This is an excerpt from an article published in the SP3 Financial Services May 2020 newsletter.
You can read the full article here.
There are significant obligations placed on directors by the Companies Act and personal and criminal liabilities if they fail to meet these obligations.
As a director you will no doubt be focusing on critical issues like keeping your business afloat and solvent (the CIPC has waived its right to intervene when a company becomes temporarily insolvent due to the lockdown and other restrictions imposed. This concession will be withdrawn 60 days after the lifting of the National Disaster regulations), don’t forget that the Companies Act is still in force.
The coronavirus has created an unprecedented situation which demands swift, decisive action by directors – for example, the President only gave the country 72 hours’ notice before the lockdown came into effect, which gave little time for directors to react to the new reality.
No change in your duties or liabilities
Despite the coronavirus there is no change to the duties or liabilities of directors. They must perform their role:
- “in good faith…,
- in the best interests of the company
- with the degree of care, skill and diligence that may reasonably be expected of a person –
- carrying out the same functions in relation to the company as those carried out by that director; and
- having the general knowledge, skill and experience of that director.”
- carrying out the same functions in relation to the company as those carried out by that director; and
“Good faith”, “best interests” and “care, skill and diligence” are onerous terms. For a director to be protected against falling foul of these provisions that director needs to show that he/she took diligent steps to be informed of the issue and made a rational decision in the best interests of the company. This is known as the Business Judgment Rule and courts look to this when considering a director’s personal liability.
