AM I NEXT? WHEN AN ACCOUNTANT ANSWERS FOR A CLIENT’S DEBTS PARTICIPATION, NOT PROXIMITY

Nov 2, 2026 | Commentary

PERSONAL LIABILITY FOR COMPANY DEBTS DOING THE BOOKS IS NOT RUNNING THE BUSINESS

Liquidators asked the Western Cape High Court to make two accountants personally liable for more than R5 million of a failed transport company’s debts. The court dismissed the application with costs, and in doing so drew a clear line between recording a client’s business and taking part in it.

When a client’s company goes into liquidation, its accountant is usually one of the first people the liquidators want to speak to. Sooner or later, the accountant asks me the same question: Am I next?

The answer the law gives is not “never”. Section 424 of the Companies Act 61 of 1973 is deliberately wide, and it can reach an adviser. But it does not reach an adviser for advising. On 19 October 2026 the Western Cape High Court said so plainly, in a matter in which we acted for the two accountants concerned. What follows is the case, what the court held, and what it did not.

Section 424 reads as follows:

424 Liability of directors and others for fraudulent conduct of business

(1) When it appears, whether it be in a winding-up, judicial management or otherwise, that any business of the company was or is being carried on recklessly or with intent to defraud creditors of the company or creditors of any other person or for any fraudulent purpose, the Court may, on the application of the Master, the liquidator, the judicial manager, any creditor or member or contributory of the company, declare that any person who was knowingly a party to the carrying on of the business in the manner aforesaid, shall be personally responsible, without any limitation of liability, for all or any of the debts or other liabilities of the company as the Court may direct.

(2)(a) Where the Court makes any such declaration, it may give such further directions as it thinks proper for the purpose of giving effect to the declaration, and in particular may make provision for making the liability of any such person under the declaration a charge on any debt or obligation due from the company to him, or on any mortgage or charge or any interest in any mortgage or charge on any assets of the company held by or vested in him or any company or person on his behalf or any person claiming as assignee from or through the person liable or any company or person acting on his behalf, and may from time to time make such further orders as may be necessary for the purpose of enforcing any charge imposed under this subsection.

(b) For the purposes of this subsection, the expression ‘assignee’ includes any person to whom or in whose favour, by the directions of the person liable, the debt, obligation, mortgage or charge was created, issued or transferred or the interest was created, but does not include an assignee for valuable consideration given in good faith and without notice of any of the matters on the ground of which the declaration is made.

(3) Without prejudice to any other criminal liability incurred, where any business of a company is carried on recklessly or with such intent or for such purpose as is mentioned in subsection (1), every person who was knowingly a party to the carrying on of the business in the manner aforesaid, shall be guilty of an offence.

(4) The provisions of this section shall have effect notwithstanding that the person concerned may be criminally liable in respect of the matters on the ground of which the declaration is made.

The matter

Germani Transport was a long- and short-haul road freight business operating from the Strand and Springs. It was no small concern. Its turnover in the year to February 2018 was about R138 million. From 2016 it lost two anchor customers, suffered an internal fraud of about R5 million and absorbed losses on a failed joint venture. Creditors launched winding-up applications in September 2017, and the company was finally liquidated on 1 August 2019. Its creditors proved claims of R27,2 million, and the estate shows a shortfall of R22,2 million.

From 2009, Germani’s owners had followed a practice. When a truck or trailer was paid off, Germani sold it to a related close corporation, Expidor 155 CC, for R1. Germani kept using the vehicle at no charge and continued to insure and maintain it. By March 2019, 107 trailers and 17 trucks had gone across. The owners, on the evidence, regarded these vehicles as their pension.

In October 2018, while the liquidation application was pending, Expidor began selling vehicles to third parties. A second, smaller tranche of a few vehicles followed in August to October 2019, just after the final liquidation order. The proceeds were paid into the bank account of a related company, DVS Special Projects, and treated as the owner’s personal money, but most of those funds were channelled to Germani in an attempt to save its business. The owner, the late Pierino Romani, died in September 2019.

The liquidators held a section 417 and 418 enquiry that ran from October 2020 to July 2022. Our clients were subpoenaed and testified. In 2023 the liquidators obtained an order collapsing Expidor, DVS and a further close corporation into Germani. In July 2025 they brought a section 424 application against our clients and their firm.

One of our clients was Germani’s outside accountant. His firm conducted an independent review of Germani’s financial statements, compiled DVS’s, and acted as accounting officer to the close corporations. He was also a trustee of the trust that held the members’ interest in Expidor. The other was his co-director at the firm, who was the sole director of DVS and operated its bank account. Neither was ever a director or shareholder of Germani.

The application sought an order making our clients liable for all the debts of all four entities in terms of section 424(1). By the time of the hearing, the liquidators had abandoned the claim against the firm and reduced the claim against our clients to R5 013 500. The court dismissed it, with costs including counsel’s costs on Scale C.

Participation, not proximity

Section 424(1) allows a court to declare “any person who was knowingly a party” to the reckless or fraudulent carrying on of a company’s business personally liable for its debts. The words are wide, and the courts give them their full breadth. They are not limited to directors.

But “party” has a meaning. Following Powertech Industries v Mayberry 1996 (2) SA 742 (W), the court held that a party to a company’s business is someone who has joined with the company in a common pursuit, typically its directors and managers. The section does not extend to those who, while carrying on their own business, incidentally enable the company to carry on its business. The classic example is the landlord. An auditor can make himself a party, but, as Powertech puts it, not by accident. It requires collusion.

Directors are in a different position. A director has a positive duty to protect the company, so a director can be a party simply by standing by. An outside adviser carries no such duty. Something more is required.

On our client’s evidence, the owner was the only person with decision-making authority. Transactions were captured by Germani’s in-house bookkeepers, and only afterwards were the records handed to him, to prepare annual financial statements or a funding presentation. The court described him as the ex post facto recorder of transactions undertaken by Germani under the owner’s control, and held that this is inconsistent with being an active participant in them.

The liquidators’ allegations of involvement were, in the court’s words, “bald and formulaic”. They spoke of aiding and abetting but gave no granular detail of what our clients actually did. And the court put the central point in a single sentence: the fact that our client, as an accountant, knew of the transactions “does not elevate him to an active participant in the business of Germani”.

That sentence is why I think this judgment matters beyond our clients. Every accountant knows things about a client’s business. Knowledge is the job. It is not participation.

Whose business, whose debts

The liquidators’ strongest material concerned the second stage: Expidor’s sales to third parties in 2018 and 2019 and the payments through DVS. The court accepted that the papers showed more personal involvement by our clients there. As a trustee of Expidor’s member, one of them issued Expidor’s sales invoices. The other operated the DVS account.

It did not help the liquidators, for a reason that every practitioner in this field should note. Section 424 is entity-specific. It makes a person liable for the debts of a company because he was a party to carrying on the business of that company. The only debts the liquidators proved were Germani’s. Selling Expidor’s vehicles was Expidor’s business. Operating DVS’s account was DVS’s business.

The collapsing order did not change that. It took effect on 24 October 2023, and the court held that it operated prospectively. While the events took place, the entities were separate. Nor was there a claim under section 64 of the Close Corporations Act, which is the provision that governs a close corporation’s business, and which has its own test that includes gross negligence.

In reply and in argument, the liquidators said the original R1 sales were simulated, so the vehicles were still Germani’s when Expidor sold them. The court found two difficulties. Their own pleaded case relied on those sales as the first step of the scheme. And there was no evidence that our clients regarded the sales as anything other than genuine. Expidor accounted for tax on the disposals, which is what an owner does. If our client believed he was helping to sell Expidor’s assets, he could not have been knowingly a party to carrying on Germani’s business.

The judgment also flags a question it did not need to answer, and which will come back. Once a close corporation is collapsed into a company, can section 424 reach conduct in the close corporation’s business before the order? The court indicated that treating the close corporation as a company retroactively may be impermissible, and that the different statutory tests point that way. Liquidators relying on collapsing orders would be wise to plead section 64 in the alternative.

Dismissed, not referred

The liquidators chose to proceed on application. That choice carried a rule with it. On motion, where the facts are genuinely disputed, the court decides on the respondent’s version unless that version can safely be rejected on the papers alone. Our clients’ version could not be. They were indisputably accountants, not directors, and Germani had its own bookkeepers. Their account of standing at some remove from its operations was, the court held, not inherently improbable.

When final relief cannot be granted on affidavit, the court may dismiss the application or refer it to oral evidence or trial. Here it dismissed it, and the reasons are a lesson in themselves.

The disputes were foreseeable. The liquidators had nearly two years of enquiry evidence, including our clients’ own. They knew our clients’ position before they issued.
The papers were not tailored. The court compared the founding papers with those in the earlier collapsing application and found them, by and large, identical. A section 424 claim needs its own facts, aimed at its own requirements.
No referral was sought. The liquidators did not ask for a referral to trial at the outset, or in argument, or in reply. They raised it only when the court asked counsel, after reply, what it should do if relief could not be granted on the papers. No exceptional circumstances were offered.

Then there is timing. The final sitting of the enquiry was on 22 July 2022. The application was launched on 17 July 2025. The court observed that this was clearly no random date, and that the liquidators had put their eggs in one basket, knowing that if the application failed a later action would probably face a prescription defence. The court made no finding on whether that defence would succeed.

I will put the general point simply. Section 424 claims turn on who did what, when and why, often over years. They are rarely suited to affidavits. A liquidator who chooses motion over action, with the clock running, takes the risk that comes with that choice.

The court also struck out five paragraphs of the founding affidavit that repeated other witnesses’ evidence at the enquiry. Against our clients, that was hearsay, and no proper basis was offered to admit it. A section 417 transcript is not a substitute for an affidavit from the person who gave the evidence.

What the court did not decide

A judgment should be reported for what it holds, and this one is careful about its limits.

The court did not decide whether moving the vehicles out of Germani was reckless or fraudulent. It said, provisionally, that a company selling valuable assets for a nominal amount is unlikely to be acting in its own interests, and that whether this crosses the section 424 threshold may depend on how much financial difficulty the company was in at the time. It said the second-stage sales may well have amounted to reckless or fraudulent conduct of Expidor’s business, had that case been brought.

It expressed no view on the propriety of the tax rationale offered for the arrangement, noting only that it raises significant questions of tax law. And it did not decide quantum, although it found that the liquidators had not proved the figure they claimed. Their numbers did not match the DVS bank reconciliation, and they did not deal with about R3,26 million and R616 000 that appeared to have been paid out of DVS for Germani’s benefit.

What the court decided is that, on the papers, the liquidators did not show that our clients were knowingly parties to carrying on Germani’s business. That is the finding, and it is the one that matters to the profession.

What it means

For accountants, the judgment is reassurance with conditions attached.

Your role is your defence. Engagement letters and working papers that show you reviewed or compiled records supplied by management are the best evidence that you were recording the business, not running it.
Every extra hat is judged separately. The court distinguished between our client’s work as an accountant and what he did as a trustee signing for a close corporation. Trusteeships, signing powers and directorships each bring you closer to a client’s business.
Bank accounts are business. Receiving and paying out money for a client group, even strictly on instruction, is the kind of conduct a court may treat as taking part.
Take advice before the enquiry, not after. What you say at a section 417 enquiry is admissible against you in later proceedings. In this matter, the scheme the liquidators relied on was drawn largely from our client’s own enquiry evidence.

For liquidators, the message is equally clear. Plead the section that fits the entity. Tailor the facts to section 424 rather than recycling another application. And where the respondent’s role is genuinely disputed, consider action from the start.

Section 424 is, and should remain, a powerful remedy against those who run a company recklessly or fraudulently. Its reach is defined by participation, not proximity. An accountant who does an accountant’s work honestly should not have to fear that a client’s failure automatically becomes his own.

We were briefed with Adv J de Vries, who argued the matter for our clients.

Status: the period within which leave to appeal may be sought had not expired at the date of publication. This page will be updated if the position changes.

The judgment referred to is Cooper NO and Others v Van Dyk and Others, Western Cape Division, Cape Town, case number 2025-115921, Janisch AJ, heard 2 September 2026, delivered 19 October 2026. The court did not decide whether the underlying transactions were reckless or fraudulent; its task was whether personal liability under section 424(1) had been established against the respondents on the papers.