To some, becoming a ‘director’ is a career achievement but often is not taken with the gravitas that it should. Sitting on a company board as a director may be viewed for some as a golden ticket to picking up a large remuneration without doing too much work and more importantly not understanding the duties and responsibilities attached to that ‘directorship’.

In recent years, the spotlight has fallen on many companies and in particular government State Owned Entities (SOEs) that are run as business entities with a board of directors. Gross dereliction of duties has finally caught up with some of those put in positions of authority. The most high-profile matter in 2020 was the landmark judgment of ‘delinquent director’ on Ms Duduzile Myeni (Myeni), former non-executive chairperson of SAA.

In a judgment delivered by Judge Tolmay on 27 May 2020 in the matter of Organisation Undoing Tax Abuse and Another v Myeni and Others (case number 15996/2017), the High Court of South Africa (Gauteng Division, Pretoria) declared Myeni, a “delinquent director” in terms of section 162(5) of the Companies Act 71 of 2008 (Companies Act) based on the finding that she seriously misconducted herself during her tenure as the previous non-executive chairperson of South African Airways SOC Limited (SAA).

The Court found that Myeni acted dishonestly, recklessly and with gross negligence and breached her fiduciary duties during the tenure of her directorship, causing significant harm to both SAA and South Africa. An order of delinquency in these circumstances is to subsist for a minimum of seven years. However, given the gravity and seriousness of Myeni’s conduct, the Court found it appropriate to impose a lifelong delinquency order, which Myeni may apply to have suspended after three years under certain circumstances.

Although Myeni was a non-executive director, she was held by the Court to be a director for all intents and purposes and had a legal and ethical duty to SAA.

According to Maria D’Amico, a consultant attorney at Thomson Wilks Incorporated, this serves as a reminder to directors, both individually and acting as a collective, to take steps to ensure that they abide by the high standards expected of them: a director is expected to perform in good faith, in the best interests of the company and with a degree of care, skill and diligence that may reasonably be expected of such person and if they do not then they can be accountable for any loss to the company that arose directly or indirectly from such conduct.

The word “director” is wide and not only limited to a director who is registered as such for a company at the Commission of Intellectual Property Commission (CIPC) but includes an alternate director, prescribed officer, and a person who is a member of the committee of the Board, or of the audit committee of the Company.

Maria D’Amico has provided legal assistance to companies and franchisors for the past thirty-three years, backs the Institute of Directors in South Africa (IoDSA)’s long-standing contention that directors must inform themselves properly about not only the legal nature and extent of their duties, but also on the King IV Reports on Corporate Governance. Together, these provide a sound framework to guide directors in fulfilling their fiduciary and other duties satisfactorily.

South African company law prescribes that the board of a company bears the responsibility for the functioning and management of such company and is ultimately accountable for its performance. If a director does not follow the standard of conduct required by them as set out in the Companies Act, they may be held jointly and severally liable for breaching their fiduciary duties – whether they are as contemplated in the Companies Act, as directors of SOEs or of the Public Finance Management Act, 199 (PFMA).

In addition, a director will be liable for any loss, damages or costs sustained by the Company as a direct/indirect consequence of their actions, or inactions.

The appointment of directors needs to be taken seriously, and those who accept directorships must be fully aware of the standard that they are expected to adhere to which is to perform in good faith, in the best interests of the company and with a degree of care, skill and diligence that may reasonably be expected of such person.

Contact Thomson Wilks Inc with your questions now!

#DirectorDuties #CompaniesAct #Negligence #DelinquentDirector

#thomsonwilksattorneys #thomsonwilksinc


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