SOUTH AFRICA Law and Practice Contributed by: Michael Katz, Matthew Morrison, Madison Liebmann and Sinovuyo Damane, ENS
• the director made a decision, or supported the decision of a committee or the board, with regard to that matter, and the director had a rational basis for believing, and did believe, that the decision was in the best interests of the company. The business judgement rule only protects informed and reasonable business decisions. Accordingly, if the requirements of Section 76 (4)(a) are met, a director will not be liable for honest and reasonable mistakes or honest errors of judgement that he or she may have made in managing the business of the company. Fraudulent or dishonest business decisions are not protected. 8.4 Independent Outside Advice In terms of the Companies Act and Takeover Regu - lations, the independent board is required to obtain advice from an independent expert in the form of an opinion that deals with the fairness and reasonable - ness of the consideration for an offer, taking account of value and price. Given that the independent expert is required to be independent, the role and scope of the independent expert is limited to evaluating an offer when made and preparing a “fair and reasonable” opinion for the independent board. To ensure independence, the scope of the independ - ent expert is limited relative to that of the other finan - cial advisers and the expert is typically precluded from advising on defence strategies, negotiations with the bidder or its advisers. Typically, the independent expert is an independent investment bank or account - ing firm. In addition, the independent board is obliged to con - sult with other advisers that may be advising the com - pany on other matters relating to the offer (eg, advis - ing the company on defence strategies) in order to come to an informed opinion/decision and to provide shareholders with accurate information in relation to the offer. 8.5 Conflicts of Interest In terms of the Companies Act (Section 75), a director (as well as an alternate director, a prescribed officer and a person who is a member of a committee of the board) is required to disclose a personal financial
interest that he or she may have, as well as the per - sonal financial interest of any related persons, which includes any company of which that director is also a director, as well as anyone related to him or her, in relation to any matter that is required to be considered at a meeting of the board. A director may disclose his or her personal financial interest at any time to the board or shareholders by delivering a notice which sets out the nature and extent of his or her interest in a matter. A director (who has made a disclosure of his or her personal financial interest) is required to disclose any material informa - tion that he or she has with regard to the matter, may offer insights into the matter if requested to do so by the other directors and must immediately thereafter recuse himself or herself from the deliberation of the particular matter. As noted at 8.2 Special or Ad Hoc Committees , in the context of M&A deals the independent board of a company considers any offer received by the com - pany. Hostile tender offers are permitted in SA; however, they are not commonly used as a business combina - tion in SA. 9.2 Directors’ Use of Defensive Measures Directors of a target company are freely entitled to use defensive measures provided the directors (i) have not received an offer from a potential bidder or (ii) do not believe, bona fide, that an offer might be imminent. Once the board of a regulated company has received an offer, or believes that a bona fide offer might be imminent, Section 126 of the Companies Act pre - cludes the board from implementing certain actions which may frustrate an offer without obtaining prior approval from its shareholders and the TRP. As such, during an offer period, the board is required to obtain prior approval from its shareholders and the 9. Defensive Measures 9.1 Hostile Tender Offers
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