Mellet N O and Others vs. Vermeulen and Another - (07 Dec 2022)

Natural as well as juristic persons may hold member’s interests as a trustee, but only in certain circumstances

Trusts and Societies

Present appeal is related to the application and interpretation of Sections 29(1) and 29(1A) of the Close Corporation Act, 1984 in the event where a family trust, the Blucher Mellet Family Trust (the Trust), had acquired a 60 percent member’s interest in a close corporation from one of its trustees and which it immediately sold to the respondents. The core issue for determination was whether the Trust was legally able to acquire the member’s interest or not.

The seller of the member’s interest is the Trust. It is common cause that the Trust held a member’s interest in a close corporation and purported to sell it to the respondents. If there had been any doubt, it was dispelled by the first appellant himself when he stated that as he was ‘desirous to transfer the benefits of the sale to the Trust’ provision was made in the agreement ‘that the member’s interest held by myself, was to be transferred to the Trust and directly be sold to the Respondents’. Section 29(1) of the CCA is thus implicated. It was raised squarely by the Respondents to assail the validity of the sale.

It is incumbent on parties to set out their cause of action or defence, as the case may be, in clear and concise terms to enable to opposing party to know the nature of the case or defence advanced. The Act specified the circumstances in which natural or juristic persons who are trustees of inter vivos Trusts may hold member’s interests in a close corporation. Section 29 of Act contemplates that only natural persons are capable of holding member’s interests. However, Section 29(1A) of Act allowed an exception which provided that natural as well as juristic persons may hold member’s interests as a trustee, but only in certain narrowly defined circumstances.

Since the Trust here purported to hold the member’s interest, rather than a trustee, the Appellants did not get out of the starting blocks to bring themselves within the terms of the exception provided for in Section 29(1A) of the Act. On the contrary, the Respondents succeeded in establishing that the agreement of sale was in conflict with Section 29(1), and therefore invalid. Appeal dismissed.

Tags : TRUSTEES JURISTIC PERSONS INTEREST