Contracting out of a Promoter’s Personal Liability under s 21(2) of the Companies Act 71 of 2008: A purposive and comparative analysis
Contracting out of a Promoter’s Personal Liability under s 21(2) of the Companies Act 71 of 2008: A purposive and comparative analysis
Authors: Etienne Olivier, Shane Hull & Amy Williams
ISSN: 1996-2185
Affiliations: Senior Lecturer, Faculty of Law, University of the Western Cape; Lecturer, Faculty of Law, University of the Western Cape; Candidate Legal Practitioner, Edward Nathan Sonnenbergs Inc. (ENSafrica)
Source: South African Mercantile Law Journal, Volume 37 Issue 1, 2025, p. 48 – 66
https://doi.org/10.47348/SAMLJ/v37/i1a3
Abstract
Section 21 of the Companies Act 71 of 2008 (the Act) allows a person (a promoter) to conclude a contract on behalf of a company that does not exist. Section 21(2) of the Act imposes personal liability on the promoter through a statutory warranty. The promoter is liable for the obligations arising from the pre-incorporation contract in the event that the company is never incorporated, or if it rejects the contract upon incorporation. However, it is unclear whether the Act allows for a promoter to contract out of his liability imposed by s 21(2) of the Act, as the section does not expressly address the issue. In this article, a purposive interpretation of the relevant section is conducted and the enforceability of exemption clauses are discussed to determine the correct interpretation of s 21(2) in respect of exemption clauses. It is submitted that the validity of a contractual clause excluding statutory liability will depend on the wording of the relevant statute and on the unique content and circumstances of the particular exemption clause. The article points out that the flexible nature of the public policy standard creates further uncertainty as to whether a contractual exemption clause will be valid or not. In respect of exemptions to a promoter’s liability under s 21(2) of the Act, it is argued that the anti-avoidance provision in s 6(1) of the Act, is not applicable to such clauses. Finally, the article argues that s 21(2) should be interpreted to allow for an exemption to the promoter’s liability. The article concludes by recommending some legislative amendment to promote legal certainty.
