Directors: Increased obligations and potential exposure to liability as set out in the Companies Act

17 November 2021
Accounting
South African Accounting Academy

The provisions of the Act require South African directors to make important decisions on company issues at board level.

Directors who allow companies to trade in breach of their newly constituted duties of good faith, or in situations of financial distress, or in insolvent circumstances, must recognise that such trading may be the subject of examination either by a business rescue practitioner or, if the company is placed into liquidation, at insolvency inquiries in the post liquidation period.

Directors should therefore undertake a frank and realistic review of the manner in which their companies trade. This will be essential to avoid personal liability.

This publication discusses, inter alia, the following:

What are the duties of directors in terms of the Companies Act?
Liability for reckless trading in terms of Section 22 of the Companies Act and Section 424 of the Companies Act 61 of 1973
The effects of Covid-19 on Section 22 of the Companies Act
What are the defences available to directors to escape personal liability?
Directors’ duties when a company faces financial difficulties

Click here to download the Discussion document:

https://www.werksmans.com/wp-content/uploads/2021/08/Werksmans_Duties_and_Liabilities-2021.pdf

How does this affect you and your clients?

Relevance to Auditors, Independent Reviewers & Accountants:

The Companies Act is very important 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.
You also need to consider the effect on the financial statements and your audit opinion/review conclusion if the directors breach their fiduciary duty – with specific reference to trading in situations of financial distress or under insolvent circumstances.

Relevance to Your clients:

Worldwide, directors’ duties to their companies are being elevated to ensure that correct decisions are made for the financial benefit of companies at all times. Failure to maintain a particular level of knowledge of these issues can result in directors being severely criticised or being held liable for company debts as a result of reckless and negligent behaviour.
Directors of a company need to be aware of the increased obligations and potential exposure to liability as set out in the Companies Act.
Directors should also consider the level of insurance required to provide cover for potential claims.
Directors must know how to act in the best interest of the company.

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