Are Your Directors Aware Of Their Fiduciary Duties Towards The Company?

A director’s fiduciary duties are regulated by the Companies Act 71 of 2008 as well as common law. Are your directors however aware of exactly what their fiduciary duties are, when they commence and terminate and the extent thereof?

What are Directors Fiduciary Duties?

A company exists independently from the persons who establish and run it, and is capable of having legal rights and incurring legal obligations in its own right. However, every company must be represented by human beings, who are empowered to act on the company’s behalf and referred to as its directors.

These people act on behalf of the company, to incur rights and obligations on the company’s behalf.

Companies are owed fiduciary duties by their directors which are expressly taken up in the Companies Act. The duties, very succinctly put are:

1. The duty not to exceed the powers as set out in the company’s Memorandum of Incorporation;
2. The duty to exercise the powers of director for a proper purpose;
3. The duty to exercise an independent and unfettered discretion;
4. The duty to avoid conflicts of interest (which includes the duty not to make secret or incidental profits, not to take up corporate opportunities for personal gain, not to compete with the company and not to misuse confidential information; and
5. The duty to act with care, skill and diligence.

Although section 162 of the Companies Act does not refer to all of these duties by name, the provisions of section 162(5) it appears are phrased wide enough to encapsulate the fiduciary duties in such a way as to make their breaches actionable in terms of the section – for example seeking a declaration of delinquency.

For more on fiduciary duties and the legal consequences for Directors, who neglect their fiduciary duties READ HERE.

For director training or further information on director’s duties or any agreements associated therewith, please contact Goldberg & de Villiers’ Corporate and Commercial Law Department on 041 501 9806 or email cindy@goldlaw.co.za / nicole@goldlaw.co.za for personalized expertise in corporate and commercial law. Alternatively, visit 13 Bird St, Port Elizabeth Central, Port Elizabeth, 6001