SOUTH AFRICA Law and Practice Contributed by: Michael Katz, Matthew Morrison, Madison Liebmann and Sinovuyo Damane, ENS
• to act in good faith and in the best interests of the company; • to exercise reasonable care, skill and diligence; • to avoid conflicts of interest (see 8.5 Conflicts of Interest ); • to communicate information to the company; and • to disclose personal financial interests with the company. Common Law Duties The Companies Act does not exclude common law duties of directors. Directors are required to comply with the statutory duties and the common law fiduci - ary duties, being duties of good faith, honesty, loyalty, to act within their power/limit of authority and to exer - cise independent judgement. The duty to exercise reasonable care and skill is not a fiduciary duty; however, it is codified in the Companies Act (Section 76 (3)(c)) and overlaps with the common law duty of care, skill and diligence. Directors are required to act in the interests of the “company as a whole”. This common law principle has been codified in Section 76 (3)(b) of the Compa - nies Act, which provides that a director of a company, when acting in that capacity, must exercise the pow - ers and perform the functions of director “in the best interests of the company”. Independent Boards The Takeover Regulations require an independent board to be established in certain circumstances. There is no prescribed time period as to when an inde - pendent board is required to be established. Essen - tially, the independent board must be established when the Takeover Regulations become applicable (in that there is an “affected transaction” pertaining to a “regulated company”). In addition to the duties described above, the Compa - nies Act requires members of the independent board to fulfil certain duties during an offer. On receipt of a firm offer or after the board of a regu - lated company has reason to believe that a bona fide offer might be imminent, the directors of a company must not take any “Frustrating Action” (Section 126)
which may prevent an offer from going ahead and deny the shareholders of a company the opportu - nity to decide on the offer (see 9.2 Directors’ Use of Defensive Measures ). 8.2 Special or Ad Hoc Committees As discussed at 8.1 Principal Directors’ Duties , the target company is required to establish an independ - ent board to, inter alia, evaluate the offer and make recommendations to the target shareholders. The independent board must comprise at least three indi - viduals who are “independent” (as per Takeover Regu - lations 81 (1) and 108 (8)). A director is classified as independent if, in relation to a person and a particular offer, that person has no conflict of interest in relation to the offer, and is able to make impartial decisions in relation to the offer without fear or favour. If there are no directors that are independent, the tar - get company may appoint third parties to serve on the independent board without those persons forming part of the main board of directors. It is important to note that the independent board is a distinct statutory board and not a committee or sub-committee of the main board – in that it is not appointed as a committee in terms of Section 72 of the Companies Act. 8.3 Business Judgement Rule The Companies Act has codified the business judge - ment rule. In terms of the Companies Act (Section 76 (4)(a)), in respect of any particular matter arising in the exer - cise of the powers or the performance of the functions of a director, a particular director of the company is deemed or presumed to have performed his or her functions in the best interests of the company and with reasonable care, skill and diligence if: • the director has taken reasonably diligent steps to become informed about the matter; • either (i) the director had no material personal financial interest in the subject matter of the deci - sion and had no reasonable basis to know that any related person had a personal financial interest in the matter, or (ii) the director declared the personal financial interest in the matter and recused himself or herself from the deliberation on the matter; and
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