Piercing the veil under section 20(9) of the Companies Act 71 of 2008: A new direction

Abstract

The Companies Act 71 of 2008 has introduced into our company law a statutory provision permitting courts to pierce the corporate veil, contained in s 20(9). While this provision is to be welcomed, it does however raise many questions, difficulties and uncertainties, some of which have been addressed by the court in the recent case of Ex parte Gore and Others NNO 2013 (3) SA 382 (WCC), which handed down the first judgment on s 20(9) of the Companies Act 71 of 2008. This article contends that the wording of s 20(9) together with the interpretation of s 20(9) as advocated by Gore gives our courts very wide powers to pierce the corporate veil. It will be considered in this article whether the meaning given by Gore to the term ‘unconscionable abuse’ has resulted in too low a level or threshold of abuse being set. It is submitted that our courts must not lightly disregard the corporate veil and must exercise caution and wisdom to ensure that a correct balance is drawn between piercing the veil and upholding the fundamental principle of separate legal personality enshrined in the Companies Act 71 of 2008. It is submitted further that our courts must maintain clarity and simplicity in their interpretation and application of s 20(9). It is suggested that our courts should refrain from using metaphors and pejorative expressions in their judgments on s 20(9), and should further avoid moral indignation triumphing over legal principle, as this causes confusion and uncertainty in regard to the legal principles applicable to piercing the corporate veil.