Complying with Changes in Legislation

Liability of directors and prescribed officers (Section 77)

 A director may be held liable in accordance with the principles of the common law relating to:

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  Breach of a fiduciary duty, for any loss, damages or costs sustained by the company as a consequence of any breach by the director of a duty; or
  
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  Delict for any loss, damages or costs sustained by the company as a consequence of any breach by the director of any provision of this Act and the MOI.
  

A director is liable for any loss, damages or costs sustained by the company as a direct or indirect consequence of the director having:

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  Acted in the name of the company, signed anything on behalf of the company, or purported to bind the company or authorise the taking of any action by, or on behalf of the company, despite knowing that the director lacked the authority to do so;
  
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  Acquiesced in the carrying on of the company’s business despite knowing that it was being conducted in a manner prohibited by section 22(1);
  
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  Been a party to an act or omission by the company despite knowing that the act or omission was calculated to defraud a creditor, employee or shareholder of the company, or had another fraudulent purpose;
  
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  Signed, consented to, or authorised, the publication of:
  
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    any financial statements that were false or misleading in a material respect; or
    
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    a prospectus, or a written statement, that contained an ‘untrue statement or a statement to the effect that a person had consented to be a director of the company, when no such consent had been given,
    
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  Been present at a meeting, or participated in the making of a decision, and failed to vote against:
  
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    the issuing of any unauthorised shares;
    
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    the issuing of any unauthorised securities;
    
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    the granting of unauthorised options to any person;
    
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    the provision of financial assistance to any person for the acquisition of securities of the company, despite knowing that the provision of financial assistance was inconsistent with the provisions in the MOI;
    
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    the provision of financial assistance to a director, despite knowing that the provision of financial assistance was inconsistent with the provisions in the MOI;
    
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    a resolution approving a distribution, despite knowing that the company does not satisfy the solvency and liquidity test; and
    
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     the acquisition by the company of any of its shares, or the shares of its holding company, despite knowing that the acquisition was contrary to section 46 or 48; or
    
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    an allotment by the company, despite knowing that the allotment was contrary to any provision of Chapter 4.
    

The company or any director who has been or may be held liable may apply to a court for an order setting aside the decision of the board.

The liability of a person is joint and several with any other person who is, or may be held liable for the same act.

Proceedings to recover any loss, damages or costs for which a person is, or may be held liable may not be commenced more than three years after the act or omission that gave rise to that liability.

Any person who would be liable is jointly and severally liable with all other such persons to pay the costs of all parties in the court , unless the proceedings are abandoned and to restore to the company any amount improperly paid by the company as a consequence of the impugned act.

In any proceedings against a director, other than for willful misconduct or willful breach of trust, the court may relieve the director, either wholly or partly, from any liability, if it appears that the director has acted honestly and reasonably.

Indemnification and directors’ insurance (Section 78)

Any provision of an agreement, the MOI, rules of or a resolution is void to the extent that it directly or indirectly purports to relieve a director of a liability or negate, limit or restrict any legal consequences arising from an act or omission that constitutes wilful misconduct or wilful breach of trust on the part of the director.

A company may not directly or indirectly pay any fine that may be imposed on the director who has been convicted of an offence in terms of any national legislation.

Except to the extent that the MOI provides otherwise, the company:

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  May advance expenses to a director to defend litigation in any proceedings arising out of the director’s service to the company; and
  
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  May directly or indirectly indemnify a director for expenses if the proceedings are abandoned or exculpate the director; or arise in respect of any liability for which the company may indemnify the director.
  

A company may not indemnify a director in respect of any liability arising from wilful misconduct, or wilful breach of trust on the part of the director.

Except to the extent that the MOI of a company provides otherwise, a company may purchase insurance to protect a director against any liability or expenses or the company against any expenses that the company is permitted to advance or for which the company is permitted to indemnify.

Financial assistance for subscription of securities (Section 44)

To the extent that the MOI provides otherwise, the board may authorise the company to provide financial assistance by way of a loan, guarantee, the provision of security or otherwise to any person for the purpose of, or in connection with, the subscription of any option, or any securities, issued or to be issued by the company or a related or inter-related company, or for the purchase of any securities of the company or a related or inter-related company.

Despite any provision of the MOI, the board may not authorise any financial assistance, unless:

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  The particular provision of financial assistance is:
  
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     pursuant to an employee share scheme; or
    
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    pursuant to a special resolution of the shareholders, adopted within the previous two years, which approved such assistance either for the specific recipient, or generally for a category of potential recipients, and the specific recipient falls within that category; and
    
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  The board is satisfied that:
  
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     immediately after providing the financial assistance, the company would satisfy the solvency and liquidity test; and
    
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    the terms under which the financial assistance is proposed to be given are fair and reasonable to the company.