SOUTH AFRICA Law and Practice Contributed by: Professor Michael Katz, Matthew Morrison and Madison Liebmann, ENS
4.7 Responsibility/Accountability of Directors Under South African law, directors owe their fiduciary duties and the duty to act with reason - able care, skill and diligence to the company (this entails acting only in the bona fide interests of the company and its shareholders as a body). Directors as such owe no fiduciary duty to the shareholders individually. Furthermore, King IV endorses a stakeholder inclusive model (or enlightened shareholder value approach), in terms of which the needs and interests of stakeholders should be taken into account by the board, alongside those of the shareholders. Directors do not owe fiduciary duties to third parties and creditors; however, the Companies Act provides that a company may not trade reck - lessly, with gross negligence or with the intent to defraud any creditors. In the event of a breach of the relevant provisions of the Companies Act, directors may be held personally liable to credi - tors or other third parties where loss or damage was suffered as a result of the transgression. 4.8 Consequences and Enforcement of Breach of Directors’ Duties The Companies Act provides, inter alia, that a director may be held responsible in accordance with; • the principles of the common law relating to breach of a fiduciary duty, for any loss, dam - ages or costs sustained by the company as a consequence of any breach by the director of their duties; or • the principles of the common law relating to delict for any loss, damages or costs sus - tained by the company as a consequence of any breach by the director of their duty of
care, skill and diligence, certain other provi - sions of the Companies Act, or any provision of the company’s MOI. Note that the liability above – eg, for a breach of a fiduciary duty by the director – is to the compa - ny and not to third parties under the Companies Act. This is consistent with the principle of reflec - tive loss, which has recently been reaffirmed in South African courts. In other words, where a company suffers loss caused by a breach of duty owed to it, only the company may sue in respect of that loss, and a shareholder does not have the right to claim for a reduction in the value of its shares as this loss merely reflects the loss suffered by the company itself as the result of wrongdoing (see 5.4 Shareholder Claims (Statu- tory Derivative Action)). Furthermore, defaulting directors are jointly and severally liable to the company for any loss. The Companies Act provides a legal avenue to pur - sue an action on behalf of a company in order to recover losses associated with a breach of direc - tors’ legal duties (further details on such actions are set out in 5.4 Shareholder Claims ). 4.9 Other Bases for Claims/Enforcement Against Directors/Officers Position Under the Companies Act A director is liable for any loss, costs or damages suffered by a company as a direct or indirect consequence of a director, inter alia, having: • acted on behalf of the company without the requisite authority, despite knowing that they lacked the authority to do so; • acquiesced in the reckless trading of the company’s business; • engaged in conduct calculated to defraud stakeholders; or
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