Converting a close corporation to a company might seem like a clever way of dodging a suretyship, but it won’t work. That was the finding of the Supreme Court of Appeal , which last month ruled against Masibuyisane Services Ltd, which in 2006 had converted from a CC and in doing so argued that a suretyship signed in the name of the CC was not enforceable. Masibuyisane could never quite make up its mind whether it wanted to be a company or CC.
Masibuyisane could never quite make up its mind whether it wanted to be a company or CC. In 2009, it re-converted to a CC and then in 2013 went back to being a company. “What happens if after that conversion a contract is concluded by the directors of the company in which contract the company is described as a close corporation? Can the company repudiate it on the grounds that it was concluded with an entity, ie the CC, that ‘no longer exists’?”
The SCA pointed to the Close Corporations Act, which makes clear that a CC is a juristic person and continues to exist as such, even though the members may change and the entity converts to a company .