The Personal Liability of Members of Close Corporations: A Note on Rampf v Gerardo Trading (Pty) Ltd and Others

In Rampf v Gerardo Trading (Pty) Ltd and Others, the Gauteng Division of the High Court, Johannesburg, considered an application by Mr Rampf (the “Applicant”) for the repayment of R1 million that he had paid as an investment to Gerardo Trading (Pty) Ltd, a company formerly registered as a close corporation (“Gerardo Trading”). The Applicant also sought an order declaring the sole member of the former close corporation, Lesley Ernest Brewitt (“Brewitt”), personally liable in terms of section 64 of the Close Corporations Act 69 of 1984 (the “Act”).

The dispute arose from an oral agreement concluded in November 2024, in terms of which the Applicant agreed to pay R1 million to Gerardo Trading as working capital, in return for a 10% member’s interest. On 8 November 2024, Brewitt provided the Applicant with bank account details into which the R1 million was to be paid. Critically, those bank details belonged to DG Pharma Distributors (Pty) Ltd (“DG Pharma”) (another entity in which Brewitt was a director) not Gerardo Trading. The Applicant made the payment on the same day.

During December 2024, the Applicant discovered financial irregularities, including that the R1 million had never been deposited into Gerardo Trading’s bank account, that Gerardo Trading was unable to pay staff salaries, and customer payments were not being reflected in its bank account. In January 2025, the Applicant decided to terminate his association with Gerardo Trading and the parties subsequently agreed to cancel the investment agreement. Thereafter, a protracted exchange of communications ensued, during which Brewitt, acting both on behalf of Gerardo Trading and in his personal capacity, repeatedly undertook to repay the R1 million. Despite these undertakings, no repayment was made. Consequently, the Applicant instituted legal proceedings against Gerardo Trading, Brewitt and DG Pharma for recovery of the R1 million.

In relation to the primary claim, the Court held that, under the law of restitution, the cancellation of a contract obliges each party to restore to the other whatever was received in terms of the agreement. In this case, upon cancellation Gerardo Trading became obliged to return the R1 million to the Applicant. Accordingly, the Court ordered Gerardo Trading to repay the sum of R1 million to the Applicant, together with interest a tempore morae (interest accruing from the date of default).

Turning to the claim under section 64 of the Act, the Court noted that it may declare a member of a close corporation personally liable for the debts of the corporation where that member knowingly participated in the carrying on of the corporation’s business in a reckless or grossly negligent manner. The Court found that Brewitt’s conduct was both grossly negligent and reckless. Although the Applicant had advanced R1 million specifically as working capital for Gerardo Trading, Brewitt directed that the funds be paid into DG Pharma’s bank account rather than that of Gerardo Trading. Thereafter, he repeatedly and unconditionally undertook to repay the funds, despite clearly failing to honour those undertakings. The Court held that the provision of banking details belonging to DG Pharma, resulting in the diversion of funds intended for Gerardo Trading, constituted reckless conduct and a gross abuse of the separate juristic personality of the close corporation. Accordingly, the Court concluded that the requirements of section 64 had been satisfied and that Brewitt should be held jointly and severally liable with Gerardo Trading.

In reaching its conclusion on section 64 of the Act, the Court exercised its discretionary power to lift the veil of limited liability that would otherwise shield members from personal liability through the separate juristic personality of a close corporation. The Court emphasised that the purpose of section 64 is to afford legitimate creditors both compensatory and punitive remedies. Importantly, it serves as a reminder to those who manage close corporations that personal liability may arise where they conduct the corporation’s affairs in a reckless, fraudulent, or otherwise improper manner, thereby justifying the piercing of the corporate veil. In such circumstances, the Court may declare those members personally liable, without limitation, for all or any of the debts and liabilities of the corporation as it deems appropriate.

This judgment carries significant implications for members of close corporations, investors, and creditors. Although close corporations can no longer be incorporated in South Africa following the commencement of the Companies Act 71 of 2008, many continue to operate. The judgment serves as an important reminder to existing members that they cannot shield themselves behind the corporate veil where they have knowingly participated in reckless or grossly negligent conduct.