Is directors’ liability under the Companies Act of 2008 a potentially dangerous trap in comparison to other jurisdictions?

• Author: Horney, J.
• DOI: https://doi.org/10.47348/JCCL/V8/i1a4
• Published date: 10 November 2022
• Date: 10 November 2022
• Citation: (2022) 8(1) JCCL&P 50
• Pages: 50-66

https://doi.org/10.47348/JCCL/V8/i1a4

50

IS DIRECTORS’ LIABILITY UNDER

THE COMPANIES ACT OF 2008

A POTENTIALLY DANGEROUS

TRAP IN COMPARISON TO OTHER

JURISDICTIONS?

JOSHUA HORNEY*

Candidate Attorney, Macgregor Erasmus Attorneys

ABSTRACT

Company law jurisprudence is still emerging in South Africa,

especially with the birth of the comprehensive Companies Act 71

of 2008. Academics have focused on directorial duties, with harsh

criticism on the shoulders of the legislature. This piece examines the

role of non-executive directors specifically but directors holistically

under South African law to potentially illustrate how red tape and

compliance are strangling this role. Arriving at this conclusion,

directorial duties under the common law and the Act are compared

and scrutinised. In addition, directorial protective instruments are

tested to analyse whether the Act has sufficiently protected directors

enough to allow for entrepreneurship and risk-taking but also to

hold overstepping directors accountable for extensive breaches of

director duties.

Keywords: director liability, exculpation, indemnity, duty of care,

fiduciary duties, non-executive director

I INTRODUCTION

South Africa’s route to sustainable economic progression necessitates

a robust legal structure for the governance of its businesses. This

structure not only accommodates but actively supports the ongoing

development of the diverse and equitable political system South Africa

has and respects its distinct social needs. This kind of responsibility

places a heavy burden on directors, who ordinarily are appointed to

* BA LAW (Wits), LLB (Wits), LLM (In progress at Wits).

(2022) 8(1) JCCL&P 50

© Juta and Company (Pty) Ltd

51

IS DIRECTORS’ LIABILITY UNDER THE COMPANIES ACT OF 2008

A POTENTIALLY DANGEROUS TRAP?

https://doi.org/10.47348/JCCL/V8/i1a4

make daily business reporting and decisions and take business risks

on behalf of the company.1

In a modern age where corporate responsibility and social

requirements are, rightfully so, in the public eye, there has been

an increase in penalties and other sanctions for violations of legal

compliance.2 Accordingly, there is a rising propensity to seek

remedies against directors and officers to compensate for the above-

mentioned violations. This is usually based on a breach of fiduciary

duties and duties of care, skill and diligence. The Companies Act 71

of 2008 (2008 Companies Act) codified many common-law aspects

of these duties, something this article examines.

The role of director in South Africa has therefore seen significant

change since the enactment of the Companies Act in 2008. This

change is what will be examined, scrutinised and commented on

against the backdrop of other jurisdictions with which South Africa

shares a company law heritage. Section 5(2) of the Companies Act

provides that, to the extent appropriate, a court interpreting or

applying the provisions of the 2008 Companies Act may consider

foreign company law. 3 This article examines the meaning of ‘fiduciary’

in the greater context of directors’ liability. The application of duties

of care, skill and diligence is compared to other jurisdictions hoping

to discover the best mode of application for directors. Statutorily

enacted protective instruments in the United States will be compared

to local protection of directors. This article concludes with comments

on the future of directors’ liability in South Africa.

II LIABILITY OF EXECUTIVE AND NON-EXECUTIVE

DIRECTORS

South African company law provides for a unitary board structure,

which commends management and control in the hands of the board

of directors, who are conferred with universal powers. Section 66(1)4

of the 2008 Companies Act provides that the business and affairs

of a company must be managed by or under the discretion of the

board. The board, in turn, has the authority to exercise all the powers

and perform any functions of the company, except to the extent the

1 F H I Cassim, M F Cassim, R Jooste, J Shev & Yeats J Contemporary Company Law 3

ed (2021) at 396.

2 M Nietsch ‘Corporate Illegal Conduct and Directors’ Liability: An Approach to

Personal Accountability for Violations of Corporate Legal Compliance’ (2018) 18

Journal of Corporate Law Studies 151.

3 Section 5(2) of the 2008 Companies Act.

4 Section 66(1).

© Juta and Company (Pty) Ltd