Fiduciary Duties of Directors and Trustees in Under 3 Minutes
Are you a newly appointed company director or trustee? Here’s what you need to know in less than 3 minutes.
Overview: The Duties, Responsibilities and Liabilities of Directors and Trustees in South Africa
Being appointed as a trustee or a company director in South Africa carries many obligations and legal responsibilities. Failure to uphold the regulations that govern directorship and trusteeship can result in you being held personally liable – and prosecuted accordingly.
This article provides an overview of the duties, responsibilities and liabilities of directors and trustees in South Africa. It is by no means exhaustive; we strongly recommend that you familiarise yourself with the Acts that lay out the rules for either position.
What Are The Duties And Responsibilities Of A Director?
The legal responsibilities of a company director in South Africa are set out in the Companies Act No. 71 of 2008. For ease of reading, we will refer to it as “the Companies Act”.
Section 66 of the Act states that the business and its affairs must be managed or directed by its board of directors, which is authorised to exercise all of the powers and perform all of the functions of the company—except where the Companies Act or the company’s Memorandum of Incorporation (MOI) provide otherwise.
A key feature of the Companies Act is that it emphasises the responsibility and accountability of directors—and even prescribes a codified standard of conduct.
Section 76 of the Companies Act gives directors a fiduciary duty to act in the best interest of the company (as a legal entity).
Their decisions—and exercising of their powers—must always serve to benefit the company. They may not use their powers or make decisions to benefit any individual, or group [of shareholders], regardless of their shareholding.
Personal Liabilities of Directors under the Companies Act
The company is bound by the decisions of its directors. A transgression on any of their legal obligations under the Companies Act can result in loss, costs, physical and reputational damages. As such, a director may be held personally liable for these consequences if found to be in breach of their fiduciary duty to act with care, skill and diligence.
Indemnifying a Director’s Personal Liability according To the Companies Act of South Africa
A company is entitled to take out indemnity insurance to protect a director unless the director is convicted of an offence. The company may also indemnify itself against expenses advanced to a director in terms of such indemnity and accordingly in terms of Section 78 of the Companies Act. However, the companies act explicitly states in which situations identification is not allowed.
What Are The Duties And Responsibilities Of A Trustee?
The principal statute that governs South African trust law is the Trust Property Control Act No. 57 of 1988. For the purpose of this article, we will call it the “TPCA”. The duties of trustees are subject to the provisions of the TPCA, common law and the trust deed.
Like a company director, a trustee has a fiduciary duty to act “with the care, diligence and skill which can reasonably be expected of a person who manages the affairs of another“.
Trustees act together for and on behalf of the trust and its assets in the best interest of all the beneficiaries. This is, of course, in line with the provisions of the Trust Deed and the TPCA.
For this reason, trustees should fully comprehend the contents of the trust deed, which would usually specify the powers of the trustees and the intent for the management of the trust and its assets.
Management of Trust Assets
Upon accepting trusteeship, the trustee must take control of the trust assets. In the case of an ownership trust, immovable property must be registered in the name of the trustees of the trust. With ‘bewind’ trusts, the immovable assets are registered in the beneficiaries’ names (but placed in the trustees’ control).
Movable property must be adequately secured and insured—a critical point. Investments and private company shares are also included in the case of a testimony trusts.
Proper record-keeping of inventory and managerial accounts are paramount. Trustees must open a bank account in the name of the trust and keep statutory accounting records of all transactions.
Can a trustee be held personally, financially liable?
Yes. In fact, trustee personal liability is more grievous than that of directors.
Where a company may indemnify a director of personal liability, any attempt to exempt a Trustee from liability for negligence is void. Such a provision written into a trust deed will not stand.
A trustee in breach of their fiduciary duties will be liable to the trust for monetary loss suffered by the trust.
The Good News: You’re Not Alone
Understanding and adhering to the intricacies of trust laws can be confounding. Fortunately, most trust deeds allow trustees to consult professional accountants and attorneys. Such guidance is invaluable when it comes to decision-making. Qualified Tax Practitioners and Accountants are well versed in tax and company law, while lawyers can assist with conveyancing and legal agreements.
As a director or trustee, you shoulder great responsibility, let us help carry the load. Chat with one of our expert consultants.