The common law remedy known as 'piercing the corporate
veil', a remedy notorious for being difficult to prove and
inconsistently applied by our courts, has recently received
attention from the Western Cape High Court in the decision of Ex
parte Gore NNO  2 All SA 437 (WCC). The remedy allows an
aggrieved party to obtain an order declaring that the rights,
liabilities or activities of a company ought to be treated as those
of the relevant shareholder or director in his personal capacity,
usually in circumstances where there has been some impropriety
linked to an abuse of the company's structure.
The Gore case is the first decision dealing with this remedy
since the Companies Act 71 of 2008 has come into operation, and as
such has been much anticipated by the legal and business community.
The case deals with the interpretation of section 20(9) of the Act,
a new provision which specifically permits piercing of the
corporate veil in certain circumstances. If the reasoning in the
Gore case is anything to go by, this new statutory basis of the
remedy may well allow for its successful use more frequently in the
The issue in Gore was whether the court should pierce the
corporate veil in a group of companies consisting of one holding
company and various subsidiaries (over 40 companies), in
circumstances where the affairs of the group were being conducted
in a manner that did not maintain any distinguishable corporate
identity between the various subsidiaries. For example, funds would
not be allocated to the particular company that investor sought to
invest in, but would be transferred to whichever company in the
group needed the money at the time.
The court found that the entire group had in effect operated as
one entity through the holding company, and that the directors had
'treated all their companies as one'. It was also held that
the remedy is available 'whenever the illegitimate use of the
concept of juristic personality adversely affects a third party in
a way that reasonably should not be countenanced'. It was
further decided that the remedy could be used in a variety of
circumstances as a remedy of first instance, and not as a last
resort in circumstances where justice will not otherwise be
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Corporate re-structuring and M&A occupy a significant share of the corporate finance world. M&A transactions resulting in a formation of a larger entity.
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