Directors’ duties and liabilities

Recent publicity regarding the removal of the chief executive officers of Escom, Armscor and Athletics South Africa (ASA) once again placed the duties and liabilities of company directors in the spotlight.

The overriding duty of any director is to always act in the best interest of the company. Directors have three main duties arising from their relationship with the company as individuals, viz.:

• a duty of care
• a fiduciary duty
• a duty to act within their powers and authority.

A duty of care includes the requirement to exhibit the degree of care, diligence and skill that may reasonably be expected from individuals with their knowledge and experience. It includes spending sufficient time executing their tasks as directors, understanding the company’s business, familiarising themselves with the financial, social and political environment, making informed decisions and diligently preparing for board meetings.

The fiduciary duty is the requirement to act in good faith and in the company’s best interest. It includes acting independently, avoiding and declaring any conflict of interest, diligently executing all actions delegated to directors, maintaining confidentiality regarding information, respecting the privilege a director has and always acting legally and with honesty and integrity.

The duty to act within their powers and authority includes acting on behalf of the company only to the extent permitted by the powers and authority conferred upon directors by law, company statutes, shareholders and their fellow directors.

Failure by directors to fulfill their duties in any respect may represent grounds for removal and leave them open to civil or even criminal proceedings. In each case the extent of the liability will be dependent on the nature and extent of the breach of duty and the loss or damage caused by it. It may include:

• accountability to the company for any improper gains made,
• indemnify the company for any loss or damage incurred by it,
• personal liability to third parties acting in good faith,
• a fine or imprisonment.

For more information, contact Tenk Loubser at tenk@exceed.co.za or on tel. 021 808 7220.