SA Companies Act - Significant changes in responsibility and liability for directors

Significant changes in responsibility and liability for directors in the new Companies Act came to the fore at a seminar held by BDO and Statucor in Durban on 19 March.

A group of 35 company directors, all clients of audit and accounting firm, BDO, were part of an interactive discussion on the subject led by Larey van der Westhuizen, managing director of Statucor, the company secretarial and corporate governance arm of the BDO Group.

“We are almost three years into the new Companies Act, and we felt there was a need to host an unscripted and interactive discussion with clients about areas where the new Companies Act impacted most on their businesses,” van der Westhuizen said. 

He began by providing an overview of the new Companies Act which now governs all corporate entities in South Africa and which adopts a stakeholder approach as opposed to a shareholder approach, with the term stakeholder now meaning a much wider group including, among others, employees, creditors and the environment.

He then went on to highlight some of the key issues raised by the new Act which were of specific interest to clients, the main one being director liability and the perception that directors now have greater personal liability than before. 

“The new Act has, to a large extent, decriminalised transgressions, but it has also codified the old common law duties of directors,” van der Westhuizen. “Their duty is now towards the company, with most of their liabilities being for losses that the company has suffered. The new Act has also introduced solvency and liquidity tests as a replacement for the old capital maintenance rule.”

Van der Westhuizen touched on the need to determine who is a prescribed officer in an organisation. This is a new term introduced by the Act, which applies to people who are in executive positions, but who are not directors, yet have the same duties and liabilities as directors. 

Social and ethics committees appear to be an obstacle for many private companies, van der Westhuizen said.

“My belief is that, if your socio-economic footprint is so big that you affect various stakeholders, it is a good thing to have such a committee. The issue is that you must have a non-executive director sitting on the committee, and private companies tend not to have those.”

The Act raises the question whether there is any benefit in keeping close corporations (CCs).

“I don’t think there is any benefit in keeping CC’s and my advice would be to convert them to private companies,” van der Westhuizen said. “The same rules apply to both, but in a CC all members have the liabilities of a director; it is not possible to be an owner in a CC without also being regarded as involved in management. A company provides that opportunity by separating shareholders from directors. Also, a CC always has 100% of interest issued, and the only way to acquire an interest in an establish CC is by acquiring it from an existing member. A company can issue more shares and raise capital by doing so.”

On the subject of the Memorandum of Incorporation, van der Westhuizen explained the importance of preparing this correctly. 

“This is effectively the document in which a company tailor-makes the corporate governance principles and rules that will apply to them by altering the default terms of the Act capable of amendment.  In doing so a company makes use of the opportunities and benefits provided by the new Act ensuring that it suits their specific needs. It is essential that this document is precise and that it includes the correct terminology to avoid problems down the line.”

“We organized the seminar as a service to our clients who may have had questions about certain sections of the new Companies Act,” said Mark Stewart, CEO of BDO South Africa, the fifth largest audit and accounting firm in the world.  

“We found the exercise more than worthwhile. We believe strongly in proactive assistance to clients, and events such as these provide us with the opportunity not only to facilitate regular contact with them, but to get feedback on particular issues that may arise in their business. This enables us to advise and assist them effectively.”

Caption:  Pictured at the BDO coffee tasting and Directors Responsibility Workshop are from left: Iain Evans – True North Media; Larey van der Westhuizen – Statucor; Hayley Callanan – Statucor; Ernest Ngubo -  Fluor-Igoda Projects

Courtesy: BDO

Service provision within the international BDO network of independent member firms (“the BDO network”) is coordinated by Brussels Worldwide Services BVBA, a limited liability company incorporated in Belgium with its statutory seat in Brussels.

Each of BDO International Limited (the governing entity of the BDO network), Brussels Worldwide Services BVBA and the member firms is a separate legal entity and has no liability for another such entity’s acts or omissions. Nothing in the arrangements or rules of the BDO network shall constitute or imply an agency relationship or a partnership between BDO International Limited, Brussels Worldwide Services BVBA and/or the member firms of the BDO network.

BDO is the brand name for the BDO network and for each of the BDO member firms. The combined fee income of all the BDO Member Firms, including the members of their exclusive alliances, was $5.68 billion in 2011. The global network provides advisory services in 135 countries, with almost 48,900 people working out of 1,118 offices worldwideService provision within the international BDO network of independent member firms (‘the BDO network’) is coordinated by Brussels Worldwide Services BVBA, a limited liability company incorporated in Belgium with its statutory seat in Brussels.

CONTACTS FOR FURTHER INFORMATION:

Meg Enerson - Marketing and Business Development, BDO Durban                                          

Tel: 0 10060 6700                             

E-mail: [email protected]

Shirley Williams - Shirley Williams Communications

Tel: 083 303 1663 or (031) 564 7700

E-mail: [email protected]


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