Fiduciary duty of good faith
In terms of the common law, a director’s fiduciary duty means that a director acts in good faith and in the best interests of the company. This includes:
without limitation avoiding conflicts of interest, not exceeding the company’s powers and accounting for secret profits. Because it is not the intention of the legislator to unreasonably overrule law practices that has been built up over a number of years, these common law provisions will continue to apply as long as they do not conflict with the new Act.
In addition to the common law duties the new Act now codifies director’s duties in sections 75 and 76 of the Act. Section 75 describes conflicts of interest and compels directors to disclose the nature and extent of the conflict of interest.
In terms of the new Act, directors also have a duty to act in the best interests of the company. This means that he/she shall not use their position or information to, for example, gain advantage for anyone other than the company and/or cause harm to the company.
These ‘’fiduciary duties’’ impose the following duties on a director:
Duty of care and skill
In terms of Section 76 of the Act a director’s duty of care and skill towards the company has been expanded and now demands a higher standard than its common law equivalent.
In terms of the new Act this now entails that he/she acts with care, skill and diligence that may reasonably expected from someone:
A director will act in the best interests of the company and with the necessary care and skill if he/she (business judgement):
Although, the director’s liabilities as set out in the old Act will still apply, the new Act has added to this and stated that directors will also be liable for:
The company will also in future not be allowed to indemnify directors from damages and losses suffered from:
In terms of the new Act, the legal standing for people who have suffered damages or losses as a result of a director’s conduct has been extended to any interested or affected party including shareholders, employees, trade unions and creditors. In addition, a director may be held accountable for his/her actions when he/she was:
(i) had actual knowledge;
(ii) investigated the matter to an extent that would have provided the person with actual knowledge; or
(iii) taken other measures which, would reasonably be expected to have provided the person with the necessary knowledge.”
This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)