Corporate managers and their potential liability for company debts in terms of Section 424 of the Companies Act

Upon registration, a company acquires juristic personality. The company as a distinct legal entity has a separate existence and neither directors nor shareholders are personally liable for the company's debts. This is the principle of limited liability. Limited liability has merits, but it also has its drawbacks. The principal drawback is that creditors of a company, especially creditors who hold no security, bear a risk when the company is liquidated owing to its inability to pay its debts. Sometimes the legislature or the court disregards the separate corporate responsibility of a company, lifts the corporate veil and fixes liability on the natural persons behind the company or in control of its activities. In Section 424 of the Companies Act the legislature has provided protection to creditors against the misuse of their powers by corporate managers. This literature study explains the current legal position regarding the application and interpretation of Section 424 of the Companies Act, and provides an exposition of its implications for corporate managers.