Company Law

The Companies Act – Directors

By 14/04/2011 July 20th, 2013 No Comments

The Companies Act, No. 71 of 2008 has finally been signed into law. It is an almost complete re-draft of the existing 1973 Act, and it creates some fairly radical new law.

Companies are run by Boards of Directors who have in the past had a lot of latitude in what they could do. The new Act allows Directors to exercise virtually any power that the new Act and the Company’s Memorandum of Incorporation will allow. The Memorandum of Incorporation sets out the rights, duties and responsibilities of the shareholders, Directors and others – it is the new founding document of the company and replaces the former Articles and Memorandum of Association previously registered with the authorities.

 

The new Act has created more obligations and responsibilities on Directors than was previously the case, and Directors must now act in the best interests of the Company and its members and the sanction for acting incorrectly or dishonestly is severe.

 

There has never been any qualification laid down for anyone to be a Director of a company, and nowhere has any statute or regulation described the fiduciary duties of Directors. These have been developed in the common law over the years but in the new Act, there is specific mention of their duties under the heading “(s)tandards of directors duties” and some of the important ones are: –

 

  • A duty not to exceed their powers
  • A duty to promote the success of the company for the benefit of its members
  • A duty to exercise independent judgment
  • A duty to act in good faith
  • A duty not to use confidential information of the company for personal gain
  • A duty not to accept gifts from 3rd parties

 

The new Act provides for sanction where Directors are in breach of their common law fiduciary duties, and the specific standards set out in the new Act. These can be severe. For example, where a Director acts outside the power of his duties – i.e. enters into a contract for example that causes the company loss that Director attracts personal liability for the losses suffered by the company.

 

The new Act also attaches greater liability to the Directors where they have transgressed the bounds of their authority, or where they have been guilty of malfeasance in terms of the common law or the new Act itself. The company may also not directly or indirectly make payment of the costs or amounts payable by the Director. It may however assist by taking out insurance on the Directors and if the Director has been found blameless by a court – the company may advance expenses.

 

There are several types of Director provided for in the new Act. They are (inter alia) : –

 

  • Executive Directors
  • Non-Executive Directors
  • Independent Directors
  • Probation Directors
  • Ex – Officio Directors
  • Delinquent Directors

 

No Juristic Person may be a Director of a company. In terms of the definition, this includes a Trust (registered anywhere in the world), and a foreign company.

 

The distinguishing features of the new Directors are that their liability for actions are severe – even to the extent that non-executive directors can be held to account for the actions of the executive Directors. As is the case with Alternative Directors; they too attract personal liability where the other Directors commit transgressions under the new Act. Where any resolution or action by the Board or the company has the potential to create liability for any Director they may escape liability by expressly voting against any resolution or action and being able to prove that they did so by ensuring that the minutes correctly reflect their dissent. If they do not do so they could incur personal liability.

 

The concept of Delinquent Directors is also governed by the new Act. These are Directors are those who have previously abused their positions of trust and have grossly infringed their duties. They can be banned for a period of years from being Directors of companies. Delinquent Directors and those Directors who are under probation, can also be sent for training in the skills necessary to enable them to perform their duties properly, or be placed under the mentorship or direct supervision of another to enhance their expertise as Director.

 

Directors may also be disqualified from acting as such because they are unrehabilitated insolvents, dishonest, or have a criminal record. The Court can also disqualify Directors and prevent any person from becoming a Director.

 

The intent is quite clear in this new Companies Act. Directors may now treat the company and its wealth as their own personal fiefdom and the new Act prevails upon them to proceed cautiously, fairly and with the benefits of the company and its shareholders uppermost.

 

Caveat Director!

 

The penalties of transgressing the new Act are severe.

 

14 April 2011

 

Ian Mc Laren

Ian Mc Laren

Ian McLaren BA LLB (WITS) General Educated St Johns College, Houghton. BA LLB University of the Witwatersrand 1984 Founded McLarens Attorneys September 1986. Right of Appearance High Court, October 1996.ExpertiseLitigation, Labour Law, Commercial Law, Family Law, Pension and Provident Funds, Customs and Excise, Wills, Deceased Estates, Trusts, Commercial Agreements, Reviewing and Drafting Government Legislation, Information Technology.Committees/ TrustsLaw Society of South Africa Information Technology Committee. Trustee Verney College Educational TrustOtherTransvaal Provincial colours for Practical Shooting. Third degree Black Belt JKS Karate. Photographer and motor cyclist Lectured for Continuing Legal Education on Information Technology issues.