The Companies Act No. 71 of 2008 (“Act”) protects the interests of parties who have a vested interest in a company against the mismanagement thereof by regulating the conduct of a company and those acting on behalf of it. Directors, due to the influence they have over a company, are required to act with a degree of care, skill and diligence reasonably expected of a person carrying out the functions of a director.
Section 76 the Act sets out the standard of conduct specifically required of directors namely, to act in the best interests of the company, in good faith and for a proper purpose. The Act also prohibits a director from knowingly causing harm to the company, having any material personal financial interest in the subject matter of his decisions or using his position, or information gained from that position, to acquire a benefit for himself.
Should a director fail to comply with the provisions of section 76 of the Act, that director may be declared a delinquent director in terms of section 162 of the Act which may result in the director being placed on probation or prohibited from being a director for a certain period of time.