The recent decision of the Western Cape High Court in De Sa Miranda v True Ruby Trading 1035 CC and Another [2024] ZAWCHC 430 demonstrates our courts’ growing willingness to intervene in closely held companies and close corporations where foundational relationships have irreparably broken down. It affirms the principle that where business arrangements are grounded in mutual trust, confidence, and cooperation, and that trust collapses, the courts may order a winding-up of a legal person on just and equitable grounds.
This position aligns with earlier authority, including Johan Visser v An Exclusive Guest House (Pty) Ltd [2022], which underscores that substance must prevail over form when assessing the functional collapse of relationships in closely managed business structures.
Section 81(1)(d)(iii) of the Companies Act, 2008 empowers a court to wind up a solvent company if it is “just and equitable” to do so. This principle is extended to (where they still exist) close corporations, and courts have interpreted the “just and equitable” ground broadly, granting wide judicial discretion.
This discretion is commonly exercised in situations involving:
- an irretrievable breakdown in trust or the working relationship between parties;
- shareholder or managerial deadlock, rendering the entity ungovernable;
- the loss or frustration of the commercial purpose for which the entity was created (its substratum); or
- conduct that makes continued operation oppressive or unfair to one or more stakeholders.
In the De Sa Miranda case, De Sa Miranda held a 22% interest in a close corporation from which he had been excluded for years. De Jesus alleged that the reason that De Sa Miranda was not involved in decision-making was that he had been bought out through undocumented cash payments. However, the court found this version both unconvincing and unsupported by any formal records. More critically, the court focused on the cumulative conduct of De Jesus, which included excluding De Sa Miranda from the management and affairs of the corporation for over a decade, failing to provide access to financial information, and operating the business without transparency or proper corporate governance. The entity had no proper financial records, did not produce annual statements, and there was a complete absence of member participation and consultation. Taken together, these facts demonstrate an irretrievable breakdown of the foundational relationship between the members. The court concluded that, given the corporation’s reliance on trust and cooperation, its continued existence under such conditions was untenable, and a winding-up on just and equitable grounds was the only appropriate remedy.
The court observed that the CC had operated on the basis of mutual trust and shared management and explicitly described it as having the characteristics of a “quasi-partnership.” It held that in such circumstances — where personal relationships are central to the entity’s functioning and those relationships have broken down, a winding-up is justified. A provisional order was accordingly granted, citing the exclusion of De Sa Miranda, lack of transparency, and failure to maintain proper financial records.
A similar outcome was reached in Johan Visser, where the Mpumalanga High Court granted a final winding-up order on just and equitable grounds. Although the business was formally structured as a private company, it had been run based on partnership-like trust and cooperation between the two shareholders.
Once that relationship broke down, evidenced by complete communication breakdown, mutual allegations of wrongdoing, and failed buyout negotiations — the court concluded that continued cooperation was no longer feasible. It confirmed that when internal deadlock renders a company dysfunctional, form must yield to substance, and dissolution may be the only fair solution.
Courts therefore remain aware of the realities faced by stakeholders in closely held entities where personal relationships are key to governance and decision-making.
Trust, transparency, and cooperation are fundamental to the effective operation of closely held businesses. Where parties rely on personal relationships to manage the business, it is essential that these relationships are underpinned by clear communication, well-defined agreements outlining decision-making processes, and a shared understanding of who is entitled to participate in such decisions – all supported by mutual respect. Business owners should maintain accurate records of financial contributions, ownership rights, and any agreements regulating their relationship because courts are more inclined to uphold formal, documented arrangements than informal or verbal agreements, particularly where disputes arise. While the remedy of winding-up on just and equitable grounds offers a flexible and equitable form of relief, it is highly fact-specific and will only be granted in circumstances where no other reasonable alternative exists.
This article was drafted by Dalen Mmako and Wildu du Plessis.