DIRECTORS AND “DELINQUENCY”: ANOTHER RISK

Here’s another warning to all company directors – the new Companies Act, in force now for just over a year, has greatly increased your risks and obligations.

One danger is being declared a “delinquent director” – which in the case of serious contraventions can debar you for life from holding any directorship or senior management position.  Even a less serious transgression could result in a lengthy disqualification of at least 7 years.  That’s in addition to possible civil liability for any losses incurred, and even possibly criminal prosecution.

Critically, in some circumstances a failure to act correctly need not be intentional.  Negligence is enough in some cases to land a director in serious trouble if, that is, a court considers it to be “gross” negligence.

The risk is real – a delinquency order was granted recently by the High Court against a company director, on the application of the other director, the Court finding that the delinquent director was guilty of conduct that “fell short of the standard expected of a director …… to such an extent that it amounts to wilful misconduct, breach of trust and a gross abuse of his position as a director”.  Specifically –

  1. He allowed monies destined for the company (two VAT refunds totalling R61m) to be paid to another enterprise, to the company’s detriment
  2. He failed to detect a R39m VAT fraud on SARS based on fictitious tax invoices (which failure, said the Court, amounted to “gross negligence”)
  3. He failed to alert his co-director and co-shareholder to the above
  4. He failed to repay the R39m to SARS on detection of the fraud

The delinquent director (who has reportedly been refused leave to appeal the order) now also faces a R22m claim from the company, together with threats of a further R136m claim (the total amount which SARS is now claiming from the company).   

Note that a delinquency declaration (and its slightly less serious cousin, the “probation order”) can be applied for by any interested parties such as fellow directors, shareholders, employees or trade unions.  And pretty much any form of serious misconduct or breach of trust, even if totally inadvertent, could risk such an application – so tread with care!

EMPLOYERS, EMPLOYEES:  NEW EARNINGS THRESHOLDS 1 JULY

Overtime limits and pay, working hours regulation, Sunday work, meal interval regulation – these are some of the protections and benefits in terms of the Basic Conditions of Employment Act (BCEA) which don’t apply to employees whose earnings exceed a specified threshold.

From 1 July this threshold increases to R183,008 p.a. (from R172,000) – but note that some of these benefits don’t apply to certain classes of employee (senior management, some sales staff, and employees working less than 24 hours a month), nor in certain circumstances – take advice in need. 

RIOT WRECKAGE – SUE THE ORGANISERS!

The Constitutional Court has confirmed a trade union’s liability for riot damage caused when a strike-related protest march ‘degenerated into chaos’, causing some R1,5m worth of damage to vehicles and shops along the route.

So if you are unlucky enough to suffer any loss or damage from a riot arising from a “gathering” (defined below) take advice on whether you have a damages claim against the organisers (of course the rioters themselves will generally be less likely to be able to settle your claim). 

Note –

  1. A “gathering” here refers, in broad terms, to any public “assembly, concourse or procession” of more than 15 people, convened to express support or criticism of individuals or organisations (the full definition is complex – take advice in doubt). 
  2. We all have an important Constitutional right “to assemble, to demonstrate, to picket and to present petitions” – but only “peacefully and unarmed”. 
  3. It isn’t just trade unions who risk liability here – “every organisation on behalf of or under the auspices of which that gathering was held, or, if not so held, the convener” is jointly and severally liable for the riot damage.  So your claim could lie against any organiser/s of such a gathering.
  4. The organiser/s can avoid liability via one of several possible defences – for example by showing that the act or omission leading to the damage “was not reasonably foreseeable” and that it “took all reasonable steps within …… its power to prevent the act or omission in question”.   Any person or organisation planning any “gathering” should take heed accordingly.