SOUTH AFRICA Law and Practice Contributed by: Professor Michael Katz, Matthew Morrison, Madison Liebmann and Sinovuyo Damane, ENS
3.10 Payments to Directors/Officers Position Under the Companies Act
• been party to false or misleading financial state - ments or prospectus. Directors may be subjected to criminal penalties in limited circumstances, with stricter consequences designated for offences including false statements or reckless behaviour. Directors may not be relieved of any legal duties, lia - bilities or any legal consequences arising from an act or omission constituting wilful breach of trust or wilful misconduct on the part of a director negated or limited by virtue of a company’s MOI, any agreement or any resolution of a company. Limitation of Liability Business judgement rule The Companies Act provides the business judgement rule as a protective mechanism for directors facing liability (see 3.6 Legal Duties of Directors/Officers ). The defence is available (other than for breaches of good faith duties) if: • the director took reasonably diligent steps to become informed; • the director had no material personal financial interest in the matter and had no reasonable basis to know that a related person had one, or had dealt with such interests as required by law; and • the director had a rational basis for believing, and did believe, the decision was in the best interests of the company. Director’s indemnity insurance Companies are prohibited from providing indemnity or insurance for wilful misconduct or wilful breach of trust. On a case-by-case basis, the company may indemnify its directors or purchase insurance for non-wilful breaches. A company is prohibited from indemnifying or insuring its director for fines from criminal offences, reckless or fraudulent trading, or acting without proper authority. A director may obtain personal liability insurance, and the company may pay the premium with requisite approvals.
The Companies Act provides that directors may be remunerated for their services (as director) subject to a special resolution of shareholders, which must be approved within two years prior to payment. The Companies Act also requires shareholder approval to limit certain benefits to directors and prescribed offic - ers, including: • an issue of shares that will equal or exceed 30% of the voting power of that class; • a decision by the Board for the company to acquire its own shares; and • a decision for the company to provide financial assistance to a director or prescribed officer. Listings Requirements and King V The Listings Requirements currently require the remu - neration policy and implementation report to be tabled for separate non-binding advisory votes at the AGM, with a 25% dissent threshold triggering an obligation to disclose shareholder engagement and steps taken to address concerns in the company’s next annual report. The JSE has in its proposed amendments to the Listings Requirements published on 25 May 2026 (comments in respect of which close on 26 June 2026) proposed deleting this requirement for domestic issu - ers on the basis that Sections 30A and 30B of the Companies Act (as set out in below) now adequately regulate remuneration approval, but proposes to retain the non-binding advisory vote for foreign companies with a primary JSE listing and issuers with weighted voting share structures, with the dissent threshold increased from 25% to 50% of votes exercised. Consequences for Failing to Comply The company may pay remuneration to its directors for their service as directors, except to the extent that the MOI provides otherwise. If the Board proceeds to remunerate its directors without first obtaining the req - uisite shareholder approval, such payment is unlawful (see 3.6 Legal Duties of Directors/Officers for further discussion) and could be liable to the company for any loss, damages or costs suffered by the compa - ny as a result. The shareholders could challenge the Board decisions relating to director remuneration (see
629 CHAMBERS.COM
Powered by FlippingBook