Asked by the Customer on 22-02-2022 14:52:03
Question posted in the General Law category relating to Gauteng

I am assisting a friend of me who is questioning the validity of the members loan account in a closed corporation of which my friend is a member. The accountant who is also the majority shareholder refuses to provide details of how his members loan came about and stated that because the financial statements were signed by both the members, it certified the correctness of the his loan account at the time and as such my friend cannot asked how the member's loan account was calculated in the past few years

Further information relating to Question:

no

Posted by Att. Patrick on 22-02-2022 17:05:40

Hi there and thank you for your question, 

I am a practicing attorney based in South Africa and I will assist you with your question. Please feel free to ask as many follow-up questions in order to clarify your question. If you have a new question, you must please open a new thread. 

The accountant is, with respect, talking a lot of rubbish. There are many times when financial statements contain errors and are signed by members with the errors. The financial statements are then adjusted, years later, by the members. To argue that because you signed the financial statements MEANS or CERTIFIES that the information is 100% correct, is taking things way too literally. 

As a member of the close corporation, your friend is legally entitled to have access to all records of the close corporation, including all of the financial records and information used in order to prepare the financial statements. What he/she needs to do is to demand access to all of the financial records for the past couple of years. The financial statements should then indicate which years the loan account increased in, or decreased in. Your friend will then be able to focus in on what years of specific information he/she is looking for. 

Keep in mind that loan accounts increase/decrease if members borrow money from the close corporation, or lend money to the close corporation. So there should be corresponding entries in the close corporation's books for loan account and bank account. 

If the other member still refuses, then unfortunately your friend might need to approach Court for an order compelling the other member to hand over the information. But this should be a last resort. What your friend should do before Court is to get a lawyer to write a letter to the other member setting out the entitlement to the information and demanding the information within 7 days failing which your friend will go to court. 

If there is a part of the answer which you need more advice on, or clarity please continue in this same thread instead of opening a new question. 

Att. Patrick 

Please remember this is a dialog if you have follow-up questions please use the REPLY button and ask. If I did not answer the question you thought you were asking, please respond with the specific question you wanted to be answered. I hope you found my answer helpful, and you have finished asking your questions, please click on the GREEN ACCEPT button in order to mark the question as closed.

Considering that the member with the highest percentage shareholding is also the accountant for the closed corporation, are you aware of any court cases which dealt with a similar situation that I could read.

Posted by Att. Patrick on 23-02-2022 11:20:38

Unfortunately, I don't know of any cases that you can read, but I can point you to section 56 of the close corporation act which can assist. 

Section 56(4) which says: "The accounting records shall be kept at the place or places of business or at the registered office of the corporation and shall, wherever kept, be open at all reasonable times for inspection by any member."

This is what you need to focus on!