CIPC: Consequences of non-compliance with director duties

CIPC: Consequences of non-compliance with director duties

• 14 May 2025
• CIPC
• South African Accounting Academy

Summary:

The Companies and Intellectual Property Commission (CIPC) has issued a Guideline that aims to sensitize directors on the consequences for non-compliance with their duties to a company.

Article:

This Guideline is issued in terms of Regulation 4 of the Companies Regulations 2011.

A director differs from a shareholder in terms of function, power and authority and is legally distinct from the company itself.

A director of a company must exercise the powers and perform the functions of a director in good faith and for proper purpose and in the best interest of the company. Further, he/she should not use the position of director to knowingly cause harm to the company.

Section 77(3) of the Companies Act No 71 of 2008 (as amended), emphasizes that a director of a company in his/her personal capacity may incur CIVIL LIABILITY. (Refer to the Guideline for a list of 6 events where the company incurred loss or damage as a result of said director).

A director in his/her personal capacity may held CRIMINALLY LIABLE in terms of Sections 213, 214 and/or 215(2)(e) of the Companies Act. (Refer to the Guideline for a list of 6 actions)

In terms of Section 216 of the Companies Act, any person convicted of contravening section 213(1) or 214(1) is liable to a fine or to imprisonment for a period not exceeding 10 years or to a fine and imprisonment or in any other case, e.g. contravening section 215(2)(e), to a fine or imprisonment for a period not exceeding 12 months or to both a fine and imprisonment.

The Guideline highlights 7 sections of the Companies Act that relate to the governance of companies that directors should carefully understand.

Click here to download Guideline 1 of 2025:

https://www.cipc.co.za/wp-content/uploads/2025/05/Guideline-1-of-2025-CONSEQUENCES-OF-NON-COMPLIANCE-WITH-DIRECTOR-DUTIES.pdf

Relevance to Auditors, Independent Reviewers & Accountants:

• The Companies Act is yet another piece of legislation that your clients must comply with, and which you must assess compliance with.  If they don’t comply with the relevant laws and regulations, you have certain reporting obligations in terms of NOCLAR (NOn-Compliance with Laws And Regulations) – this could include reporting to management, qualifying your audit opinion, reporting a Reportable Irregularity, etc.
• As an auditor, independent reviewer and accountant, you also need to monitor your client’s compliance with the Companies Act and all relevant notices/enforcements/practice notes/customer letters issued by CIPC as the regulator, and you should be aware of all publications and notifications – especially guidelines – issued by the regulator.
• The contents of this guideline will assist auditors, independent reviewers and accountants to determine what the implications of non-compliance with a director duties are.
• Where you perform these compliance tasks on behalf of your client, you need to ensure that you comply with all relevant notices/enforcements/practice notes/customer letters issued by CIPC as the regulator.

Relevance to Your Clients:

• The contents of this guideline will assist directors to be aware of the consequences for non-compliance with their duties to a company.
• An entity (company or close corporation) has a duty to comply with the Companies Act, and all relevant notices/enforcements/practice notes/customer letters issued by CIPC as the regulator.

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