Neugarten and Others v Standard Bank of South Africa (172/87) [1988] ZASCA 140; [1989] 2 All SA 90 (A) (11 November 1988)

Neugarten and Others v Standard Bank of South Africa (172/87) [1988] ZASCA 140; [1989] 2 All SA 90 (A) (11 November 1988)

The court held that section 226(2) of the Companies Act requires the specific consent of all members to validate a guarantee provided by a company for the obligations of another company controlled by its directors or managers. While ratification can be equivalent to prior consent, it must be specific, informed, and directed to the transaction in question. Eagle did not sign the original consent and his subsequent conduct, including signing general resolutions and approving financial statements, did not amount to ratification or specific consent to the Vivaldi guarantee. Therefore, the guarantee was void for lack of proper consent, and the Standard Bank could not enforce it against the...

Citation
[1988] ZASCA 140
Parties
Appellant: H Neugarten; Appellant: M Hirschowitz; Appellant: M Sacks; Appellant: J Rosmarin; Appellant: S Eagle; Respondent: Standard Bank of South Africa Limited
Court
Supreme Court of Appeal
Jurisdiction
South Africa
Judgment Date
11 November 1988
Case Number
172/87
Procedural Posture
Civil Appeal / Appeal From the Witwatersrand Local Division
Outcome
Appeal upheld. The order of the court a quo is set aside and replaced with an order dismissing the application with costs, including the costs of two counsel.
Judges
Corbett, Van Heerden, Smalberger, Kumleben, Nicholas
Legal Topics
Companies Act Section 226, Ratification of Shareholder Consent, Guarantee Invalidity, Director Liability, Suretyship, Corporate Governance
Commercial and Corporate Civil Procedure Companies Act Section 226 Ratification of Shareholder Consent Guarantee Invalidity Director Liability Suretyship Corporate Governance

Case Brief

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Parties

H Neugarten

Appellant

M Hirschowitz

Appellant

M Sacks

Appellant

J Rosmarin

Appellant

S Eagle

Appellant

Standard Bank of South Africa Limited

Respondent

Procedural Posture

Civil Appeal / Appeal From the Witwatersrand Local Division

Legal Issues

  1. 1 Whether the guarantee provided by Vivaldi for Neugarten's debts to Standard Bank was valid under section 226(2) of the Companies Act, 1973.
  2. 2 Whether subsequent ratification by all members of Vivaldi could validate the guarantee.
  3. 3 Whether Eagle's conduct or signature on later documents constituted valid consent or ratification.

Ratio Decidendi

The court held that section 226(2) of the Companies Act requires the specific consent of all members to validate a guarantee provided by a company for the obligations of another company controlled by its directors or managers. While ratification can be equivalent to prior consent, it must be specific, informed, and directed to the transaction in question. Eagle did not sign the original consent and his subsequent conduct, including signing general resolutions and approving financial statements, did not amount to ratification or specific consent to the Vivaldi guarantee. Therefore, the guarantee was void for lack of proper consent, and the Standard Bank could not enforce it against the...

Court Disposition

Appeal upheld. The order of the court a quo is set aside and replaced with an order dismissing the application with costs, including the costs of two counsel.

Orders

  • The application is dismissed with costs including the costs reserved by Flemming J.
  • The costs are to include the costs of two counsel.