Minnaar v Van Rooyen NO

Casper Hendrik Minnaar was a chartered accountant appointed as consultant to Askari Mining and Equipment Ltd (Askari) in 1999 and as financial director in 2000. He resigned as director in November 2001. Askari was provisionally liquidated in June 2003 and finally liquidated in July 2008. An enquiry under s 417 of the Companies Act 61 of 1973 was conducted in March 2004, which identified potential grounds for action under s 424. In May 2008, liquidators instituted action against five former directors, including Minnaar, claiming they should be personally liable for the debts of Askari on grounds of reckless conduct. All directors initially appointed the same attorney and issued a joint plea denying the allegations. Settlement discussions began in early 2011. In November 2011, Minnaar withdrew from settlement negotiations, advised he would handle his own defence, and failed to appoint a new attorney despite knowing of the trial date of 22 February 2012. He did not attend court on the trial date. The liquidators sought and obtained a default judgment declaring Minnaar personally liable without limitation for all debts of the company under s 424(1). No evidence was led before the court. Minnaar learned of the order when a warrant of execution was served on him in July 2012. He applied for rescission in December 2012, which was refused by Keightley AJ.

• Whether default judgment declaring personal liability under s 424(1) of the Companies Act 61 of 1973 can be granted without evidence being adduced
• Whether the default judgment was erroneously sought and erroneously granted within the meaning of rule 42(1)(a) of the Uniform Rules of Court
• Whether the proviso to rule 39(1) of the Uniform Rules permits default judgment in matters requiring proof of recklessness or fraudulent conduct
• Whether rescission should be granted under rule 42(1)(a) or under the common law

The appeal was upheld with costs. The order of the court a quo was set aside and replaced with an order rescinding the default judgment granted on 23 February 2012, with costs of the rescission application to be costs in the cause.

An order under s 424(1) of the Companies Act 61 of 1973 declaring a director personally liable for company debts on grounds of reckless or fraudulent conduct cannot be granted by default without evidence being adduced. Such an order requires proof on a balance of probabilities that the director was knowingly party to carrying on business recklessly or with intent to defraud creditors. The remedy is punitive and the onus lies on the party alleging recklessness. Where no evidence is led to support allegations of recklessness or fraud, the plaintiff is not procedurally entitled to default judgment, and the resulting order is erroneously sought and erroneously granted within the meaning of rule 42(1)(a) of the Uniform Rules of Court. The proviso to rule 39(1) permitting default judgment without evidence for 'debt or liquidated demand' does not apply to s 424(1) declarations.

The court commented that the question of whether default judgment could be granted under s 424(1) without evidence was a novel issue that had not previously been traversed by any court, though it was 'inconceivable' that such an order would be made without evidence. The court also observed that Minnaar's account of why he failed to appear in court was not entirely credible or consistent, suggesting he may have been in deliberate default, though this did not need to be decided given the finding on rule 42(1)(a). The court indicated that in light of these credibility concerns, costs of the rescission application should be costs in the cause rather than awarded to Minnaar outright, as he was seeking the court's indulgence.

This case establishes important principles regarding the procedural requirements for obtaining orders under s 424(1) of the Companies Act 61 of 1973 (now s 77 of the Companies Act 71 of 2008). It clarifies that such orders cannot be granted by default without evidence, as they require proof on a balance of probabilities of recklessness or fraudulent conduct. The judgment emphasizes that s 424(1) is a punitive remedy that can impose personal liability on directors without proof of causation, and therefore courts must carefully scrutinize the evidence before making such declarations. The case also contributes to the jurisprudence on rule 42(1)(a) rescission, confirming that where a party is not procedurally entitled to the relief granted, the order is erroneously sought and granted, warranting rescission. This is a relatively novel application of rule 42(1)(a) beyond the typical procedural irregularity cases.