Crous v Wynberg Boys High School and Others

Mr Herman Mercer Crous and his daughter, Ms Lorraine Fourie, were the only members of Eastco Travel CC (the close corporation), holding 49% and 51% membership respectively. The close corporation operated as a travel agency. Wynberg Boys High School alleged that Ms Fourie conducted a fraudulent business scheme through the close corporation, offering discounted flights, demanding upfront payment, then canceling reservations after tickets were issued and misappropriating the refunds. The school engaged the close corporation's services to arrange flights for learners to the United States and lost R638 880. Although Mr Crous had attempted to "resign" from the close corporation in 2014 by handing Ms Fourie a letter, this had no legal effect and he remained a registered member. Mr Crous maintained he had only provided initial financial assistance to start the business in 2008, was never involved in management, never received financial benefit, and was unaware of any wrongdoing. The High Court found both Mr Crous and Ms Fourie liable jointly and severally for the debt, based solely on Mr Crous's membership status.

• Whether section 65 of the Close Corporations Act 69 of 1984 automatically imposes joint liability on all members when gross abuse of the juristic personality of a corporation occurs
• Whether mere membership of a close corporation is sufficient to impose personal liability on a member under section 65 of the Close Corporations Act
• Whether members of a close corporation owe a fiduciary duty to external third parties to ensure the corporation's affairs are managed properly
• What conduct is required to establish personal liability under section 65 of the Close Corporations Act

The appeal was upheld with costs, including costs of two counsel, to be paid by the first respondent (the school). Paragraphs 6, 7 and 8 of the high court order were set aside and replaced with an order that: (1) the second respondent (the close corporation) was found to have grossly abused its juristic personality and was deemed not to be a juristic person for purposes of liability towards the school; (2) the second respondent was ordered to pay R638 880 to the school; (3) the second respondent was ordered to pay costs of the application; and (4) the application against the third respondent (Mr Crous) was dismissed with costs.

Section 65 of the Close Corporations Act 69 of 1984 does not impose personal liability on members of a close corporation solely by virtue of their membership. To impose liability under section 65, a member's conduct must amount to gross abuse of the juristic personality of the close corporation or have contributed thereto. Section 65 must be read harmoniously with section 2(3) of the Act, which provides that members shall not be liable merely by reason of their membership. The exceptions to this principle in sections 63, 64 and 65 all require participation in or contribution to the impugned conduct. Members of close corporations owe fiduciary duties to the corporation itself under section 42, not to external third parties.

The court noted that there is no provision in the Close Corporations Act in terms of which a member can "resign" from a close corporation - the only way to disassociate is to dispose of membership through the procedure set out in section 37. The court also referenced the case of Ebrahim v Airport Cold Storage (Pty) Ltd, noting that in that case both the member and non-member were held liable because they both knowingly participated in the objectionable conduct of the business. The court observed that the high court's error appeared to stem from using the terminology "unconscionable abuse" (from section 20(9) of the Companies Act 71 of 2008) rather than "gross abuse" (from section 65 of the Close Corporations Act), though nothing turned on this nomenclature.

This case provides important clarification on the scope and application of section 65 of the Close Corporations Act 69 of 1984. It establishes that mere membership of a close corporation does not automatically result in personal liability when there has been gross abuse of the juristic personality. The judgment reinforces the principle of separate juristic personality and clarifies that the exceptions to limited liability under the Act require active participation in or contribution to the impugned conduct. The case also clarifies the scope of fiduciary duties owed by members of close corporations, confirming these are owed to the corporation itself rather than to external third parties. This judgment has significant implications for close corporation members who may be passive investors or who are not involved in day-to-day management, protecting them from automatic liability for the wrongful conduct of other members.