An aspect of the new Companies Act (No 71 of 2008) is that it records the common law duties and responsibilities of directors, which provides clarity in the performance of the obligations, says Rödl & Partner director Robert Thompson.

For instance, the office of a director has been extended to prescribe officers and members of committees. The Act prohibits directors from using their position to gain advantage for themselves or to knowingly cause harm to the company. The new Act also requires that, in performing their functions, directors must act in good faith, for a proper purpose and in the best interest of the company.

Further, directors are expected to conduct their activities with a degree of care, skill and diligence that may reasonably be expected of a person carrying out the same functions in relation to the company as those carried out by that director and having the general knowledge, skill and experience of that director.

Thompson says that the Act adopts the business purpose test, as has been seen in some countries internationally. Directors will be deemed to have satisfied their obligations if they have reasonably taken diligent steps to become informed about the matter, have no material personal financial interest in the subject matter of the decision, and have made a decision supported by a committee, employees or other professional consultants.

“Where directors act in contravention of their duties or in contravention of their memorandums of incorporation of the Act, they may become personally liable for any loss, damages or costs [incurred] by the company. This also applies to non-executive directors, as the Act makes no distinction between executive and nonexecutive directors,” he explains.

A company may advance expenses to a director or indemnify a director for expenses arising out of any legal proceedings concerning the directors’ service to the company. A company is entitled to insure these costs.

Thompson points out that the Act makes provision for directors being declared delinquent. As such, they cannot perform the duties of a director. Directors may be declared delinquent if they have grossly abused their position. A director may also be placed under probation orders, which may place them under a mentor and limit their powers to carry out their duties, and also perform community service. Probation would be granted if a director approved a distribution from a company where the solvency and liquidity test was not satisfied.

“The Act takes cognisance of the electronic age and allows directors and shareholders to conduct their meetings, including the passing of resolutions, by electronic communication,” he adds.

The Act also attempts to deal with the different requirements of different stakeholders. For instance, creditors and employees are given a significant role in business rescue proceedings, directors’ remuneration is required to be passed by a shareholder’s special resolution, and employees must be notified by the company of certain loans to directors.