You-The Director

Lorette Terry
 November 07, 2014
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General


The Companies Act, 71 of 2008 has effectively increased the duties of directors (including prescribed officers and board committee members) and extensively extended accountability for their action which has been widely covered by various publications.

However, there are a couple of basic rules or principals to apply:

Personal Interest – s75
In all guides to the new Act ‘transparency’ is the buzz word. This also applies to the personal interest of the directors. The Act sets out procedures that are required to be followed for a director to disclose any financial interests.

Standards of directors conduct – s76
A director of the company:
When acting in that capacity, must exercise the powers and perform the functions of director:

  • In good faith and for a proper purpose;
  • In the best interests of the company;
  • With the degree of care, skill and diligence that may reasonably be expected of a person;
  • Not use the position of director, or any information obtained while acting in the capacity of a director;
    • To gain an advantage for himself or any person other than the company or a wholly-owned subsidiary of the company;
    • To knowingly cause harm to the company or a subsidiary of the company.


Liability of directors and prescribed officers – s77
Although, the director’s liabilities as set out in the old Act will still apply, the new Act has added to this and stated that directors will also be liable for:

  • Any losses and damages resulting from a breach of a director’s fiduciary duties;
  • unauthorised trading on behalf of a company or taking part in reckless trading;
  • being party to acts/omissions which defraud creditors, employees or, shareholders as well as other fraudulent acts;
  • signing/approving false or misleading financial statements or prospectus;
  • failing to vote against certain prohibited acts.


Section 77 includes a comprehensive list of acts or omissions which could give rise to liability.

In addition, directors could also be liable to third parties, for example to shareholders for fraudulent and gross negligence acts or to any third person who has suffered loss by virtue of the directors breaching the Companies Act.

Test yourself
The Companies Act, 71 of 2008 includes the “business judgment test” which effectively provides that if the director has taken reasonable steps to be informed, has no material financial interest (or disclosed such financial interest) and has a rational basis to believe the decision was in the best interests of the company, the director will not be liable for a breach of duty, unless the director acted in bad faith or for an improper purpose.

This is a short guideline only. In many ways, the Companies Act just codifies in law what most people regard as basic ethics and common sense. If your habit is to act in good faith and with care, you're unlikely to have any problems. But any time you're in doubt, seek advice. It is always better to know what you're getting into.

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