The rewarding and prestigious benefit that generally comes out of holding numerous executive and non-executive directorships is fast becoming a gain which directors will seek to avoid as it contributes to increased vulnerability on the part of directors who do not have the requisite experience or time to devote to their fiduciary obligations to companies on whose boards they participate.

There is no distinction between the liability of executive and non-executive directors.

South African common law has always imposed on directors a separate and distinct fiduciary duty to the company. In this fiduciary capacity, a director assumes two roles, as an “agent” acting on behalf of the company, and as a trustee who controls company assets.

 

The new Company Act further provides that directors have a fiduciary duty to exercise their powers in good faith and in the best interest of the company. They may not make a secret profit or otherwise place themselves in a position where their fiduciary duties conflict with their personal interests.  

In addition to the requirement that a director must always act in good faith, the degree of care and skill required is determined objectively by considering how a reasonable person with similar knowledge and experience would have acted, and then comparing this to the director’s actions.

Though the interpretation of “good faith” under the new Companies Act as not yet been tested by our Courts, it is likely that should need arise, an interpretation will be drawn from previous case law under the old Act.  The Supreme Court of Appeal’s decision in the Da Silva case illustrates how the Courts are likely to deal with director’s incurring personal liability. In this case the Supreme Court followed the general approach taken by the English and South African Courts in their decisions. it was held that the key elements that will detract a director’s liability are the “degree of care and skill” and “good faith” judged jointly.

The Act in refers to a director acting in “Good faith and for a proper purpose”. That is, a director expected to act in a heartfelt and trusted manner towards his company. He should use his position honestly to upgrade his company. He also expected to act as a reasonable person who acts in utmost good faith. In other words, he should avoid any bad faith to his company. Keep the faith is the rule of the game. He should also keep his position for appropriate tasks that will enrich his company and be a potential contestant with other competitive companies.

Each case is considered individually taking into account the nature of the business and the director’s specific obligations and actions. As indicated earlier, no distinction is made between executive and non-executive directors.