Creditors can file ‘delinquent director’ bids
In what a Business Day report calls a rare victory, a company’s creditor was given authorisation to bring an application against its directors to declare them unfit and personally liable in a trial involving more than R400m from an alleged unpaid load.
The Gauteng High Court (Johannesburg) ruled the creditors of company Somnipoint do have the legal right to apply for Somnipoint’s directors to be declared ‘delinquent’, despite the law normally preventing this.
This will now be argued at a later trial.
In 2014, Vantage – which provides debt and equity financing to companies – created a loan facility for Somnipoint and purchased Absa Towers in Pretoria. Somnipoint was unable to pay Vantage, who then went to court to secure Absa Towers.
In 2020, it successfully applied for Somnipoint to be wound up. Vantage wanted to recover amounts of about R160m and R211m and filed papers in the High Court against the directors.
The trial has yet to be heard.
In 2023, after instituting its initial claim, Vantage returned to court to have three directors allegedly responsible for Somnipoint’s inability to pay back the loan declared ‘delinquent’ in terms of company law.
One of the directors opposed the bid.
The Business Day report notes the Companies Act only allows a select group, such as trade unions and shareholders, to bring this claim.
Vantage is not part of this closed group and had to convince the court it should still be allowed to claim this. Judge Norman Manoim ruled that Vantage could do so.
He made it clear he was not ruling on whether the directors were actually delinquent; only whether Vantage was allowed to bring the claim, which will be heard in the future trial.
Vantage alleges the directors had committed ‘a full panoply of misdemeanours’, Manoim said.
In response, one of Somnipoint’s directors raised the issue of the Companies Act’s closed list. To get around this, Vantage pointed to a different provision in the same Act that allows it to bring the delinquent claim if it acts ‘in the ‘public interest’. Vantage argued a delinquency ruling ‘will protect the public from the (directors) repeating or replicating their (alleged) delinquent conduct in other entities’.
In opposing this, one of Somnipoint’s directors argued that Vantage needed to have obtained the court’s permission to even bring the request. But Manoim dismissed this.
He also dismissed arguments that creditors cannot bring a delinquency case.
Manoim was not persuaded that other creditors would use the threat of delinquency as a way to ‘squeeze’ directors of debtor companies for more money.
Manoim allowed Vantage to amend its papers for the later trial, with costs.
Article disclaimer: While we have made every effort to ensure the accuracy of this article, it is not intended to provide final legal advice as facts and situations will differ from case to case, and therefore specific legal advice should be sought with a lawyer.