SOUTH AFRICA Law and Practice Contributed by: Professor Michael Katz, Matthew Morrison and Madison Liebmann, ENS
• been party to false or misleading commu - nications in financial statements and/or in a prospectus. Directors may be subjected to criminal penal - ties in limited circumstances, with stricter conse - quences designated for offences including false statements or reckless behaviour. Directors may not be relieved of any legal duties, liabilities or any legal consequences arising from an act or omission constituting wilful breach of trust or wilful misconduct on the part of a direc - tor negated or limited by virtue of a company’s MOI, any agreement or any resolution of a com - pany. Limitation of Liability Business judgement rule The Companies Act provides for the business judgement rule, which is a protective and defen - sive mechanism for directors who face liability for potential breaches of their legal duties (see 4.6 Legal Duties of Directors/Officers for further discussion). In terms of the Companies Act, the defence is available to a director (other than for breaches of duties of good faith) if the following require - ments are met: • the director took reasonably diligent steps to become informed about the matter at hand; • the director had no material personal financial interest in the subject matter of the decision, and had no reasonable basis to know that any related person had a personal financial interest in the matter, or had dealt with those personal financial interests as required by law; and • 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. Director’s indemnity insurance Companies are prohibited from providing indem - nity or insurance to a director for wilful miscon - duct or for a wilful breach of trust. Neverthe - less, on a case-by-case basis, the company may indemnify its directors, or purchase insurance policies that safeguard directors in the event that they have contravened their legal duties in a non-wilful manner. This is subject to certain restrictions – for example, a company is prohib - ited from indemnifying or insuring its director for:
• fines arising from criminal offences; • reckless or fraudulent trading; or • acting without proper authority.
A director is allowed to obtain insurance against personal liability. If a company obtains the req - uisite approvals, it may also pay the insurance premium for the directors. 4.10 Approvals and Restrictions Concerning Payments to Directors/ Officers Position Under the Companies Act The Companies Act provides that, except to the extent provided otherwise by a company’s MOI, directors may be remunerated for their services (as director) subject to the passing of a special resolution of shareholders, which in turn must be approved two years prior to such remuneration being paid. The Companies Act also specifies certain mat - ters that require shareholder approval so as to limit benefits that may go to directors and pre - scribed officers, such as:
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