THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA

Reportable
Case no: 63/05

In the matter between:

LINDERT HANEKOM

Appellant

and

BUILDERS MARKET KLERKSDORP
(PTY) LTD

1st Respondent

C HARDING N O

2nd
Respondent

PETRUS JACOBUS MARYN VAN STADEN N O

3rd
Respondent

ABSA BANK LTD T/A BANKFIN

4TH
Respondent

THE MASTER OF THE HIGH COURT, PRETORIA                  5TH
Respondent
______________________________________________________________

Coram

:
SCOTT, ZULMAN et BRAND JJA
Date of hearing
:
15 FEBRUARY 2006
Date of delivery
:
2 MARCH 2006

Summary: Interpretation of s 52 of the Close Corporations Act 69 of 1984
where the corporation has only one member

Neutral citation:  This judgment may be referred to as Hanekom v
Builders Market Klerksdorp (Pty) Ltd  [2006] SCA  2  (RSA)
______________________________________________________________
JUDGMENT
______________________________________________________________

SCOTT JA/…
SCOTT JA:

[1] The issue in this appeal is the proper interpretation of s 52 of the Close
Corporations Act 69 of 1984 (‘the Act’) in circumstances where a close
corporation has only one member.

[2] The facts are largely common cause. The appellant was at all material
times the sole member of RTMC Marketing CC (‘the CC’). He was also the
sole shareholder and director of LSL Konstruksie (Pty) Ltd. The latter became
indebted to the first respondent in respect of goods sold and delivered. The
CC stood surety for the debt. The deed of suretyship was signed by the
appellant on behalf of the CC. The appellant also signed a suretyship in
favour of the first respondent in his personal capacity. On the strength of
these suretyships the first respondent afforded further credit to LSL
Konstruksie which failed to discharge its debt and was placed in liquidation.
Some time in 2001 the first respondent, relying on the suretyship executed on
behalf of the CC, applied for the CC’s liquidation. The application was not
opposed. Subsequently, at a creditors meeting held before a magistrate on 29
October 2002, an attorney acting on behalf of the appellant objected to the
first respondent’s claim on the ground that the suretyship executed on behalf
of the CC was invalid for want of compliance with s 52 of the Act. The
objection was upheld and the claim was rejected. However, on 4 November
2003 the ruling of the magistrate was set aside on review at the instance of
the first respondent and the latter’s claim against the CC in liquidation was
admitted. The liquidators of the CC (the second and third respondents in this
appeal) thereafter arranged for an asset of the CC, a mobile concrete mixer,
to be sold by public auction on 17 February 2004. On 10 February 2004 the
appellant sought an urgent order in the High Court, Pretoria, for a stay of the
sale. Claasen J granted the stay on condition that an application be brought
within 10 days for an order declaring the suretyship to be invalid. That
application was launched on 26 February 2004. The relief claimed was an
order declaring the suretyship to be invalid for non-compliance with s 52 of the
Act and for the consequential rescission of the liquidation order against the

CC, subject to certain conditions. The matter was heard by de Vos J who
dismissed the application with costs. (Hanekom v Builders Market Klerksdorp
(Pty) Ltd and others 2006(1) SA 423 (T)) The appeal is with the leave of the
court a quo.

[3] The relevant provisions of s 52 read as follows:

‘(1)  A corporation shall not, directly or indirectly, make a loan –
(a)
to any of its members;
(b)      to any other corporation in which one or more of its members together hold more than
a 50 per cent interest;
or
(c)
to any company or other juristic person (except a corporation) controlled by one or
more members of the corporation,
and shall not provide any security to any person in connection with any obligation of any such
member, or other corporation, company or other juristic person.

(2)   The provisions of subsection (1) shall not apply in respect of the making of any
particular loan or the provision of any particular security with the express previously obtained
consent in writing of all the members of a corporation.

(3)
Any member of a corporation who authorizes or permits or is a party to the
making of any loan or the provision of any security contrary to any provision of this section –
(a)
shall be liable to indemnify the corporation and any other person who had no actual
knowledge of the contravention against any loss directly resulting from the invalidity of such
loan or security; and
(b)
shall be guilty of an offence.
. . . .’

The appellant’s contention is that the suretyship executed on behalf of the CC
purported to secure a debt of a company which he controlled (LSL
Konstruksie) and is invalid for the reason that when he executed it he did not
have ‘the previously obtained consent in writing of all the members of the
corporation’ as contemplated in s 52(2). In other words, he, as the sole
member of the CC, had not previously consented in writing to the suretyship
which he himself executed.

[4] At the outset it is necessary to make certain general observations
regarding s 52. The first is that although ss (1) provides for a general
prohibition and ss (2) an exemption from that prohibition, the object of s 52,
read as a whole,
is undoubtedly to protect non-consenting members, ie to prevent a member
from using the resources of a close corporation for his or her own benefit to
the detriment of other members. The section seeks to achieve this by
requiring not only that the other members consent to the loan or security but
also that they do so in writing so as to provide written proof of that consent.
Secondly, the consent that is contemplated is not consent on behalf of the
close corporation in question but consent of the members in their personal
capacities as members of that corporation. In this regard it is noteworthy that s
54 provides that any member is an agent of the corporation and subject to
certain exceptions able to bind the corporation. Thirdly, although not expressly
stated in s 52, it is clear from ss 3 that any loan or security falling within ss 1
and not exempted in terms of ss 2 is void and not capable of ratification. See
Neugarten and others v  Standard Bank of SA Ltd 1989 (1) SA 797 (A) at
808F in relation to s 226 of the Companies Act 61 of 1973. (Section 226(4) of
the Companies Act corresponds to s 52 (3) of the Close Corporations Act.) In
addition, s 52(3) not only renders the member who authorises an invalid loan
or security liable to an innocent third party for loss but also makes him guilty of
an offence. The penalty provided for in s 82(1)(a) is a fine not exceeding
R2000 or imprisonment not exceeding 2 years or both fine and imprisonment.

[5] It is apparent from what has been said above that where a close
corporation has only one member the section really serves no purpose. This is
most certainly so in the case of a loan agreement signed by the member or a
suretyship which in terms of s 6 of Act 50 of 1956 is required to be in writing
and signed by or on behalf of the surety. Where there is only one member, not
only are there no other members who require protection but the member
signing the suretyship on behalf of the close corporation is notionally
incapable of doing so unless he had previously in his personal capacity given
himself permission to do so.

[6] Counsel for the appellant referred to the unambiguous language of s
52(2) and argued that there was nothing in the section to indicate that it did
not apply to the case of a sole member of a corporation and that upon an
ordinary reading of its provisions it was clear that in the absence of ‘the
express previously obtained consent in writing’ of that sole member a
suretyship securing the debt of a company controlled by him would not be
exempted from the prohibition contained in s 52(1).

[7] The question that arises is whether a court would be justified in
departing from the clear and unambiguous meaning of the section to avoid
what the respondent categorised as a manifest absurdity. The circumstances
in which a court will do so were stated by Innes CJ in Venter v Rex 1907 TS
910 at 914-915 to be –

‘when to give the plain words of the statute their ordinary meaning would lead to absurdity so
glaring that it could never have been contemplated by the legislature, or where it would lead
to a result contrary to the intention of the legislature, as shown by the context or by such other
considerations as the Court is justified in taking into account . . . .’

This approach has since been consistently followed. Over the years courts
have repeatedly warned of the dangers of departing too readily from  the
ordinary meaning of the words of the statute and have stressed that the
absurdity must be ‘utterly glaring’ or the true intention quite clear and not
merely a matter of surmise or probability. On the other hand, as accepted in
Venter v Rex, ambiguity in the provision in question is not a requirement for
departure from its literal meaning. It has also been accepted that to avoid the
absurdity or give effect to the true intention of the legislature it is permissible
not only to cut down or restrict the language used but also so expand it. See
eg the comments of Corbett J in S v Burger 1963 (4) SA 304 (C) at 308A-
309B (cited with approval by Friedman J in De Villiers v Kinsale Properties
Share Block Ltd 1986 (2) SA 592 (D) at 594G-595E).

[8] I have no doubt that to give effect to the unambiguous language of s
52(2) where the close corporation has only one member in circumstances
such  as the

present leads to an absurdity. Nothing can possibly be achieved by requiring
the sole member of a close corporation before signing a suretyship on behalf
of the corporation and in his personal capacity to give himself permission in
writing to do so. As I have said, his signature on the suretyship demonstrates
unequivocally his consent. Yet, on a literal interpretation of the section, the
consequences of the absence of a prior written consent are not only that the
suretyship in favour of the creditor is invalid, but also that the sole member is
both personally liable and guilty of an offence. In passing, I mention that the
appellant’s personal liability for any loss would be cold comfort for the first
respondent who already holds a suretyship executed by the appellant in his
personal capacity. The object of the section, as previously indicated, is to
protect non-consenting members. In circumstances such as the present, a
literal interpretation does not achieve that object; it does no more than provide
a sole member of a corporation with a defence which could never have been
intended by the legislature.

[9] The conclusion to which I therefore come is that when construing s
52(2) in the context of a sole member of a close corporation who has signed a
loan agreement or a suretyship on behalf of a corporation, the words
‘previously obtained’ must be disregarded. It is true that the loan agreement or
suretyship would not refer to the member’s consent as such. But that consent
would be apparent on a proper construction of the agreement or suretyship.
Neither document could exist without such consent.

[10] It follows that in my view the suretyship is valid and the appeal must
fail.

[11] The appeal is dismissed with costs.

__________

D G SCOTT

JUDGE
OF
THE
SUPREME

COURT OF APPEAL

CONCUR:
ZULMAN      JA
BRAND
JA

SUPREME COURT OF APPEAL OF
SOUTH AFRICA

MEDIA SUMMARY –  JUDGMENT DELIVERED IN THE

SUPREME COURT OF APPEAL

LINDERT HANEKOM AND BUILDERS MARKET KLERKSDORP
(PTY) LTD AND OTHERS  CASE NO 63/05

From :
The Registrar, Supreme Court of Appeal

Date:
2 March 2006

Status:
Immediate

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

The Supreme Court of Appeal today dismissed the appeal of Mr
Lindert Hanekom who had sought to have a suretyship signed by
him on behalf of a close corporation declared invalid in terms of s
52 of the Close Corporations Act. The section provides that if a
member of a CC signs a suretyship on behalf of that CC to secure
the debt of a company which he controls the suretyship will be
invalid in the absence of the ‘express previously obtained consent
in writing of all the other members of the CC’. Mr Hanekom was
the only member of the CC and he relied on the fact that he had
not previously given himself consent in writing before signing the
suretyship. The SCA held that although on a literal reading of the
section such previous consent in writing would be required, it was
appropriate to disregard the requirement of a previous consent in
writing in order to avoid an absurdity. The court pointed out that it
was notionally impossible for a member to sign a suretyship
without having previously given himself permission to do so.

--- end