Herbert Erking (Pty) Ltd v Nolan 1965 (2) PH 38 (T)

Herbert Erking (Pty) Ltd v Nolan 1965 (2) PH 38 (T)

Issue: Whether a company that has paid a dividend to its members under a mistaken belief that it had sufficient profits to do so is liable to recover the dividend from its members.

Facts:

Herbert Erking (Pty) Ltd (Erking), a company, paid a dividend to its members in the mistaken belief that it had sufficient profits to do so. In fact, Erking did not have sufficient profits to pay the dividend and it went into liquidation shortly after the dividend was paid.

The liquidator of Erking then sued the members of Erking to recover the dividend that had been paid to them. The members of Erking argued that they were not liable to return the dividend because they had received the dividend in good faith and that they had changed their position in reliance on the receipt of the dividend.

Held:

The Court held that the members of Erking were liable to return the dividend to the liquidator. The Court reasoned that the members of Erking had been unjustly enriched by the receipt of the dividend and that they were therefore liable to return the dividend, even though they had received the dividend in good faith and had changed their position in reliance on the receipt of the dividend.

The court also found that the members of Erking should have known that Erking did not have sufficient profits to pay the dividend.

Key Facts:

• A company paid a dividend to its members under a mistaken belief that it had sufficient profits to do so.
• In fact, the company did not have sufficient profits to pay the dividend and it went into liquidation shortly after the dividend was paid.
• The liquidator of the company sued the members of the company to recover the dividend that had been paid to them.
• The members of the company argued that they were not liable to return the dividend because they had received the dividend in good faith and that they had changed their position in reliance on the receipt of the dividend.

Reasons:

• The Court held that the members of the company were liable to return the dividend to the liquidator because the members of the company had been unjustly enriched by the receipt of the dividend and that they were therefore liable to return the dividend, even though they had received the dividend in good faith and had changed their position in reliance on the receipt of the dividend.
• The court also found that the members of the company should have known that the company did not have sufficient profits to pay the dividend.

Conclusion:

The Court's decision in Herbert Erking (Pty) Ltd v Nolan 1965 (2) PH 38 (T) is a significant case in South African law. The Court's decision clarified the law relating to the liability of company members to return dividends that have been paid to them under a mistaken belief that the company had sufficient profits to do so.