Directors’ Duties in South Africa

>> Liabilities and Penalties in South Africa

Exercise your responsibilities carefully as the penalties for failure to do so can be severe. You may be personally liable for losses, damages and costs incurred by the entity as a consequence of a breach of any of your duties as a director. You may also personally liable for loss, damages or costs in, amongst others, the following instances:

  • Acting on behalf of the entity without the authority to do so.
  • Agreeing to carry on the entity’s business despite knowing that the entity was being conducted in a reckless, grossly negligent or fraudulent manner.
  • Being a party to an act or omission by the entity, despite knowing that the act or omission was calculated to defraud a creditor, employee or shareholder of the entity, or had another fraudulent purpose.
  • Signing or authorising the publication of financial statements, prospectuses or written statements that were false or misleading in a material respect.
  • Failing to vote against the following when present at a meeting:
    • the issuing of shares, securities or options which the director knew was contrary to the governing legislation
    • the granting of financial assistance which the director knew was contrary to governing legislation
    • the approving of an allotment by the entity or acquisition of its own shares which the director knew was contrary to governing legislation
  • You may also be personally liable for any damages or loss suffered by a third party as a result of the actions listed or contravention of the provisions in the governing legislation.

Most of these actions are offences which are punishable by a fine or imprisonment up to 10 years, or both.

However, be aware that generally directors will not be held liable for decisions taken by them where their decision:

  • was made in good faith, with care and on an informed basis; or
  • where the director had a rational basis for believing, and did believe, that the decision was in the best interests of the company.

The liability in terms of the Act is joint and several with any other person who is or may be held liable for the same act. A company cannot generally restrict a director’s liability for a breach of their fiduciary duties.

Either the breach of duty itself, or the imposition of one of the sanctions described above, may lead to disciplinary action being taken against you and/or limitations upon you being able to continue in your role

A company may recover losses, damages or costs sustained by the company from acts/omissions of the directors. A derivative action can be bought by a shareholder, a director or prescribed officer of the company or a related company, a registered trade union that represents employees of the company or another representative of employees of the company or if the person has been granted leave of the court to do so.

Limitation of liability

In terms of the Act, a company may indemnify a director in respect of any liability other than that arising from:

  • those circumstances as highlighted specifically by the Act
  • wilful misconduct or wilful breach of trust on the part of the director
  • a fine as a consequence of that director having been convicted of an offence, unless the conviction was based on strict liability

Delegation of authorities

You are empowered to delegate aspects of your authority to persons whom you believe to be reliable and competent in the functions performed.

The directors may appoint at any time, by power of attorney, any person to be the attorney(s) of the company for such purposes and with such powers, authority and discretions (however, not exceeding those vested in the directors) for such period and subject to any conditions the directors deem suitable.

Directors and officers (“D&O”) insurance

In South Africa a company is entitled to take out indemnity insurance to protect a director against any liability or expenses for which the company is permitted to indemnify a director.


Latest version updated 10th April 2018

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