer).
[26] On the facts he rightly found, s 64(1) entrusted the trial judge
with a discretion (‘a Court may’) to make the order sought.  No
basis has been advanced to suggest that Griesel J’s exercise

of this discretion can be impugned.  In my view his order was
fully warranted.

The challenge to Griesel J’s fair-mindedness
[27] It is necessary to note in conclusion that the Ebrahims’
attorney clouded the aftermath of the trial by launching a
spurious attack on the trial judge’s impartiality.  In applying for
leave to appeal on behalf of the Ebrahims, he claimed that
Griesel J ‘was biased against them, and [that] they did not have
a fair trial’.  These submissions were purportedly made
‘respectfully and regrettably’, but they were as devoid of
respect or regret as they were of substance.  No portion of the
record offers any warrant for them.
[28] In granting leave to appeal, Griesel J gave full and careful
consideration to the claims.  He found, correctly, that they were
without any merit.  Yet the Ebrahims’ attorney persisted in
advancing them in the notice of appeal.  When invited during
argument to vouch for this, he purported for the first time to
disavow the allegations.  This shows an insufficient
appreciation of the elements of professional conduct.  The
claims should never have been made.

[29] Indeed, one may respectfully wonder whether they did not
contribute to the decision of the trial judge, erring on the side of
accommodation, to grant leave to appeal.  If so, the trial judge’s
self-effacement was unwarranted.  There is no merit in the
appeal, and it must be dismissed with costs.

E CAMERON
JUDGE OF APPEAL

APPEARANCES:

For appellants:
MR Khan of MR Khan & Associates, Cape Town
(the written argument having been prepared by
BG Atkins)

Coetzee’s Attorneys, Bloemfontein

For respondent: R van Helden (advocate)

Mallinicks Inc, Cape Town

Lovius Block Attorneys, Bloemfontein
THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA

MEDIA SUMMARY – JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL

From:
The Registrar, Supreme Court of Appeal

Date:
Thursday 25 September 2008

Status:
Immediate

Please note that the media summary is intended for the benefit of
the media and does not form part of the judgment of the Supreme
Court of Appeal

Ebrahim v Airports Cold Storage (Pty) Ltd (485/2007) [2008]
ZASCA 113 (25 September 2008)

The Supreme Court of Appeal today dismissed an appeal by a
father and a son who sought to escape personal liability for the
debts of a closed corporation they ran.
The CC, Sunset Beach Trading 232 CC, trading as ‘Global Foods’,
bought frozen meat and other comestibles from the plaintiff,
Airports Cold Storage, in 2005.  But it ran into difficulties, still
owing the plaintiff some R278 000.  The plaintiff put the CC into
liquidation, but it proved to have no assets.  The plaintiff then
obtained a judgment in the High Court in Cape Town under the
Closed Corporations Act 69 of 1984 holding Mr Nizaar Ebrahim
(the CC’s sole member) and his father, Mr Abbas Ebrahim (who
was deeply involved in running the CC), personally liable for the
debt.
The Closed Corporations Act and the Companies Act 61 of 1973
have practically identical provisions that grant a court power to fix
personal liability for the debts of a corporation on various persons

if they are knowingly party to reckless or fraudulent trading by the
corporation.
In the Cape High Court, Griesel J found that the Ebrahims and the
rest of their family had used ‘a host of entities and trading names
at different stages’ to pursue their business interests, and that in
doing so they had ‘scant regard’ for the entities’ separate corporate
identities.  He found that they had traded recklessly and
fraudulently within the meaning of the statutory provision.
The SCA upheld all Griesel J’s findings about the Ebrahims’
reckless business and trading methods, though it found it
unnecessary to go further and establish whether they had also
been guilty of fraud.
The SCA found that both Ebrahims conducted the CC’s business
with blithe disregard of statutory requirements; that they had no
conception of, nor respect for, the fact that the CC was a distinct
legal entity with a separate legal existence; and that they showed
reckless disregard for the CC’s capacity to accumulate assets of
its own.
Some R300 000 in takings were unaccounted for; in the absence
of any other explanation – and there was none – it had to be
inferred that the Ebrahims had taken or spent this cash instead of
accounting for it through the CC.
The SCA held that although juristic persons are recognised by the
Bill of Rights – they may be bound by its provisions, and may even
receive its benefits – close corporations and companies have a
separate identity only by virtue of statute.  Their separate
existence is thus a figment of law, liable to be curtailed or
withdrawn when the objects of their creation are abused or
thwarted.  The statutory provisions retract the attribute of corporate
personality, namely separate legal existence, with its corollary of
independent liability for debts, when the level of mismanagement
of the corporation’s affairs exceeds the merely inept or
incompetent and becomes heedlessly gross or dishonest.
The provisions in effect exact a quid pro quo: for the benefit of
immunity from liability for its debts, those running the corporation
may not use its formal identity to incur obligations recklessly,
grossly negligently or fraudulently.  If they do, they risk being made
personally liable.
This case, the SCA held, illustrates why the provisions play an
important role in corporate governance – they remind those who
run corporations, and those knowingly party to their business
methods, that the shadow of personal liability can fall across their
dealings.

The SCA also rejected a challenge the Ebrahims’ attorney directed
at the trial judge’s impartiality.  The SCA held that the entire
absence of any warrant for the allegations meant that they should
never have been made.