SAA di­rec­tors’ reper­cus­sions

Board mem­bers could be per­son­ally li­able for losses sus­tained by air­line.

The Citizen (KZN) - - Business - Maleka Femida Cas­sim Four ways di­rec­tors can be held li­able Busi­ness res­cue

The board of South Africa’s na­tional air­line re­cently took a unan­i­mous de­ci­sion to go into vol­un­tary busi­ness res­cue. The step re­moves the threat of the di­rec­tors be­ing sued by cred­i­tors for reck­less trad­ing – for now, at least.

From avail­able ev­i­dence, the air­line con­tin­ued to trade even though it was tech­ni­cally in­sol­vent and un­able to pay its cred­i­tors.

If it is found that hap­pened, South African Air­ways (SAA) could be guilty of reck­less or fraud­u­lent trad­ing un­der the Com­pa­nies Act.

Fraud­u­lent trad­ing is when a com­pany con­tin­ues to trade and in­curs debts when its di­rec­tors know there is no chance of it be­ing able to pay its debts. This is both a crim­i­nal of­fence and a civil mat­ter.

Reck­less trad­ing is where the di­rec­tors do not know, but should rea­son­ably have known that the com­pany was un­able to pay its cred­i­tors. This is a civil of­fence.

Even though the gov­ern­ment, as the share­holder, would have had a say over the board, the board is legally ac­count­able for the sol­vency of the com­pany.

Per­son­ally for any losses or debts be­cause of reck­less trad­ing. They are at risk of hav­ing to com­pen­sate the com­pany out of their own pock­ets.

Crim­i­nal charges can be laid against them for fraud­u­lent trad­ing un­der the Com­pa­nies Act. They can be fined, or im­pris­oned for as long as 10 years, if they are found to have traded fraud­u­lently.

The court can de­clare di­rec­tors delin­quent. This bars a per­son from be­ing a di­rec­tor for at least seven years.

Cred­i­tors can hold the board per­son­ally re­spon­si­ble and claim what the com­pany owes to them from the di­rec­tors.

The ini­ti­a­tion of busi­ness res­cue does not nec­es­sar­ily mean the board is free of obli­ga­tion if it is found to have vi­o­lated the Com­pa­nies Act. This will be­come clear as the busi­ness res­cue at­tempt un­folds.

Res­ig­na­tion does not free di­rec­tors from li­a­bil­ity.

Maleka Femida Cas­sim, is pro­fes­sor of com­pany law, Uni­ver­sity of Pre­to­ria

Repub­lished from TheCon­ver­sa­

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