A critical analysis of the piercing of the corporate veil in South African corporate law, with special reference to the position in groups of companies.
Mashiri, Paul Tatenda.
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Companies in South Africa have a separate legal existence and this gives shareholders limited liability. If a company cannot pay its debts, creditors will generally have no recourse against shareholders or directors in respect of those debts. The real problem arises if the separate personality if the company has been abused by shareholders and/or directors. The remedy of piercing the corporate veil was a common law remedy used by courts in an attempt to remedy the abuse of the corporate personality by directors and shareholders of the company. It became a statutory remedy in relation to companies when it was codified in the Companies Act 2008. Section 20(9) of the Companies Act 2008 does not give any guidance as to the conduct which constitutes ‘unconscionable abuse’ and leaves it open for interpretation by court. The potential for abuse may be increased by the creation of company groups. This dissertation seeks to analyse and examine the statutory piercing of the corporate veil with the objective of providing a guideline to interpreting the meaning of ‘unconscionable abuse’ in the general context and then in the context of groups of companies. This research assesses whether piercing of the corporate veil protects creditors and investors in cases where corporate identity is abused, especially in the context of company groups. There is the hope that the research becomes a potent tool in providing creditors with guidelines and insight into determining ‘unconscionable abuse’ generally and then with respect to company groups, especially where letters of comfort have been involved. Finally, this research will give insight on the possible future of the piercing of the corporate veil as a remedy.