Court ruling: you can’t dodge a debt by converting a CC to a company

Written by Ciaran Ryan. Posted in Journalism

The debt will follow you, according to the Supreme Court. From Moneyweb.

Image: Shutterstock
Image: Shutterstock

Converting a close corporation (CC) to a company might seem like a clever way of dodging a suretyship, but it won’t work.

That was the finding of the Supreme Court of Appeal (SCA), which last month ruled against Masibuyisane Services (Pty) Ltd, which in 2006 had converted from a CC and in doing so argued that a suretyship signed in the name of the CC was not enforceable.

Masibuyisane could never quite make up its mind whether it wanted to be a company or CC. In 2009, it re-converted to a CC and then in 2013 went back to being a company.

The CC had signed surety for a leasing agreement between Maze Products and Eqstra Corporation, which in 2014 sued Masibuyisane Services as surety for the debt owed by Maze.

“The controversy, in this case, is one that only lawyers could appreciate. It concerns the consequences of a close corporation (CC) converting itself into a company,” reads the judgment.

“What happens if after that conversion a contract is concluded by the directors of the company in which contract the company is described as a close corporation? Can the company repudiate it on the grounds that it was concluded with an entity, ie the CC, that ‘no longer exists’?”

Judgment was originally granted in 2014 against Masibuyisane CC as one of four defendants that had signed surety for the debt. The sheriff serving the writ of execution to recover the owed money found nothing of value and was told the business had changed to Masibuyisane (Pty) Ltd.

Ciaran Ryan

The Writer's Room is a curated by Ciaran Ryan, who has written on South African affairs for Sunday Times, Mail & Guardian, Financial Mail, Finweek, Noseweek, The Daily Telegraph, Forbes, USA Today, Acts Online and Lewrockwell.com, among others. In between he manages a gold mining operation in Ghana, and previously worked in Congo. Most of his time is spent in the lovely city of Joburg.