Historically, the English common law provided for fiduciary duty toward the directors of the company which incorporates inter alia, the exercise of duty of care, good faith and confidentiality when dealing with the affairs of the company. The South African legislature codified these common law duties of directors under the provisions of section 76 of the Companies Act 71 of 2008 (the Act), which provides for the general standards for the director’s conduct when dealing with the affairs of the company. This article will assess under which circumstances a director of a private company (with limited liability) can be held personally liable for damages suffered by the company or a third party.
Each and every director of the company has a general fiduciary duty to act bona fide and to act in the best interest of the company. The Act provides that a director must exercise the powers and perform the functions of director in good faith and for a proper purpose, in the best interests of the company, and with the degree of care, skill and diligence that may reasonably be expected of a person[1]. As a consequence, should a director deviate from the aforementioned provision on his general fiduciary duty to act bona fide, the director can be held personally liable in terms of section 22, 77, and 218 of the Act.
Section 22 of the Act prohibits against the reckless and gross negligent conduct of the director when dealing with corporate affairs. This section provides that “…a company must not carry on its business recklessly, with gross negligence, with intent to defraud any person or for any fraudulent purpose”[2]. The Act further provides that a director of the company must be held liable in accordance with the principles of the common law relating to breach of a fiduciary duty, for any loss, damages or costs sustained by the company as a consequence of any breach by the director of a duty contemplated in terms of the Act and the company’s Memorandum of Incorporation[3]. Any director/s who contravenes with any provision of the Act must be held liable to any other person and/or third party for any loss or damage suffered by that person as a result of that contravention.
In Venator Africa (Pty) Ltd (Venator) v Watts and Another (053/2023) [2024] ZASCA 60; 2024 (4) SA 539 (SCA) (24 April 2024), the Respondents were the directors of Siyazi Logistics and Trading (Pty) Ltd (Siyazi), a company that conducted business as a cleaning and forwarding agent. Siyazi would issue disbursement invoice to Venator which represented that the amount due and owing will be paid to SARS on behalf Venator of upon receipt. Between the period of 2018 and 2019, Siyazi did not pay all the monies received from Venator which were due and owing to SARS, as a consequence, SARS raised a shortfall of the sum of R41,407,220 against Venator. “The total damages suffered by the Venator in consequence of the short payment by Siyazi to SARS was therefore the sum of R41,407,220.00. The short payment occurred as a result of fraud and/or theft by Siyazi’s employees and/or the Respondents”[4].
The court was of the view that the directors of Siyazi breached their fiduciary duty to act bona fide and to act in the interest of the company and that the recklessness and/or gross negligence manifested as a result of their failure to maintain proper records of accounts, maintain control in in respect of compilation and accuracy of disbursements accounts, and failure to pay all the monies that were due and payable to SARS. The Court further noted that, “…but for the First and Second Respondents’ fraud, alternatively recklessness, further alternatively, gross negligence, Venator would not have been obliged to pay to SARS the amount of R41,407,220.00”[5]. Accordingly, that the directors of Siyazi should be held jointly and severally liable in terms of sections 22, 77 and 218 of the Act.
The Respondents’ argument was that section 22 of the Act does not itself create liability, it imposes a duty on the company, and not on its directors, to refrain from carrying on its business recklessly. In general, there must be a causal link between the prohibited and unlawful conduct of the director/s and the damages and/or loss suffered by the company or a third party. In this case, Venator has failed to identify the provisions of the Act that were contravened by the directors of Siyazi, as invoked by section 22, 77, and 218(2) of the Act. Accordingly, the appeal was dismissed with costs and the High Court Special Plea (that the particulars of claim failed to establish the cause of action) was upheld.
In circumstances where there is evidence that the director/s of the company did in fact contravene with the provisions of the Act and the company and/or third party has suffered damages as a consequence thereof, the directors can be held personally liable for the proved damages suffered by the company and/or a third party. The common law principle of the lifting corporate veil will, in such circumstances, apply.
[1] Section 76(3)(a – c) of the Companies Act 71 of 2008.
[2] Section 22(1) of the Companies Act 71 of 2008
Venator Africa (Pty) Ltd v Watts and Another (053/2023) [2024] ZASCA 60; 2024 (4) SA 539 (SCA) (24 April 2024) at para 16
[3] Section 77 of the Companies Act 71 of 2008
[4] Venator Africa (Pty) Ltd v Watts and Another (053/2023) [2024] ZASCA 60; 2024 (4) SA 539 (SCA) (24 April 2024) at para 14 – 15.
[5] Venator Africa (Pty) Ltd v Watts and Another (053/2023) [2024] ZASCA 60; 2024 (4) SA 539 (SCA) (24 April 2024) at para 21.
Anathi Mbovu
Associate Designate
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