Business rescue provisions in the new Companies Act could have far-reaching consequences owing to the fact that they enable directors to extend ‘business 
rescue’ protection through the passing of a simple resolution – a company can also be placed into business rescue through an applica-
tion to the courts by shareholders, creditors, 
employees or a trade union active in the 
company.

The Companies Act, No 71 of 2008, has been passed by Parliament and has been signed by the President and the Act is, thus, likely to come into force during the second half of 2010.

“Once a company is in business rescue, there is a moratorium on most legal proceedings against the company. 
“Thus, suretyships or guarantees cannot be enforced against the company, having major implications for funding institutions,” 
cautions Webber Wentzel partner Haydn Davies.

He added that another consequence is that the business rescue practitioner can choose which agreements the company will continue to be bound by and might even ‘cherry-pick’ in an agreement which provisions the company 
will be bound by and which not.

“This may lead to major consequences for lenders and any contracting party.”

No person may exercise any rights in respect of property in the possession of the company even if the company does not own the property, and, thus, the financier of motor vehicles 
cannot unilaterally take possession of the 
vehicle in the case of default by the company.

The Companies Act, 2008, increases the standard of conduct expected from directors, as well as other officers of a company, such as CEOs, COOs, CFOs, legal counsel and other managers.

Common Law

“On the one hand, the 2008 Act partially codifies the existing common law fiduciary duties and the duty of care and skill owed by directors to companies, but the 2008 Act also amends the standard required from the standard 
required under common law,” says Webber Wentzel partner Madelein Burger-Van der Walt.

She points out that, in terms of com-
mon law, when investigating whether a director has acted with the necessary care and skill, one looks at whether he exercised his duties with the degree of skill that may reasonably be expected from a person with his particular knowledge and experience; the skill that he possesses must be exercised with reasonable care.

Under the 2008 Act, a director must act with the care, skill and diligence that may reasonably be expected of someone fulfilling his functions and having his knowledge, skill and experience. 
Accordingly, a director now also has to act with the care and skill that may be expected of someone in this position and not only in line with the director’s individual 
skills, requiring directors to have certain 
minimum skills.

The 2008 Act provides new rights for any person to claim damages directly from a 
director, and this will also apply to any action undertaken before the Act comes into effect.

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