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Directors Be Warned

March 11, 2024

In the confusion of an election year, directors are warned to ensure that, even during these difficult times, their actions are always in the best interest of the company. In this article, we’ll look at the principles within South African company law that regulate the standard of directors’ conduct as set out in section 76 of the Companies Act.

What does the Act state?

Directors must not use any information obtained while acting in their professional capacity for personal gain or to knowingly cause harm to the company. The Act further imposes fiduciary duties on directors. These include the duty to act in good faith, for a proper purpose, and in the best interest of the company.

Although a company is a separate legal entity, it does act through its directors. For this reason, section 77 of the Act provides that directors may be held personally liable for not only the debt owed by the company to creditors but also for any damages suffered by the company as a result of trading dishonestly, recklessly, or negligently.

What is a delinquent director?

The Act goes on to state that if a director is in breach of their fiduciary duties, or there is serious misconduct, a shareholder, company secretary or trade union or any interested party may apply to court for an order declaring such director to be a delinquent director.

Once a person is declared a delinquent director, they cannot act as a director, either for a lifetime or for a minimum period of seven years, depending on the section relied upon to declare them a delinquent director.

The Dudu Myeni case

The sections referred to above were dealt with in the case of Organisation Undoing Tax Abuse v Myeni 2020. In this case, Dudu Myeni was accused of gross misconduct and breaching of her fiduciary duty due to her failure to execute and/or finalize transactions that were economically beneficial to South African Airways where she held a position as a director.

In finding Myeni guilty and awarding costs against her, the judge banned her from holding any directorship position for life. Judge Tolmay commented: “She was a director gone rogue; she did not have the slightest consideration for her fiduciary duty to SAA. This court cannot but find that she failed abysmally in executing her fiduciary duty. In my view, a lifelong delinquency order is appropriate. Ms Myeni is not a fit and proper person to be appointed as a director of any company, let alone a SOE.”

The bottom line

Myeni has since courted controversy at the Zondo Commission and is currently facing fraud and corruption charges. But it all started with that delinquent director case brought by a group of concerned citizens. A poignant reminder that nobody – and especially not a company director – is above the law.


Disclaimer: The contents and information provided above are generalised and must not be acted upon as legal advice.