Creditors can file ‘delinquent director’ bids

In a rare victory, a company’s creditor was given authorisation to bring an application against its directors to declare them unfit and personally liable in a trial involving more than R400m from an alleged unpaid load.

The Johannesburg high court ruled the creditors of company Somnipoint do have the legal right to apply for Somnipoint’s directors to be declared “delinquent”, despite the law normally preventing this. This will now be argued at a later trial.

In 2014, Vantage — which provides debt and equity financing to companies — created a loan facility for Somnipoint. It ttpurchased Absa Towers in Pretoria, where the Unemployment Insurance Fund (UIF) had been a tenant for some time.

Somnipoint was unable to pay Vantage, who then went to court to secure Absa Towers. In 2020, it successfully applied for Somnipoint to be wound up.

Vantage wanted to recover amounts of about R160m and R211m and filed papers in the high court against the directors. The trial has yet to be heard.

In 2023, after instituting its initial claim, Vantage returned to court to have three directors allegedly responsible for Somnipoint’s inability to pay back the loan declared “delinquent” in terms of company law. One of the directors opposed the bid.

If found to be delinquent, directors can face a lifetime ban from serving as a director at any company in SA and be personally liable for a company’s debts if caused by the director.

The Companies Act only allows a select group, such as trade unions and shareholders, to bring this claim. Vantage is not part of this closed group and had to convince the court it should still be allowed to claim this.

Judge Norman Manoim ruled that Vantage could do so. Manoim made it clear he was not ruling on whether the directors were actually delinquent; only whether Vantage was allowed to bring the claim, which will be heard in the future trial.

Vantage alleges the directors had committed “a full panoply of misdemeanours”, Manoim said. In response, one of Somnipoint’s directors raised the issue of the Companies Act’s closed list consisting of a company, a shareholder, director, company director, secretary or prescribed officer, registered trade union, or employee representative.

To get around this, Vantage pointed to a different provision in the same act that allows it to bring the delinquent claim if it acts “in the “public interest”— for the good of all SA.

Vantage said it was doing so because of the directors’ previous relationship with the UIF, as tenant of the Absa Towers once owned by Somnipoint. The UIF is “a recipient and dispenser of public funds”. The public has an interest “in the management of companies that do business with organs of state”.

Vantage argued a delinquency ruling “will protect the public from the [directors] repeating or replicating their [alleged] delinquent conduct in other entities”.

In opposing this, one of Somnipoint’s directors argued that Vantage needed to have obtained the court’s permission to even bring the request. But Manoim dismissed this. He also dismissed arguments that creditors cannot bring a delinquency case. Manoim was not persuaded that other creditors would use the threat of delinquency as a way to “squeeze” directors of debtor companies for more money.

Though the Companies Act does have a specific list that excludes creditors, Vantage made out a case in terms of public interest to get through the doors, Manoim said.

He allowed Vantage to amend its papers for the later trial, with costs. Manoim said Vantage has found a “novel remedy” to the delinquency restrictions, meaning other creditors can now use this approach in future instances.