SAA directors’ repercussions
Board members could be personally liable for losses sustained by airline.
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 TheConversation.com