There’s no greater feeling to declare, to anyone who may ask what you do for a living, that you are a director of a company. The badge of “director” is worn with pride as it speaks of status, power and influence in the company. However most directors find out too late, that with this title, comes great responsibility and in some cases personal liability.
Here we illustrate 7 of the breaches that a director may be found guilty of (in terms of the Companies Act 71 of 2008) in executing his / her daily duties.
- False statements: Directors are guilty of an offence if they make or concur in making, circulating or publishing any certificate, report or statement in relation to the company which is false in any material respect.
- Representative of company: Directors incur a personal liability on contracts where they do not specify to the party with whom they are contracting that they are contracting as a representative of the company and not in their personal capacity.
- Liability after liquidation: The court may hold a director personally responsible for the debts and liabilities of a company if he was found to be responsible for the business of the company having been carried on recklessly or with the intent to defraud creditors.
- Delict: Directors may be held personally liable for defamatory statements made on behalf of the company.
- Other personal liability: Directors may be held personally liable should they issue a cheque, invoice, letter of credit or any other document which does not bear the company’s formal name.
- Criminal procedure: Directors are deemed to be guilty of an offence committed by a company, unless they can prove that they did not take part in the commission of the offence and that they could not have prevented it.
- Common law: At common law, the directors of a company owe the company fiduciary duties of good faith (acting in the best interests of the company) and duties of care and skill. Directors are liable to the company for any loss it has suffered as a result of their acting outside of the ambit of their authority or, alternatively, for failure to exercise the degree of care and skill expected of them in the circumstances. Directors are also liable to compensate a company for any loss caused to it if they have used their powers otherwise than for the benefit of the company. Furthermore, if a company suffers loss or damage as a result of a wrongful action or breach of trust or faith committed by a director or past director, any member of the company may institute legal proceedings to recover such damages or loss.
So when your boat finally comes in and you are offered directorship, ask yourself “Are you ready for such responsibility?”