Other
KEEP GOING
- Institution
- University Of South Africa (Unisa)
FOR THIS ASSIGNMENT I HAVE MANAGE TO OBTAIN 100 PERCENT
[Show more]
Seller
Follow
Content preview
MRL ASSIGNMENT 2STUDENT NUMBER: 64787788
UNIQUE NUMBER: 588410
DUE DATE: 12 April 2023
QUESTION 1
Themba intends to seek an order from the Labour Court to the effect that Tendai Munyai was his true
employer and that he must pay him the amount of R250 000. With reference to the relevant legislation and
case law, indicate what Themba would have to prove in order to hold Tendai Munyai liable.
According to section 20(9) of the Companies Act provides that if a court finds that the incorporation of a
company or any act by or use of a company constitutes an unconscionable abuse of its juristic personality, the
court may declare that the company will be deemed not to be a juristic person in respect of rights, liabilities
and obligations relating to the abuse.1 However a balance must be struck between the need to persevere the
separate legal identity of the company against policy considerations in favour of piercing the corporate veil.2
In this case, Themba would have to prove that Tendai Munyai was his true employer in terms of Labour
Relations Act and that he was the one who made a decision of dismissing him from his job because he had full
control over his job. Therefore he would need to prove that Mr Munyai had used his company in order to
protect himself from his personal liability, although the separate juristic or legal personality of a company can
be ignored in certain circumstances,3 hence this was referred as lifting or piercing the corporate veil. The
common law principle of the lifting or piercing of the corporate veil developed in a case law that preserve the
integrity of the principle of legal personality, the courts have said that they will only pierce or lift the
corporate veil in exceptional circumstances where there is no alternative remedy available and where piercing
the corporate veil will prevent an injustice, hence the courts have made it clear that they will not allow the
use of any legal entity to justify wrongs that include the conceal fraud, or that defend or hide crime. In such
cases, the courts may pierce or lift the corporate veil and hold directors and others personally liable for acts
committed in the name of the company that preserve the integrity of the principle of legal personality.4
When a company is a separate legal entity from its shareholders and directors, however in certain
circumstances, the court may pierce the corporate veil and hold a director or shareholder personally liable for
the debts or obligations of the company. Such circumstances could include fraud, dishonesty, or other
improper conduct5, which is why Themba would have to prove that both companies are working together and
that the Bad Boys (Pty) Ltd is the one that is responsible for his compensation of 250000. Themba would have
to prove that he suffered an "unconscionable injustice" as a result of an corporate structure of Bad Boys (Pty)
Ltd, by using a principle that was established in Botha v Van Niekerk & another case, where a test to
determine when the corporate veil should be disregarded was formed. The judgment held that only when an
“unconscionable injustice” would result should the court lift the corporate veil.6
1
Entrepreneurial law-Study Guide for MRL2601 2018-2020 UNISA ,page 24
2
Entrepreneurial law-Study Guide for MRL2601 2018-2020 UNISA ,page 23
3
NEW ENTREPRENEURIAL LAW, author PIET DELPORT LLB LLD (Pret) H Dip Tax Law (Wits): December 2014
year of publish, page 15
4
Entrepreneurial law-Study Guide for MRL2601 2018-2020 UNISA ,page 23
5
Entrepreneurial law-Study Guide for MRL2601 2018-2020 UNISA ,page 23
6
Entrepreneurial law-Study Guide for MRL2601 2018-2020 UNISA ,page 23
, In additionally, Courts have made it clear that they will not allow the use of any legal entity to justify wrongs,
to conceal fraud, or to defend or hide crime7, which is why Themba would to prove that he was not aware
that he was working for the Bad Boys (Pty) Ltd company and not the Men’s Club company, hence he was
clueless that the Men’s Club was suffering from insolvent when he made his claim to the CCMA. Such cases,
the courts may pierce or lift the corporate veil and hold directors and others personally liable for acts
committed in the name of the company. In Die Dros (Pty) Ltd and another v Telefon Beverages CC and others,
it was held that, where fraud, dishonesty and other improper conduct are present, the need to preserve the
separate legal personality of a company must be balanced against policy considerations favouring piercing the
corporate veil. Whereas in Le’ Bergo Fashions CC v Lee and another, the court confirmed that it would pierce
the corporate veil according to values of public policy. If a natural person, who is subject to a restraint of
trade, uses a close corporation or a company as a front to engage in the activity that is prohibited by the
agreement, the corporate veil will be pierced so as to give effect to the agreement.8
In Cape Pacific v Lubner Controlling Investments confirms that the court has no general discretion to disregard
a company separate legal personality. Entrepreneurial law-Study Guide for MRL2601 2018-2020 UNISA, page
23. Therefore, in order to hold Tendai Munyai liable, Themba would have to prove that the corporate veil of
Bad Boys (Pty) Ltd should be pierced because Tendai Munyai was the true employer and he used the company
as a tool to avoid his obligations to Themba. In the Cape Pacific-case, the court confirmed that it has no
general discretion simply to disregard a company’s separate legal personality. The separate legal personality
of a company should not be easily ignored. However, circumstances do exist for example fraud, dishonesty or
other improper conduct where it would be justifiable to pierce the corporate veil Entrepreneurial law-Study
Guide for MRL2601 2018-2020 UNISA ,page 23. The Hülse-Reutter v Gödde case, the court also held that it has
no general discretion simply to disregard a company’s separate legal personality. The corporate veil would
only be lifted if there was evidence of misuse or abuse of the distinction between the company and those who
control it, and this has enabled those who control the company to gain an unfair advantage (a dual test was
introduced by adding the element of unfair advantage). The court further confirmed that much depended on
a close analysis of the facts of each case and considerations of policy. 9
The Ex parte Gore NO was the first case regarding the interpretation to be given to section 20(9) of the
Companies Act, which dealt with a group of companies that was being run as if it was a single company. No
distinction was made between the business and finances of the different companies in the group. The court
decided that an “unconscionable abuse” as required in terms of section 20(9) was not as stringent a
requirement as a “gross abuse” as is needed in terms of section 65 of the Close Corporations Act. The court’s
view was that the interpretation to be given should be sufficiently wide so as to include “a sham” or “a
device”. In the court’s opinion, there was no indication that section 20(9) had to be regarded as a remedy of
last resort.10
7
Entrepreneurial law-Study Guide for MRL2601 2018-2020 UNISA ,page 23
8
Entrepreneurial law-Study Guide for MRL2601 2018-2020 UNISA ,page 23
9
Entrepreneurial law-Study Guide for MRL2601 2018-2020 UNISA ,page 23
10
Entrepreneurial law-Study Guide for MRL2601 2018-2020 UNISA ,page 24
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through EFT, credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying this summary from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller Thandeka30. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy this summary for R50,00. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
68175 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy summaries for 15 years now