Sixteen questions on personal liability for a company's debts
Drawn from a Western Cape High Court judgment this firm obtained in October 2026, in which liquidators failed to hold two accountants personally liable for more than R5 million of a failed transport company's debts. The questions below are the ones accountants, trustees and advisers ask most often when a client's company goes into liquidation.
Most accountants assume one of two things when a client's company fails. Either they have nothing to worry about, or they are next in line. What follows is the law, set out through a case we ran, and it is worth knowing before the liquidators call rather than after.
The case referred to throughout is one in which we acted for two accountants. The liquidators of a transport company, Germani Transport, sought to hold them personally liable under section 424 of the Companies Act for more than R5 million of the company's debts. On 19 October 2026 the Western Cape High Court dismissed the application with costs.
1. Can an accountant be held personally liable for a client company's debts?
Yes, but not for merely being its accountant.
Section 424 of the Companies Act allows a court to make any person personally liable for a company's debts if that person was knowingly a party to carrying on its business recklessly or fraudulently. "Any person" is wide. It is not limited to directors, and it can reach an accountant.
What it cannot reach is an accountant who did an accountant's work. The question is never your title. It is what you did.
An accountant may nonetheless, in principle, be exposed where, for instance, in drafting financial statements, he or she recklessly failed to exercise due care in respect of core duties such as:
- revenue verification (IFRS 15);
- asset valuation and impairment (IAS 36); and
- going concern assessment (IAS 1 / IFRS 18).
2. What does "knowingly a party" mean?
It means you took part. You participated in, or concurred in, the way the business was run.
Our courts have held that a party to a company's business is someone who joins with the company in a common pursuit. Its directors and managers, typically. Someone who, while carrying on their own business, incidentally enables the company to carry on its business is not a party to it. The classic example is the landlord. Letting premises to a company does not make you responsible for how it trades in them.
"Knowingly" adds a second requirement. You must have known the facts that made the conduct reckless or fraudulent. You need not have known that the law would call it that.
3. I compile or review the financial statements. If I knew about a questionable transaction, am I a party to it?
No. Knowing about a transaction is not the same as being a party to it.
In our clients' matter, the company had sold paid-off trucks and trailers to a related close corporation for R1 each over a period of ten years. Our client recorded those transactions in the financial statements. The liquidators said that made them part of the scheme.
The court disagreed. It found that he compiled the statements after the fact, from records kept by the company's own bookkeepers, while the owner took the decisions. In the court's words, his knowledge as an accountant did not elevate him to an active participant in the business.
Recording what a client has done is not doing it.
4. What about auditors?
The same principle applies, and the leading case on it concerned an auditor.
In Powertech Industries v Mayberry 1996 (2) SA 742 (W), a creditor tried to hold a company's statutory auditor liable under section 424. The court held that an auditor may well make himself a party to the company's conduct, but not by accident. It would require conduct designed to help the company achieve its ends. In a word, collusion. That requires intention.
The judgment in our clients' matter applied that reasoning to an accountant who reviewed and compiled financial statements. An honest professional who reports what happened is not colluding in it.
5. Is the position different for directors?
Very different, and every accountant who also sits on a client's board should know it.
A director has a positive duty to protect the company's affairs. That means a director can be a party to reckless trading without lifting a finger, simply by standing by while it happens. An outside adviser carries no such duty and must have taken some active step before liability can follow.
If you hold a directorship in a client company, you are judged as a director, not as an accountant.
6. I am also a trustee of the trust that owns the client's business. Does that change anything?
It can. Every additional role brings you closer to the business.
In our clients' matter, the court drew a clear distinction between our client's work as an accountant and what he did as a trustee of the trust that held the membership in the close corporation. In the second capacity he signed documents and issued invoices on the close corporation's behalf, and the court treated that as a degree of active involvement.
Trustee, signatory, member's representative, director. Each hat is judged on its own. If you wear more than one, know which one you have on when you sign.
7. I operate a bank account for a client group, strictly on instruction. Am I exposed?
More than you might think. Acting on instruction is an explanation. It is not automatically a defence.
Operating an account is the kind of conduct a court may regard as taking part in a business, rather than merely recording it. In our clients' matter, the claim failed on that point for a different reason: the account belonged to a related company, not to the company whose debts were claimed.
If a client asks you to receive and pay out money on its behalf, think carefully before you agree, and put the terms in writing.
8. Must the liquidator prove that what I did caused the company's debts?
No, and that is what makes section 424 so serious.
Our courts have held that no causal link is required between the reckless or fraudulent conduct and the debts for which a person is held liable. The absence of a link is a factor in deciding what is fair, but it is not a defence on its own.
Because the remedy is punitive, the courts do not apply it lightly. The person alleging the conduct bears the onus of proving the facts on a balance of probabilities.
9. If I am found liable, is it for all the company's debts?
It can be. Section 424 allows a court to declare a person liable for all or any of the company's debts, as it directs. In practice, courts look at what the conduct cost the creditors.
In our clients' matter, the notice of motion asked for an order making them liable for all the debts of four entities. By the time of the hearing, that had come down to R5 013 500, the claimed value of the vehicles sold. Even that figure did not survive scrutiny. It did not match the bank reconciliation, and it ignored more than R3,8 million that appeared to have been paid back for the company's benefit. The court held that it could not have made an order in that amount even if liability had been established.
A claim that cannot be quantified properly cannot be granted. That is worth remembering when the first letter of demand arrives with a very large number in it.
10. What if the client was a close corporation rather than a company?
Then the claim lies under section 64 of the Close Corporations Act, not section 424 of the Companies Act.
The two are similar in philosophy, but section 64 goes further. It covers business carried on with gross negligence, recklessly or fraudulently. For an adviser to a close corporation, the bar for exposure is lower.
11. The liquidators had related entities collapsed into the company. Does that widen my exposure?
Not as far as liquidators may hope.
A court can disregard the separate personality of related entities and wind them up together with the company. That happened in our clients' matter. But section 424 asks about conduct in the business of the company whose debts are claimed.
The court held that the collapsing order operated from the date it was made. Before then, the related entities ran their own businesses. Conduct in their business was not conduct in the company's business, and the only debts the liquidators had proved were the company's. The court also left open whether section 424 can reach conduct in a close corporation's business after it has been collapsed into a company and indicated that the different statutory tests point against it.
12. The liquidators say the transactions I recorded were simulated. What does that mean for me?
A simulated transaction is one that is not what it pretends to be. A court disregards the form and gives effect to what the parties really intended.
Whether a transaction is simulated is a question of fact, and the parties' intentions are central to it. In our clients' matter, the liquidators argued in reply that the R1 sales were simulated. The court found no evidence that our clients regarded them as anything but genuine and noted that a simulation would have defeated the very purposes the sales were said to serve.
If you believed in good faith that you were dealing with a real transaction, that belief matters.
13. I have been summoned to a section 417 enquiry. What should I know?
Take advice before you testify, not after.
What you say at an enquiry can be used against you in later proceedings. It is admissible to prove what you said, and to cross-examine you. In our clients' matter, the liquidators relied heavily on our clients' own evidence at the enquiry.
What other witnesses say about you is different. Against you, it is hearsay, unless the same witness confirms it under oath in the later section 424 proceedings. In our clients' matter, the court struck out the parts of the liquidators' affidavit that relied on other witnesses' enquiry evidence, because no proper basis was given for admitting it.
14. The liquidators have brought an application against me. What happens if the facts are disputed?
On application, a court deciding final relief must accept the respondent's version wherever the facts are genuinely disputed, unless that version is so far-fetched it can be rejected on the papers.
Section 424 claims turn on who did what, and why. That makes them hard to prove on affidavit. In our clients' matter, the court could not reject our clients' account of their roles, and the application failed.
The court then had a choice: dismiss the application or refer it to trial. It dismissed it. The liquidators had the benefit of a lengthy enquiry, and should have foreseen the factual disputes, and asked for a referral only after argument, when the court raised it.
15. If the application is dismissed, can the liquidators simply start again?
In principle, yes. Dismissal of an application does not finally decide the dispute, and a claimant can still sue by way of action.
But time matters. A section 424 claim can prescribe (see Nampak Wiegand Glass (Pty) Ltd v Finlayson and Others (1074/2009) [2014] ZAWCHC 137 (8 September 2014)). In our clients' matter, the court noted that the application had been launched close to the anticipated prescription date, and that a fresh action may face a prescription defence. It made no finding on whether that defence would succeed.
16. What should I be doing now to protect myself?
Four things.
- Define your role in writing. An engagement letter that says you compile or review records supplied by management is the best evidence that you were not running the business.
- Be deliberate about extra roles. Trusteeships, signing powers and directorships each change how you will be judged.
- Keep your working papers. If you are ever asked what you knew and when, your file should answer.
- And when a client is in financial difficulty and starts moving assets, take advice early. That is when the line between recording a business and being party to it is easiest to cross.
The short version
- Section 424 can reach anyone, not only directors. But it reaches conduct, not titles.
- Knowing about a transaction is not being party to it. An adviser becomes a party by collusion, not by accident.
- Directors can be liable for standing by. Outside advisers must have taken an active step.
- Every extra role you take on, such as trustee, signatory or director, is judged on its own.
- Liability attaches to the business of the company whose debts are claimed.
- What you say at a section 417 enquiry can be used against you. Take advice first.
- Define your role in writing, keep your file, and take advice early when a client is in distress.
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 had been established against the respondents on the papers.
Contacted by liquidators? Do not respond to a section 424 demand, or attend a section 417 enquiry, without advice. Keep your engagement letters and working papers together and write down what your role was while it is fresh. Contact Johan Victor Attorneys & Litigators on 021 422 0369 or info@jvalaw.co.za