NOTE ON EXPOSURE OF DIRECTORS / FIDUCIARY DUTIES

1. This note serves the purpose of briefly summarising the duties of directors when

taking decisions for and on behalf of companies in terms of the Companies Act no 71

of 2008 (the “Act”).

2. In terms of the Act there are several pertinent provisions which apply to directors in

their decision making capacity. The overarching section 76 sets certain standards of

directors conduct; section 77 outlays the liability of directors for specific actions and

section 218 extends the scope of how and when directors can be held liable for their

actions.1

3. This note is not a comprehensive analysis of the duties and potential liability of

directors but merely an overview with the aim of informing CTICC’s board when

making certain decisions.

Section 76

4. Section 76 prescribes that a director of a company, when acting in that capacity, must

exercise their powers a) in good faith and for a proper purpose b) in the best interests

of the company and c) with the degree of care, skill and diligence that may reasonably

be expected of a person having the general knowledge, skill and experience of that

director.

5. As was stated by Scott JA in Da Silva v CH Chemicals (Pty) Ltd 2008 (6) SA 620
1
Please note that section 214 provides for criminal liability for certain fraudulent activities.
 (SCA) para 18 –

“[i]t is a well established rule of company law that directors have a fiduciary duty to

exercise their powers in good faith and in the best interests of the company.”

6. The following principles have evolved over time –

6.1. The ‘interests’, in this context, are only those of the company itself as a

corporate entity and those of its members as such as a body;

6.2. the duty of good faith entails only the honest exercise by the directors of their

judgment as to what is in the company's interests; and

6.3. “What is required is that the directors, having taken reasonably diligent steps

to become informed, should subjectively have believed that their decision was

in the best interests of the company and this belief must have had 'a rational

basis’.”2

Section 77

7. Section 77 prescribes that a director of a company is liable for any loss, damage or

cost sustained by the company as a direct or indirect consequence of the director

having a) acted without authority b) acquiesced in reckless / fraudulent trading c)

being party to an act that was calculated to defraud a creditor.

2
Visser Sitrus (Pty) Ltd v Goede Hoop Sitrus (Pty) Ltd and Others 2014 (5) SA 179 (WCC) para 74
8. Importantly the liability imposed by this section stems from loss suffered by the

company and the company is the vehicle that has locus standi to recover such loss.

9. This section asserts liability for specific actions, which are therein listed. As such the

section does not specifically cover the breach of a fiduciary duty, such a breach is

covered by the common law and section 218.

Common law and section 218

10. A director will be liable in accordance with the principles of the common law relating

to breach of a fiduciary duty, for any loss, damages or costs sustained by the company

as a consequence of any breach by the director of a duty.

11. Section 218 provides a mechanism which allows, in essence, a third party who has

suffered loss, to hold liable any person who contravenes any provision of the Act for

any loss or damage suffered by that person as a result of that contravention.

12. This civil liability is confirmed by the commentary of Henochsberg where the learned

author states that –

“a third party can, if the requirements of subs (2) are complied with, sue a director

for loss or damage to the third party due to breach of fiduciary duty to the company.”

Conclusion
13. The Act has codified certain fiduciary duties under section 76, which duties stipulate

how a director is to perform his/her functions. Section 218 provides a mechanism for

holding directors liable for a breach of that duty by a third party / anyone who has

suffered loss.

14. Section 77 holds directors liable for specific actions, which liability needs to be

enforced by the company itself.