THE SUPREME COURT OF APPEAL OF SOUTH AFRICA

JUDGMENT

Reportable

Case No:   452/2012

In the matter between:

KADOMA TRADING 15 (PTY) LTD                                    Appellant

and

NOBLE CREST CC                                                              Respondent

Neutral citation: Kadoma Trading (Pty) Ltd v Noble Crest CC
(452/12)[2013] ZASCA 52 (28 March 2013)

Coram:
MAYA, SHONGWE, PILLAY JJA, ERASMUS and
SWAIN AJJA

Heard:
1 March 2013
Delivered:
28 March 2013

Summary:
Close Corporations Act 69 of 1984 ─ interpretation of
deeming provisions of section 26(7) – effect of restoration of
the registration of a deregistered corporation that the
corporation is deemed not to have been deregistered at all
and acts performed between deregistration and restoration
are validated retroactively.

___________________________________________________________

ORDER

On appeal from: Western Cape High Court (Cape Town) (Saba AJ
sitting as court of first instance):

‘The appeal is dismissed with costs on an attorney and own client scale.’

JUDGMENT

MAYA JA  (SHONGWE, PILLAY JJA, ERASMUS AND SWAIN
AJJA concurring)

[1] The central issue in this appeal concerns the interpretation of the
deeming provisions of section 26(7) of the Close Corporations Act 69 of
1984, as amended (the Act), and more pertinently, whether they validate
sale and franchise agreements concluded by the parties during the period
of the respondent’s deregistration.

[2] The respondent has its principal place of business in Cape Town
and franchises an automotive paint and dent repair business and brand
under the name ‘Dents ‘N All’. Consequent to the appellant’s overtures to
acquire the franchise, the parties concluded a sale agreement and a
franchise agreement (the agreements) on 21 October 2010 and 13 January
2011, respectively. The purchase price of R1 750 000 was payable in five
instalments in terms of a payment schedule which required the sum of R1
500 000 to be paid by the time trade commenced. The balance of R250

000 was to be paid within 14 days of the month end when the business
achieved a benchmark of a R100 000 monthly net profit.

[3]   The appellant duly paid the initial sum of R1 500 000 and business
commenced in February 2011. However, the relationship between the
parties soon soured because the appellant was dissatisfied with the quality
of equipment and assistance rendered to it by the respondent under the
agreements. On 9 March 2011, the appellant served the respondent with a
notice in terms of which it cancelled the franchise agreement based on
allegations that the respondent had failed to perform its contractual
obligations properly. In response, in a letter dated 14 March 2011, the
respondent denied the alleged breach and rejected the purported
cancellation.

[4]   The appellant then made an interesting discovery. Unbeknown to its
representative when the agreements were concluded, the Registrar of
Close Corporations had deregistered1 the respondent on 16 July 2010 for
‘annual return non-compliance’. Furthermore, according to Companies
and Intellectual Property Registration Office records, the respondent did
not own the Dents ‘N All trademark as the appellant’s representative
believed. Relying on this information, the appellant delivered a notice to
the respondent on 13 April 2011. It alleged that it had been induced to
enter into the agreements by fraudulent misrepresentations and was
cancelling them for that reason. In its written response dated 18 April
2011, the respondent’s director denied the imputations of fraud. He
claimed to have been unaware of the deregistration when the agreements
were concluded. He stated that the respondent had, in any event, since

1 In terms of section 1 of the Act, ‘deregistration’, in relation to a corporation, means the cancellation
of the registration of a corporation and ‘deregister’ has a corresponding meaning.

been re-registered on 12 April 2011. In his view, the re-registration cured
the invalidity of the agreements.

[5]   The respondent accepted the appellant’s cancellation of the
agreements and demanded immediate compliance with clauses 16.4 and
16.5 of the franchise agreement. These provisions operate upon
termination, ‘for whatever reason’, of the agreement. Among other
things, they oblige the franchisee to return to the franchisor all materials
provided under the franchise agreement and prohibit the franchisee from
conducting itself in any manner that would give the impression that it has
any connection to or relationship with the franchisor.2

2 The clauses provide:
‘16.4 All provisions of this Agreement which in order to give effect to their meaning must survive its
termination, shall remain in full force and effect thereafter.
16.4.1 Action on termination
The franchisee shall refrain from holding out in any manner whatsoever that there is any connection or
relationship between the Franchisee and the Franchisor and without derogation from the generality of
the aforegoing, shall refrain from making use of any get-up peculiar to the Franchisor or of any writing,
symbols, logos, slogans, devices, advertising styles of an object whatsoever which may lead to a belief
among the public that such relationship continues to exist;
Upon termination, the Franchisee shall forthwith deliver to the Franchisor:
16.4.1.1 all and any manuals or other written information relating to the systems, all advertising
material and paper goods or other items bearing the Franchisor’s marks subject however to the
Franchisor paying the cost of any such items which may be capable of being used by any other
Franchisee;
16.4.1.2 the computer software contemplated herein;
16.4.1.3 the client information of all clients served by the Franchisee is deemed to also be client
information of the Franchisor and said client information will be provided to the Franchisor upon
cancellation of this agreement for whatever reason.
16.5 Upon the termination or expiration of this Agreement, all rights granted to the Franchisee in this
Agreement will terminate immediately. The Franchisee will immediately cease to use the intellectual
property, the Marks and System and to sell or provide the Products or Services. The Franchisee shall
immediately remove and return to the Franchisor all building and vehicle signage, displays, marketing
materials, literature, business cards, stationery and any other materials which contain the Marks.’

[6]   The appellant also recognized that the agreements were cancelled,
although it denied repudiating them. But it refused to comply with the
respondent’s demand. Instead, it tendered to return the movable property
it had acquired from the respondent against the refund of the sum of R1
500 000 which it had already paid towards the purchase price.    It further
indicated that it had referred the Operations Manual supplied to it by the
respondent to another franchisor for the investigation of possible misuse
of the latter’s intellectual property or copyright. The respondent
considered this act a breach of clauses 11.2.40 and 11.2.41 of the
franchise agreement.3

[7]   The appellant’s stance prompted the respondent to launch an urgent
application in the Western Cape High Court for the attachment and
removal from the appellant’s premises of items it alleged to have supplied
under the agreements. It also sought to interdict the appellant from using
the Dents ‘N All trademark pending the finalisation of an action it
intended to institute against the appellant. The appellant opposed the
application on the ground that the agreements were null and void ab
initio. It brought a counter-application based on the condictio indebiti for
the return of the sum of R1 500 00 it had paid as the purchase price,
against delivery to the appellant of all the movable property it received
under the agreements.

[8]   The court below (Saba AJ) decided the matter in the respondent’s
favour and dismissed the counter-application. The court held that the

3 According to these clauses, the franchisee may
‘11.2.40 not do anything which may adversely affect the Franchisor’s rights in the intellectual property
or which infringes on the reputation and corporate image of the Franchisor or other Franchisees,
11.2.41 not do anything which may bring the system or the business into disrepute or which may
damage the interests of the Franchisor or other Franchisees.’

invalidity of the agreements was retroactively cured by the respondent’s
re-registration and that they remained valid and binding on the parties as
the appellant had not validly cancelled them in light of its failure to give
the respondent notice to remedy any breach it may have committed. The
appellant challenges that decision with the leave of the court below.

[9]    The nub of the appellant’s submissions before us was that it had
contracted with an entity which had no legal capacity. The resultant
agreements were thus void and could not be resuscitated by the
subsequent re-registration under section 26(7) of the Act. This was so,
continued the argument, because ‘the purpose of re-registration is to re-
vest the entity with legal personality to enable it to own its assets and to
become liable to its creditors as at date of deregistration’. Re-registration
therefore ‘wipes out the unregistered past’ and only an agreement validly
entered into before deregistration, in terms of which reciprocal
enforceable rights and duties already exist upon deregistration, will revive
upon re-registration under the deeming provisions.

[10] Section 26 of the Act governs the process of a corporation’s
deregistration and re-registration. According to section 26(1) and (2) ‘[i]f
a corporation has failed, for a period of more than six months, to lodge an
annual return in compliance with s 15A or if the Registrar has reasonable
cause to believe that a corporation is not carrying on business or is not in
operation … the Registrar may, unless good cause to the contrary has
been shown by the corporation, deregister that corporation.’ Once this

happens, a corporation loses its legal personality and ceases to exist.4 It is
trite that an entity with no legal personality cannot perform a juristic act
such as entering into a contract.5 And, as correctly pointed out on the
appellant’s behalf, the agreements concluded during the respondent’s
state of deregistration were entirely void.

[11]   But of real importance is the effect, if any, which the respondent’s
subsequent restoration to the register had on its legal status and the
validity or otherwise of the agreements concluded during its ‘death’.
Section 26(7) reads:
‘The Registrar shall give notice of the restoration of the registration of a corporation
and the date thereof in the prescribed manner and as from such date the corporation
shall continue to exist and be deemed to have continued in existence as from the date
of deregistration as if it were not deregistered.’

[12]    There is no direct precedent from which to draw guidance
regarding the construction of section 26(7). It is therefore instructive to
consider the manner in which our courts have dealt with its counterparts
dealing with the resuscitation of corporate entities, albeit bearing some
differences. These are couched in sections 73(6)(a) and 73(6A) of the
Companies Act 61 of 1973 (the Companies Act), from which the
provisions of section 26(7) originate.6 In terms of these sections, upon

4  Miller v NAFCOC Investment Holding Co Ltd 2010 (6) SA 390 (SCA) para 11; Ex Part Jacobson:
In re Alex Jacobson Holdings 1984 (2) SA 372 (W) at 377A-D. In the latter matter the court dealt with
the effect of a company’s deregistration and restoration under the provisions of s 73(6) of the
Companies Act 61 of 1973 (the Companies Act). But the principle there enunciated applies equally to
close corporations as s 26(7) of the Act which has the same objectives and is similarly structured.
5 Steenkamp NO v Provincial Tender Board, Eastern Cape 2006 (3) SA 151 (SCA) para 51.
6 The Companies Act has since been repealed by the Companies Act 71 of 2008 but the amendments
brought about by the new legislation bear no relevance for present purposes as it came into effect only
on 1 May 2011.

restoration a company was deemed to have continued in existence as if it
had not been deregistered.7

[13]   Dealing with the meaning of s 73(6), the court in Ex Parte Sengol
Investments (Pty) Ltd8said:
‘The effect of restoration to the register is that the company is deemed not to have
been deregistered at all. This entails that all parties who have by deregistration of the
company or thereafter acquired rights to assets which the company had upon
deregistration will lose those rights as the assets will revert to the company. This
includes assets which have become bona vacantia and as such accrued to the State.
Likewise debtors and creditors of the company at time of deregistration may upon
restoration find their obligation or rights resuscitated. It follows that the restoration of
registration of a company in terms of s 73(6) may have wide-ranging effects.’

[14]   This court had occasion to consider the issue thereafter in Insamcor
(Pty) Ltd v Dorbyl Light & General Engineering (Pty) Ltd.9 Approving
the dictum in Ex Parte Sengol and related decisions, the court commented
as follows:10
‘As a result of deregistration, third parties may have acquired or lost rights, or they
may have decided not to exercise their rights against the company – precisely because

7 They read:
‘73 Cancellation of registration of memorandum of articles
…
(6) (a) The Court may, on application by any interested person or the Registrar, if it is satisfied that a
company was at the time of its deregistration carrying on business or was in operation, or otherwise
that it is just that the registration of the company be restored, make an order that the said registration be
restored accordingly, and thereupon the company shall be deemed to have continued in existence as if
it had not been deregistered.
(b) Any such order may contain such directions and make such provision as to the Court seems just
for placing the company and all other persons in the position, as nearly as may be, as if the company
had not been deregistered.
(6A) Notwithstanding subsection (6), the Registrar may, if a company has been deregistered due to its
failure to lodge an annual return in terms of section 173, on application by the company concerned and
on payment of the prescribed fee, restore the registration of the company, and thereupon the company
shall be deemed to have continued in existence as if it had not been deregistered: Provided that the
Registrar may only so restore the registration of the company after it has lodged the outstanding annual
return and paid the outstanding prescribed fee in respect thereof.’
8 1982 (3) SA 474 (T) at 477 C-D.
9  2007 (4) SA 467 (SCA).
10 Ibid, para 23.

the company did not exist. Through the operation of a restoration order obligations
towards the company, which were extinguished because of deregistration, would
revive with retrospective effect. What is more, a restoration order seems to validate,
retrospectively, all acts done since deregistration – including for example, the
institution of legal proceedings – on behalf of a company that did not exist.’
This has been the line of thinking in other Commonwealth jurisdictions
too, notably well before the promulgation of the Companies Act. There,
substantially similar provisions have consistently been interpreted to
mean that acts conducted during the deregistration period are
retrospectively validated upon the company’s re-registration.11

[15]    This reasoning applies equally to section 26(7). It should, however,
be mentioned that the cases which pronounced on the retroactive effect of
section 73(6), including those of foreign jurisdictions in relation to
similar provisions, did not only recognise the potential prejudice posed by
a restoration order against the rights of third parties. They also endorsed
the need to issue all restoration orders in a judicially guided context, in
the form of a rule nisi, to give interested parties an opportunity to show
cause why the company’s registration should not be restored. Much was
made on the appellant’s behalf of this seeming lacuna in section 26. It
was contended that the absence in section 26 of a provision invoking
judicial assistance for the regulation of the re-vesting of assets and
liabilities by means of a rule nisi to protect the rights of third parties, such
as that found in section 73(6), does not mean that the court’s role has
been supplanted by a functionary in the form of the Registrar. It was
argued that the legislature would have expressly said so if its intention
was to vest the power to reverse common law rights and create

11 For example, in Tyman’s Ltd v Craven [1952] 2 QB 100 ([1952] 1 All ER 613 (CA)), the court held
that the effect of broadly similar provisions was not only that the corporate existence of the company
that had been struck off the register was preserved but was also retroactive. See also Top Creative Ltd v
St Albans District Council [2000] 2 BCLC 379 (CA) at 385e-387f; Royal Bank of Canada v Cressler
Hotels 1980 CanLll 1072 (ABQB).

obligations, which could not exist under common law, in the Registrar.

[16]    I do not agree. Section 26 unambiguously makes provision for an
administrative procedure which is entirely controlled by the Registrar and
requires no court intervention. The provisions of section 26(6) are
significant. They empower the Registrar to re-register a corporation by
the same administrative process ‘on application by any interested person,
if he or she is satisfied that a corporation was at the time of its
deregistration carrying on business or was in operation, or that it is
otherwise just that the registration of the corporation be restored’. These
provisions make clear that the legislature was not oblivious to the
possibility of a deregistration not coming to a corporation’s attention or
the Registrar wrongly assuming that a corporation was not in operation or
carrying on business. And it is telling that the legislature contemplated
restoration precisely in a situation where the corporation was deregistered
despite the fact that it was in operation or carrying on business. To my
mind, this signifies an objective to save a corporation’s acts, performed in
good faith during a period of deregistration, from invalidity.

[17]     For its submission that ‘a deeming provision should not be taken
any further than is necessary to achieve its legislative purpose as it creates
a fiction’ and that re-registration merely ‘wipes out the unregistered past’,
the appellant relied on this court’s judgment in Mouton v Boland Bank
Ltd.12 There, the court dealt with the liability of the deregistered
corporation’s members for its debts and held that section 26(7) did not
have the effect that personal liability of such members imposed in terms
of section 26(5) of the Act upon deregistration is extinguished. That, in
my view, has no bearing on the issue at hand as it is only a question

12 2001 (3) SA 877 (SCA).

arising between a third party and a corporation’s member. The judgment
said nothing about the effect of the deeming provision as between a third
party and the corporation itself and I do not see how it assists the
appellant’s cause.

[18]    Examples were postulated on the appellant’s behalf to illustrate the
absurdity of the interpretation which the court below ascribed to the
deeming provisions and the prejudice that would potentially be suffered
by a counter-party to an agreement concluded with a deregistered entity
which wished to enforce or extricate itself from the agreement. Without
detailing them, those problems seem to me more perceived than real.
They could very well occur where a corporation is deregistered after an
agreement has been validly concluded but has not been fully executed; an
act which the appellant agreed would be revived by re-registration.
Nothing would preclude the disadvantaged counter-party from invoking
the provisions of section 26(6) to its advantage by itself initiating re-
registration or enlisting the Registrar’s assistance to compel the
deregistered corporation’s agents to seek restoration without delay,
depending on what it wanted. And there is also the remedy of review
available to an aggrieved party to set aside the restoration if it is
prejudicial.

[19]  I see no reason to depart from the plain meaning of the words used
in section 26(7) in the circumstances. They simply mean what they say –
that a corporation is deemed to have continued in existence as from the
date of its deregistration as if it were not deregistered, is deemed to have
been in existence with legal personality and is capable of performing
juristic acts including entering into valid contracts. The interpretation
which the court below gave to the deeming provisions was therefore

correct.

[20]   The appellant’s counsel properly conceded that the counterclaim’s
success was contingent on the success of appellant’s interpretation of
section 26(7). It must therefore fail in light of the above finding in this
regard.

[21]   The court below granted the respondents costs on an attorney and
own client scale on the basis of clauses 16.9 and 25.10 of the franchise
agreement which entitle the franchisor to costs on that scale ‘should it
succeed in any proceedings (whether in a court of law or arbitration)’.
Clearly, the award was properly made and should not be disturbed.

[22]    In the result, the appeal fails. The following order is made:
‘The appeal is dismissed with costs on an attorney and own client scale.’

________________________

MML Maya

Judge of Appeal

APPEARANCES

APPELLANT:

JI DuToit SC (with him PS De Waal)

Instructed by Cronje De Waal Skhosana
Inc, Secunda

Rosendorff Reitz Barry, Bloemfontein

FIRST RESPONDENT:
F J Erasmus
Instructed by Louw Coetzee Malan, Cape
Town

Lovius Block, Bloemfontein