Directors’ Duties in South Africa

>> Powers and Duties in South Africa

You must act within the powers imposed by the Act and the company’s Memorandum. The Memorandum governs how the company is to  be run, including the powers and responsibilities of directors.

Duties – skill, diligence and care

In exercising directors’ powers, you are required to exhibit ‘such a degree of skill as may reasonably be expected’ from a person with your knowledge and experience.

You must also exercise a degree of care in your actions as a company director. The test of an acceptable level of care is what a reasonable person would do in looking after their own affairs.

Duties – general

As a director, you must act in a way which you think is most likely to promote the success of the company. You need to consider a number of statutory factors relating to corporate requirements, including the long term consequences of your decisions, the company’s reputation and the interests of other stakeholders such as employees, customers and the community.

  • You must exercise the powers and perform the functions of director in: good faith and for their proper purpose
    • the best interests of the company
    • accordance with the degree of care, skill and diligence that might be expected of a person with similar knowledge and experience carrying out the same functions
  • You must also ensure that you exercise independent judgment when making decisions for and on behalf of the company.
  • You must not use your position to make private profits at the company’s expense.
  • You must work to avoid all abuse of your powers as a director ensuring you do not use your position as a director or any information obtained whilst acting in this capacity to either:
    • advantage yourself or any other person other than the company or wholly owned subsidiary of the company; and/or
    • knowingly cause harm, damage or loss to the company

Duties – other

There are many other areas of law that impose duties on directors and senior managers. Matters likely to be of particular relevance, depending upon the nature of the entity and its activities,  are set out below.

  • You must consider the solvency and liquidity test before the company can make payments to the shareholders or incur certain obligations. The test requires the board to consider both the:
    • factual solvency of the company (checking of the balance sheet to confirm whether the assets of the company exceed its liabilities)
    • commercial solvency of the company (considering whether the company will

be able to pay its debts over the following

12 months)

  • The board should consider business rescue proceedings or other turnaround mechanisms as soon as the company is in a financially precarious situation.
  • Any serious accidental injury or environmental breaches must be reported in accordance with company policy, if applicable. In addition the CEO is responsible for ensuring that the health and safety duties of the company are properly discharged. Duties for health and safety include:
    • providing and maintaining systems of work and machinery
    • taking reasonable steps to eliminate or mitigate any hazards or potential hazards
    • providing information, instructions, training and supervision as may be necessary to ensure, as far as reasonably practicable, the health and safety of employees
  • Like all employees, you must comply with AntiBribery and Corruption legislation, including the UK Bribery Act and the US Foreign Corrupt Practices Act, and must understand, follow and promote internal policies and procedures.
  • You must comply with all competition law and regulations. This could include price fixing, predatory pricing and collusive tendering and “abuses” by “dominant” firms (firms with a market share of 35% or more).
  • You must comply will all areas of tax law and regulations. Failure to do so could leave you personally liable for the tax debts of the company where you knowingly assisted in dissipating the assets of the company in order to obstruct the collection of a tax debt due by the company. Moreover, a director who controls, or is regularly involved in, the management of the overall financial affairs of the company could also be held personally liable for the tax debts of the company where that director was negligent or fraudulent in the payment of the tax debts of the Company.
  • Generally your corporate secretarial provider will maintain your statutory records but is there a duty on directors to ensure certain records are maintained while not necessarily within the premises/offices. For example, any documents, accounts, books, writing, records or other information that a company is required to keep in terms of the Act must be kept in written form, or other form or manner that allows that the information be converted into written form within a reasonable time and for a period of seven years, or any longer period of time specified in any other public regulation. Every company must maintain:
    • a copy of its Memorandum and any amendments or alterations to it, and any rules of the company
    • a record of its directors
    • copies of all reports presented at the annual general meeting, annual financial statements required by the Act and accounting records required by the Act
    • notice and minutes of all shareholders meetings including all resolutions adopted by them, any document that was made available by the company to the holders of securities in relation to each resolution
    • copies of any written communications sent generally by the company to all holders of any class of the company’s securities
    • minutes of all meetings and resolutions of directors, or directors’ committees, or the audit committee
    • a securities register
    • a record of its company secretaries and auditors

Data protection

The Protection of Personal Information (POPI) Act regulates data protection in South Africa and is set to come into force shortly. When the enactment date is published, companies in South Africa will have 12 months to bring their practices and processes in line with the requirements of POPI and its 8 conditions for lawful processing of personal information. In this regard you could be held liable for a fine or imprisonment, if you fail to adhere to an enforcement or information notice issued by the Information Regulator that will be established by POPI.

As a result of the updated legislation it is important that directors seek advice in relation  to data handling matters.


Latest version updated 10th April 2018

Country Breakdown

55.91

Million

Population

R

South African Rand

Currency

$ 294.8

Billion

GDP

1.22

Million

km2