Default judgment, without any evidence being led, was granted against a director under section 424(1) of the Companies Act 1973 on the basis that the business of the company was carried on recklessly or with intent to defraud creditors or for some other fraudulent purpose. No evidence was led to establish these allegations.
Even though the defendant director in Minnaar v van Rooyen failed to take the steps he should have taken to defend the action, the court set aside the judgment. Liability under section 424(1) requires proof of recklessness or fraud. The remedy is a punitive one and a causal link must be established between the conduct of the director and the liabilities of the company from the person alleging such liability.
Even if the matter is not defended the liquidators must prove that the directors acted recklessly or with intent to defraud the creditors. The judgment was set aside.
First published by Financial Institutions Legal Snapshot.
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