New cor­po­rate gov­er­nance leg­is­la­tion

Finweek English Edition - - COMPANIES&MARKETS -

THE NEW (Act 71 of 2008) has a spe­cific fo­cus on cor­po­rate gov­er­nance. Com­pany lead­er­ship is now leg­is­lated and a hy­brid sys­tem based on both leg­isla­tive and vol­un­tary ap­proaches is to be im­ple­mented.

The cen­tral chap­ter in the new Act, ti­tled ‘Gov­er­nance of Com­pa­nies’, deals with the direc­tors’ fidu­ciary du­ties and re­quires direc­tors to act in good faith, in the best in­ter­est of the com­pany. The Act cod­i­fies du­ties and re­spon­si­bil­i­ties pre­vi­ously based in com­mon law and ad­dresses the board, its com­mit­tees and the ap­point­ment and re­moval of direc­tors.

The new Act pro­vides a broader def­i­ni­tion and de­scrip­tion of the con­cept of ‘con­flict of in­ter­est’. Direc­tors are to dis­close their per­sonal fi­nan­cial in­ter­est in busi­ness trans­ac­tions as well as the in­ter­ests of ‘re­lated per­sons’. Direc­tors are ad­vised to thor­oughly in­ves­ti­gate dis­clo­sures as the Act makes them re­spon­si­ble and ac­count- able for in­ter­ests about which they ought to have known.

The Act also broad­ens its de­scrip­tions of direc­tors’ li­a­bil­i­ties and holds that they may be held per­son­ally li­able for com­pany loss, dam­ages or costs. The Act pro­vides for a de­fence (called the ‘Busi­ness Judg­ment Rule’) for direc­tors who face li­a­bil­ity if they can demon­strate that: 1. Suf­fi­cient steps were taken by them to re­main fully in­formed re­gard­ing the par­tic­u­lar is­sue/s (the use of ex­pert opin­ion is rec­om­mended); 2. They had no per­sonal fi­nan­cial in­ter­est in

the is­sue/s; 3. They did not know of any re­lated per­sons

that may have such in­ter­est; 4. Any in­ter­ests, whether per­sonal or from re­lated per­sons, were in­deed dealt with as re­quired by the Act; 5. As a ra­tio­nal, rea­son­able and re­spon­si­ble per­son their de­ci­sion was made in the best in­ter­ests of the com­pany. For ex­am­ple, the Act states that it is an of­fence for a com­pany to trade when its li­a­bil­i­ties ex­ceed its as­sets and direc­tors should in­volve ex­pert valu­a­tors to avoid reck­less trad­ing charges be­ing brought against them. The Act will ben­e­fit direc­tors and their com­pa­nies and will en­sure that direc­tors dis­charge their du­ties with care and skill, and re­main fully in­formed and fo­cused on the best in­ter­ests of the com­pany.

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