SOUTH AFRICA Law and Practice Contributed by: Professor Michael Katz, Matthew Morrison, Madison Liebmann and Sinovuyo Damane, ENS
directors beyond nine years subject to periodic reas - sessment. Position Under the Takeover Regulations The Takeover Regulations require an independent Board to be established in certain circumstances relating to affected transactions, including fundamen - tal transactions such as major disposals, schemes of arrangement and mergers, as well as acquisitions of control of a regulated company. 3.6 Legal Duties of Directors/Officers Directors and prescribed officers are subject to duties under both the Companies Act and the common law, traditionally categorised as: • fiduciary duties; and • the duty of care, skill and diligence. Position Under the Companies Act and the Common Law Fiduciary duties The Companies Act codified, in part, common law fiduciary principles, mandating that directors, alter - nate directors, prescribed officers and members of board or audit committees must: • exercise their powers in good faith, for a proper purpose, and in the best interests of the company; • disclose personal financial interests in certain instances; and • not use their position to secure an advantage or knowingly cause harm to the company. Directors remain subject to common law fiduciary duties to act within designated powers, maintain unfettered discretion and independent judgement, and avoid conflicts of interest. Each director should act with the degree of care, skill and diligence rea - sonably expected of a person carrying out the same functions and having the general knowledge, skill and experience of that director. 3.7 Responsibility/Accountability of Directors Under South African law, directors owe their fiduciary duties and the duty to act with reasonable care, skill and diligence to the company. Directors owe no fiduci - ary duty to shareholders individually. King V endorses
a stakeholder-inclusive model, requiring the Board to take into account the long-term and short-term impact of decisions on all stakeholders, including employees, consumers, suppliers, the environment and the local community, whilst prioritising shareholder interests. Directors do not owe fiduciary duties to third parties and creditors, save that when a company becomes financially distressed, directors also owe fiduciary duties to creditors. The Companies Act provides that a company may not trade recklessly, with gross neg - ligence or with intent to defraud creditors. In the event of a breach, directors may be held personally liable The Companies Act provides that a director may be held responsible in accordance with the principles of common law relating to: • breach of a fiduciary duty, for any loss, damages or costs sustained by the company; or • delict for any breach of the duty of care, skill and diligence, certain other provisions of the Compa - nies Act, or any provision of the company’s MOI. This liability is to the company and not to third parties, consistent with the principle of reflective loss recently reaffirmed in South African courts. Only the company may sue for its loss, and a shareholder cannot claim for a reduction in the value of its shares (see 4.4 Shareholder Claims ). Defaulting directors are jointly and severally liable to the company for any loss. The Companies Act provides a legal avenue to pursue an action on behalf of a company to recover losses (see 4.4 Shareholder Claims ) 3.9 Other Claims/Enforcement Against Directors/Officers Position Under the Companies Act where loss or damage was suffered. 3.8 Breach of Directors’ Duties A director is liable for loss, costs or damages suffered by a company as a consequence of a director having: • acted without requisite authority, despite knowing they lacked it; • acquiesced in reckless trading; • engaged in conduct calculated to defraud stake - holders; or
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