In terms of the Companies Act, 1973 (“Old Act”) the powers of the directors of a company were limited only to those powers specially conferred on the directors in terms of the articles of association. Accordingly, under the Old Act, directors were unable to exercise any powers not specifically conferred on them in terms of the articles. In many instances, even where certain powers where allocated to the directors under the articles, the exercise of those powers were still subject to the approval of the members, whether by ordinary or special resolution . Accordingly, under the Old Act, of the two primary organs of a company (being the directors and the members in a general meeting) it was only the members in a general meeting that had certain inherent powers . As such, the directors of a company had no inherent powers to manage the business of a company. As with all other powers exercised by directors under the Old Act, the power to manage the business of a company was conferred on the directors through the articles .

This position has been radically altered by the New Act, 2008 (“New Act”) . In contrast to the Old Act, section 66(1) of the New Act specifically entrusts the conduct of the business and affairs of a company to its board of directors. Section 66(1) provides:

“The business and affairs of a company must be managed by or under the direction of its board, which has the authority to exercise all of the powers and perform any of the functions of the company, except to the extent that this Act or the company’s Memorandum of Incorporation provides otherwise”

Accordingly, by virtue of section 66(1), the directors of company now derive their power to manage the business of a company directly from statue and are no longer required to look to the articles for this power. The implication of section 66(1) is that, unless a company’s memorandum of incorporation provides otherwise, the directors are now empowered to exercise all powers and to do whatever is reasonably necessary for the carrying on and management of the business and affairs of a company on whose board they serve.

In order to enable the board to effectively exercise their newly found power with minimal involvement and interference from shareholders, the New Act also allocates certain other additional powers to the board, which, under the Old Act, were reserved for members sitting in a general meeting. These include the power to increase and decrease the number of authorised shares and the classifying or reclassifying of unissued shares , approving share issues and authorising share buybacks.

Our courts have previously held that inherent in the directors’ power to manage a company’s business as conferred under the articles is the power to stop the trading activities or other operations of a company however, the courts have held that this power does not extent to the power to bring an application for the winding up of a company. The courts have held that, in the absence of a provision to the contrary in the articles, that power cannot be exercised by directors. Importantly therefore, section 81(1)(d) of the New Act specifically gives directors a right to apply for the winding up of a company on certain limited grounds.

Although the directors have been given significantly more scope under the New Act to manage the business and affairs of a company, in doing so, the directors must comply with their fiduciary duties (which have now been codified into the New Act) and other duties under the New Act. Amongst other things, the New Act requires that directors exercise their powers and perform their functions in good faith, for a proper purpose, in the best interest of the company and with reasonable degree of care skill and diligence. Accordingly, directors are accountable to the company and the members in respect of their increased powers. Section 77 of the New Act lists the instances where directors may be held personally liable should they fail to comply with their duties and should such failure result in the company suffering loss or damage. In addition, under section 218(2) of the New Act, directors also face the risk of being personally liable to any person who suffers loss or damage as a result of their contravention of any provision of the New Act.

The conferment of the power to manage the business and affairs of the company on the directors is to be welcomed as it gives directors the necessary powers to effectively manage a company without unnecessary shareholder involvement and/or interference. However, in order to avoid being held personally liable, in exercising their newly found powers, directors must ensure strict compliance with the provisions of the New Act and, in particular, those provisions relating to the duties of directors.

Written by Martin Mota – Senior Associate – Corporate Commercial Department
Andre Visser was the supervising partner.

For more information contact:
Andre Visser – Adams & Adams
Telephone 012 432 6000

Future Public Relations
Megan Larter – PR Manager
Telephone 011 803 2040