Cuninghame v First Ready Development 249 (Association incorporated under s 21)

The respondent was incorporated as a section 21 company (association not for gain) under the Companies Act 61 of 1973. It was initially used to manage a rental pool on behalf of owners of hotel room sectional title units at a conference hotel in Gordon’s Bay. After the liquidation of the original developer and management company, the respondent assumed both management of the rental pool and direct operation of the hotel. Over time, control of the respondent shifted to persons associated with Meridian Bay Restaurant (Pty) Ltd, the owner of the commercial sections of the hotel. The appellants, hotel room owners, contended that the respondent’s amended memorandum reflected a main object that was purely commercial, namely operating a hotel business, which was inconsistent with section 21. They sought the respondent’s winding-up on the ‘just and equitable’ ground.

The appeal was upheld. The order of the High Court was set aside and replaced with a final winding-up order against the respondent. Costs, including the costs of two counsel, were ordered to be costs in the liquidation.

The case authoritatively clarifies the scope of permissible objects of section 21 companies under the 1973 Companies Act. It confirms that associations ‘not for gain’ may not have purely commercial main objects, even if profits are not distributed, and that unlawful objects justify winding-up on just and equitable grounds.