In sharp contrast to the non-profit rule is the common law corporate opportunity doctrine which finds its application in South African company law in instances where a director misappropriates and exploits for himself, an economic opportunity of the company. Such an opportunity is said to be a ‘corporate opportunity’ or one which is the ‘property’ of the company (Da Silva v CH Chemicals (Pty) Ltd 2008 (6) SA 620 (SCA) 627 para 18).
A director is under a duty to acquire an opportunity for the company in the following instances: (i) when he has been given, expressly or impliedly, a mandate to acquire an opportunity for the company; (ii) when the company is reliant upon him to acquire opportunities for it; and (iii) is continuously under a duty to not appropriate any contract, information or other opportunity rightly belonging to the company.
This involves actively pursuing activities that fall within the affected company’s existing, or prospective, business undertakings, or which are related to the operations of the company within its scope of business.
Where a conflict of interests between the company and an opportunity taken exists, liability will ensue and result in the transaction being disregarded as that of the director and treated as if the transaction was concluded by the company. Alternatively, the director will have to expel any profits made from the unjustified transaction.
Although there is no all-encompassing definition of a corporate opportunity – simply put, a corporate opportunity is seen in law as a corporate asset of the company, which can take the form of a corporeal and/or incorporeal asset. It follows that the rule applies not only to corporate property or assets, but also to corporate confidential information (Boardman v Philips 1996 3 All ER 721 (HL)).
The aforementioned common law principles developed by the Courts continue to be relevant to the statutory standards of directors’ conduct in terms of section 77(2) of the Companies Act 71 of 2008 (“Act”) which provides that a director has a duty to avoid any personal benefit and self-dealing he might be tempted to engage in.
The section further provides, inter alia, that a director cannot use his standing as director, or any information obtained while acting in the capacity as a director to: (i) obtain any advantage for a person other than the company, or any of its subsidiaries; or (ii) knowingly cause harm to the company, or any of its subsidiaries.
Section 78(2) of the Act provides that any memorandum of incorporation, resolution or agreement purporting to negate or limit the legal liability of a director arising from the aforementioned misconduct will be regarded as void. Furthermore, 78(5) of the Act provides that the memorandum of incorporation cannot indemnify any liability arising out of willful misconduct or breach of trust on the part of the director.
The corporate opportunity rule forms part of a director’s fiduciary duties of fidelity and loyalty to the company. Engaging in the aforementioned conduct will result in a breach of fiduciary duties whereby a director will have no scope to limit his liability for such a breach and will be personally liable to the affected company.