Fourie NO and Others v Newton

Consolidated News Agencies (Pty) Ltd (CNA), a major retail company, was liquidated in mid‑2002. The appellants, as liquidators, sued Mr Newton, a director of Consolidated, under s 424 of the Companies Act 61 of 1973, alleging that he was knowingly party to reckless trading that caused CNA to incur debts it could not repay. Newton had been a director of Consolidated, its holding company, and Wooltru Ltd, the ultimate holding company. From March 2001 until liquidation, CNA continued trading while loss‑making, entered into complex transactions linked to Wooltru’s disposal of CNA, and concluded an amended retailer agreement (ARA) with MTN/M‑Tel that materially affected its cash flow. The liquidators claimed that by allowing CNA to continue trading during this period, Newton acted recklessly. The High Court dismissed the claim, and the liquidators appealed to the Supreme Court of Appeal.

The appeal was dismissed with costs, including the costs of two counsel. The High Court’s dismissal of the s 424 claim against Newton was confirmed.

The case is a leading authority on the interpretation and application of s 424 of the Companies Act 61 of 1973. It clarifies the concept of reckless trading, emphasising commercial reality over hindsight and purely accounting‑based assessments, and confirms that directors are not liable merely because a company continues trading while financially distressed.