DIRECTOR’S DUTIES: WHAT IS EXPECTED?

DIRECTOR’S DUTIES: WHAT IS EXPECTED?

The new Companies Act, 2008 (the Act), which came into effect on May 1, 2011, has to a certain extent codified the duties of directors and sets out these duties in order to achieve maximum accountability. As a director you need to be aware of your legal obligations and understand them.

Directors and prescribed officers. The duties imposed on a director also apply to “prescribed officers” of the business. You should, therefore, find out if you are a prescribed officer as you are subject to the same duties as the director, even though you have not been appointed as director.

Consent. If you are appointed or elected director of a company, you need to deliver your consent in writing.

Disqualification and ineligibility. The Act outlines a number of factors that would make you ineligible to stand as director. You will be ineligible if you are a juristic person (a company, a close corporation, a body corporate or a trust) or an un-emancipated minor, or if you don’t satisfy any qualification set out in the company’s Memorandum of Incorporation (MOI). Other grounds for disqualification include if:

>> A court has prohibited you from being a director,

>> You are an un-rehabilitated insolvent,

>> You are prohibited by any public regulation to be a director, if you have been removed from an office of trust, on the grounds of misconduct involving dishonesty,

>> You have been convicted and imprisoned without the option of a fine, or fined more than R1000, for theft, fraud, forgery or perjury,

>> You have been convicted and imprisoned without the option of a fine, or fined more than R1000, for an offence involving fraud, misrepresentation or dishonesty or in connection with the promotion, formation or management of a company, or

>> You have been convicted and imprisoned without the option of a fine, or fined more than R1000, for an offence under the Act, the Insolvency Act, 1936, the Close Corporations Act, 1984; the Competition Act, 1998, the Financial Intelligence Centre Act, 2001, the Securities Services Act, 2004 or Chapter 2 of the Prevention and Combating of Corrupt Activities Act, 2004.

If you serve as a director whilst being ineligible or disqualified, an application may be brought to court to declare you “delinquent”, which could see you being disqualified from being a director for your lifetime. The court may also place you under probation.

Memorandum of Incorporation. As a director, you are required to know and understand the provisions of the company’s MOI. You must understand your powers, duties and any limitations that can be imposed. A shareholder may have a claim for damages against you for gross negligence if you cause the company to fail to adhere to the provisions of the MOI. You may also incur personal liability for damages or loss if you enter into a transaction on behalf of the company without being authorised to do so.

Duties. The Act has codified the fact that directors must exercise their duties in good faith and in the best interests of the company. A director also has to act with a degree of care, skill and diligence that may reasonably be expected of a person carrying out the same functions and having the same general knowledge, skill and experience. You have complied with your duty to act in the best interest of the company and your duty to act with the required skill, care and diligence if:

>> You have taken reasonably diligent steps to become informed about the matter,

>> Either you have no material personal financial interest in the subject matter of the decision, and had no reasonable basis to know that any related person had a personal financial interest in the matter, or you have complied with the provisions of the Act with respect to disclosure of any interest and recused yourself from any board meeting, or

>> You made a decision or supported a board committee’s decision and you had a rational basis for believing and did believe that the decision was in the best interests of the company.

Avoid any conflict of interests between your duties to the company and your private interests. This means you may not use your position as a director or any information you obtained whilst acting as a director to gain an advantage for yourself or another person, and you must communicate to the board any such information that comes to your attention. You must also not knowingly cause harm to the company.

If you, or a family member, have a personal financial interest in a matter to be considered at a board meeting, the Act says you must adhere to a number of disclosure requirements. Failure to do this, may lead to a resolution and a transaction being void, and you being personally liable for losses and damages sustained by the company.

All companies must lodge annual returns with the CIPC (Companies and Intellectual Property Commission). Failure to do this may result in the company being deregistered. Non-submission of annual returns is a breach of your duties as a director and you may be held liable for any loss or damage arising from this breach.

Although you can delegate some of your authority as a director to a board committee, you will bear the ultimate responsibility for the decisions of that committee. Some decisions, such as the board complying with the solvency and liquidity test set out in the Act, may not be delegated and must be performed by the board.

Familiarise yourself with the current laws governing directors by reading a copy of the Act. If you breach your director duties, there could be serious consequences for the business and for you.

By: Pieter Walters