ZNK Investments CC v Luckytso Transport and Construction CC

The first respondent, Luckytso Transport and Construction CC, became registered owner of immovable property in 2006, subject to a mortgage bond in favour of Absa Bank Ltd (third respondent). The second respondent, Mr Lucky Kgomotso Mokwena, was the sole member of the close corporation. On 19 October 2011, Absa obtained default judgment against the first respondent and the property was declared executable. On 1 March 2013, the first respondent was deregistered for failure to submit annual returns in terms of s 82(3)(a) of the Companies Act 71 of 2008. On 29 January 2014, whilst the first respondent was deregistered, the Sheriff of Pretoria East sold the property in execution to the appellant, ZNK Investments CC, for R2 520 000. At the time of the sale, Absa, the sheriff and the appellant were unaware of the deregistration. On 21 February 2014, the first and second respondents brought an application seeking reinstatement of the first respondent and to set aside the sale in execution as invalid.

• Whether a sale in execution of property of a close corporation that took place whilst the corporation was deregistered is valid after the close corporation is reinstated retrospectively in terms of s 82(4) of the Companies Act 71 of 2008
• What is the legal effect of retrospective reinstatement on property that had become bona vacantia and vested in the State
• Whether corporate activities during the period of deregistration, including attachment and sale in execution, are retrospectively validated upon reinstatement

1. The appeal was upheld with costs, including the costs of two counsel. 2. Paragraphs 2 and 3 of the high court order (setting aside the sale in execution and ordering appellant to pay costs) were set aside and replaced with an order directing the applicants (respondents) to pay the costs of the application.

Reinstatement of a close corporation in terms of s 82(4) of the Companies Act 71 of 2008 operates automatically and retrospectively to: (1) revest the corporation with its property that had become bona vacantia and vested in the State upon deregistration; and (2) validate corporate activities, including attachment and sale in execution of the corporation's property, that occurred during the period of deregistration. The retrospective validation applies even where a sale in execution took place whilst the corporation was deregistered, unless a party establishes grounds for amelioration under s 83(4) by demonstrating prejudice and making a case that it would be just and equitable for the court to grant relief limiting the retrospective effect.

The court observed that it was noteworthy that the respondents did not allege they were unaware of the deregistration and, significantly, did not state that they had a defence against Absa's claim. The court also noted that the timing of the attachment (whether before or after deregistration) did not affect the outcome, as the retrospective reinstatement would validate the attachment in either case. The judgment confirms that ABSA Bank Ltd v Companies and Intellectual Property Commission 2013 (4) SA 194 (WCC) is no longer good law on the question of the validity of sales in execution during deregistration following retrospective reinstatement.

This case is significant in South African company law as it clarifies and applies the principle established in Newlands Surgical Clinic regarding the retrospective effect of reinstatement of deregistered companies and close corporations. It confirms that retrospective reinstatement under s 82(4) of the Companies Act 71 of 2008 automatically validates corporate activities, including sales in execution, that occurred during the period of deregistration. The judgment overrules the earlier decision in ABSA Bank Ltd v Companies and Intellectual Property Commission 2013 (4) SA 194 (WCC) which had held that sales in execution during deregistration are invalid. The case provides important guidance on the interaction between deregistration, bona vacantia, and the retrospective validation effect of reinstatement. It also clarifies that parties seeking to avoid the retrospective effect must make a case for amelioration under s 83(4) and demonstrate prejudice, unawareness, or other equitable grounds.