The first appellant (M) wanted to sell his member’s interest in a close corporation (the CC) to the respondents, but wanted to transfer it to the Blucher Mellet Family Trust (the Trust) first and then have the trust sell the interest to the respondents (V and C). An agreement to this effect was entered into. Part of the agreement was that a bond would be registered over some fixed properties as security for payment of the purchase price and that the parties to the agreement would contribute equally to the costs of registering the bond. After the trustees on behalf of the Trust as seller paid its share of the costs, they demanded payment of their share by V and C. V and C then raised the issue that the trustees of an inter vivos trust cannot be members of a close corporation, as provided in section 29(1) of the Close Corporations Act, 69 of 1984. Therefore the appellants could not, in their capacity as trustees of the Trust, be members of the CC. The appellants failed to place any evidence before the court that the matter falls under the exceptions to section 29(1), as provided in section 29(1A), i.e. that the total number of trustees and beneficiaries of the Trust does not exceed ten and that no trustee is a juristic person.
The appellants approached the Free State High Court and after being unsuccessful there, a full bench of that court, also without success. They then took the matter on appeal to the Supreme Court of Appeals.
The court (Makaula AJA (Petse AP, Makgoka and Plasket JJA and Masipa AJA concurring)) held that the matter of the disqualification of the trustees of the Trust to be members of a close corporation was raised in the papers by the respondents from the beginning and that the appellants’ failure to address this by providing evidence that the matter falls within the provisions of section 29(1A) was fatal to the appellants’ case.
Although the result is most likely the correct one on procedural grounds, the court’s remarks in paragraph 22 raises concern.
“It seems to me that because the Trust purported to hold the member’s interest, rather than a trustee, the appellants do not get out of the starting blocks to bring themselves within the terms of s 29(1A).”
This remark seems to suggest that the court was of the view that that the Trust has separate personality and could act independently from its trustees. This is not in line with settled principles of South African trust law.