Piercing the corporate veil: A critical analysis of section 20(9) of the South African Companies Act 71 of 2008

Abstract

When a company is incorporated it becomes a juristic entity with rights and obligations of its own and is distinct from its shareholders and directors. Hence, company liabilities are not those of its shareholders and directors. However, section 20(9) of the Companies Act 71 of 2008 grants the court the discretion to disregard the corporate veil where there is an unconscionable abuse of the juristic personality so as to impose personal liability upon directors or any other person involved in that transaction. However, the section fails to define what constitutes “unconscionable abuse” which is the key to the application of that provision. This research thus seeks to discover what constitutes unconscionable abuse of the juristic personality. Simply put, this research aims to identify the circumstances under which the corporate veil may be pierced. The results from this extensive inquiry are that the term ‘unconscionable abuse’ is a legislative derivate from the various terms used by the courts at common law to justify the disregarding of the separate legal personality of the corporate entity. Therefore, the inescapable conclusion reached is that just as those terms used at common law are confounding, so shall this rather legislative innovation remain to be confounding until a specific meaning is assigned to it by the parliament.

Keywords: Company, Director, Juristic Person, Lifting or Piercing the Corporate Veil, Juristic Personality, Unconscionable Abuse, Veil of Incorporation

Authors’ individual contributions: The author is responsible for all the contributions to the paper according to CRediT (Contributor Roles Taxonomy) standards.

Declaration of conflicting interests: The Author declares that there is no conflict of interest.

JEL Classification: L51, L84, G33

Received: 21.12.2019
Accepted: 28.02.2020
Published online: 06.04.2020

How to cite this paper: Phiri, S. (2020). Piercing the corporate veil: A critical analysis of section 20(9) of the South African Companies Act 71 of 2008. Corporate & Business Strategy Review, 1(1), 17-26. https://doi.org/10.22495/cbsrv1i1art2