CGF ARTICLES, OPINIONS & EDITORIALS

Directors’ liability: Not that rosy (2012-06-29)

February 19, 2015  3994  3994   

Similarly, by accepting and holding a directorship or prescribed officer (collectively ‘company officers’) post; at first may seem quite grand and somewhat elevates a person’s self esteem, complimented by the awe of family, friends and business associates.  But in times with increased governance, and more litigious rules and regulations, there is little doubt that being appointed as a company officer in an organisation may no longer be as attractive to times gone by, particularly if the appointee lacks the knowledge and experience required for this ‘hard core’ post.  Moreover, with the introduction of the new Companies Act 71 of 2008 (the Act) and the provisions of the King Report on Governance for SA - 2009 (King III), additional areas surrounding the business and the organisation’s leadership will be scrutinized.  Where failure of sort has occurred, the company officers -- and even in some cases the organisation’s senior managers -- could be brought to book in their joint and several capacities

Notably, since the launch of the Act and the recommendations of King III,  organisations and their company officers have had to grapple with the meaning and importance of a set of statutory duties that are apparently in addition to, and not in substitution of, their existing common law duties.  There is a view that this step by the Legislature was intended to expand upon the duties of company officers and, consequently, the liabilities that attach to company officers for failure to comply with their duties.

And while aspects of common law have been codified in the Act, organisations are beginning to feel the burdens of leadership and the attached liabilities which are now more financially weighted, as opposed to criminally weighted as was the case with the previous Companies Act ’73.  Moreover, as organisations are now expected to produce an Integrated Report, many will find this a daunting task as this report must provide its stakeholders an unambiguous and honest view of the organisation in its entirety, including the performance of its leadership.  In many instances, those who fail in their fiduciary and statutory duties will cause damages of some sort; and these will be a lot more difficult to pass by than in previous times where the scrutiny of company officers was not as intense. Of all the sections in the Act where liability is attached to company officers; sections 22 (reckless trading), 66 (powers of the board) and 77 (liability of company officers) will most likely cause them many new hardships.  Notably, the provisions of section 66(10), discusses the fact that prescribed officers now share the same level of statutory duties and liabilities as those for directors.