MLAW 211 BUSINESS

BREW

Derek Alexander
Alexander13derek@gmail.com

Number of pages: 2
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In terms of the definition in s 1 of the Companies Act, 2008, a director is a member of the
board of a company as contemplated in s 66, or an alternate director. Section 66(1) provides
that the business and affairs of a company must be managed by or under the direction of its
board, which has the authority to exercise all of the powers and perform any of the functions
of the company, except to the extent that the 2008 Act or the company’s Memorandum of
Incorporation provides otherwise[ CITATION Ann19 \l 1033 ].

The business judgment rule entails that a director should note below held liable for decisions
that lead to undesirable results where such decisions were made in good faith, with care and
on an informed basis and which the director believed were in the interest of the company.
Thus, the business judgment rule represents a safe harbor for director whose actions or
decisions pass a bona fida assessment that he or she acted rationally when coming to the
decisions or performing the action.
Arguments against the introduction of the business judgment rule or the following:
 It could result in accepting a standard of conduct that is below an acceptable
standard that ought to be required of directors.
 The exact content of the business judgment rule is difficult to define and the
difficulty in the country codification thereof is evident in a various attempts
undertaken in the United States of America.

As to board composition King III at the recommendation that they should ideally be a
majority of non-executive independent directors, because this reduces the possibility of
conflicts of interest.
Like Liaan Kretzschmar the financial director said in the interview he alone can not make a
big decision he also needs to consult other directors and shareholders of the company to
make sure it is the best decision.

In King IV principle seven of its body of principles for good corporate governance stipulates
that the board should comprise the appropriate balance of knowledge, skill, experience,
diversity and independence for it to discharge its governance role and responsibilities
objectively and effectively.

In terms of King IV the functions of the board of directors include the following:
 To give strategic direction to the company;
 To approve policy and planning that gives effect to the direction so provided;
 To oversee and monitor the implementation and execution by management; and
 To ensure accountability for organizational performance by means of, among others,
mechanisms reporting and disclosure.

The Companies Act 2008 as well as King IV endorses a unitary board structure. This means
that a two tier structure is not recommended and that is a company should have a single
board of directors consisting of both executives and non-executive directors sitting and
making decisions together at the same meeting.

Directors should know there duties and liabilities. Directors must also comply with the duties
imposed in terms of statutes, including the Companies Act, 2008. The Company's Act 1973
did not contain clear rules regarding the duties and liabilities of directors these matters were
largely left to common law. In an attempt to create certainty certain duties of directors have
been partially codified in the 2008 Act. Section 76 of the Companies Act 2008 introduces
new statutory law, entitled ‘Standards of directors conduct’ in the form of a partially codified
regime of directors duties which includes fiduciary duty and a duty of reasonable care
[ CITATION Ann19 \l 1033 ].
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Liability of directors:
In terms of section 77 of the Companies Act, 2008, the company may recover loss, damage
or cost sustained by the company from a director under the following circumstances:
 In terms of the principles of common law relating to bridge offer fiduciary duty.
 In accordance with the principles of the common law relating to delict for breach of
the duty to act with the required degree of care, skill and diligence, or any provision
of the act not mentioned in section 77.
 Where our director acted in the name of the company or signed anything on behalf of
the company while the director knew that he or she lacked the necessary authority
 Where the director is carrying on of the business of the company knowing that it was
being conducted recklessly in contravention of section 22(1).
 Where the directors signed, consented to, or authorized, the publication of any
financial statements that were false or misleading in material respect.

A common law duties of directors have been partially codified in the 2008 act however a
statutory defense is now open to directors in the form of the business judgment based which
directors may use to prove that they have not acted in breach of their duties.
The director will be jointly and severely liable with any other person who is or may be held
liable for the same act[ CITATION Ann19 \l 1033 ].

A director must act in the best interest of the company and may not use information obtained
as a director for personal benefit. A director must communicate to the board any relevant
information that comes to his or her attention.

The Companies Act 2008 provides that a company may recover damages from a director in
various circumstances where the director has acted in breach of the act the memorandum of
incorporation or his or her common law duties. A company is entitled to take out indemnity
insurance to protect a director against certain liabilities or expenses, but this does not
include the bridge of fiduciary duty or certain other breaches.

If a person is ineligible, he or she is absolutely prohibited from becoming a director of a

company. A court has a discretion to allow a disqualified person to become a director.
A director may be removed by shareholders, and in some circumstances by the board of
directors[ CITATION Ann19 \l 1033 ].