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Western Cape High Court judge Owen Rogers has pointed to the potentially limited application of provisions contained within the Companies Act of 2008 relating to the conflict of interests by directors, suggesting to delegates at the Department of Trade and Industry’s (DTI’s) Company Law Seminar on Thursday that the fiduciary duties of directors, as set out in Section 75 of the Act, were not extensive enough.
Based on a director’s common-law fiduciary relationship with his or her company, Section 75 of the Act specifically detailed the obligation of directors to disclose their personal financial interests in the business of the company to avoid a conflict of interest.
According to a summary by Johannesburg law firm Schindlers, the Act had defined personal financial interest in relatively broad terms and deemed it to include a direct material interest of a financial, monetary or economic nature, or to which a monetary value may be attributed.
The obligation to disclose arised in any matter in which a director had a personal financial interest – not simply a transaction – or one in which a director was aware of a related person having a personal financial interest.
But Rogers said the 2008 version of these provisions was not exhaustive enough, as it allowed directors to enter into a contract or transaction that could be perceived as being in conflict with his or her interest as a director if that contract was disclosed and declared valid by the board or quorum.
“[This provision] indicates that, when you have made disclosure [of the contract], then it is valid, which is a big departure from the old Companies Act of 1973 and appears [to] supersede the common-law no conflict duty and its consequences.
“[It also means that], if you comply, the contract is valid and you can retain any profit from it. I don’t want to be unwittingly critical of the lawmaker, [but] I think time will tell if the new Act – in terms of fiduciary duties – is helpful or will give rise to much disputation. I suspect the latter,” he told the seminar, in Sandton.
The two-day DTI Company Law Seminar would seek to allow stakeholders to deliberate on the impact of the Companies Act, provide feedback to the DTI on its implementation and to interrogate the business rescue tools implemented by government.
Trade and Industry Minister Dr Rob Davies said the seminar would also focus on how the Companies Act impacted on small businesses, and mergers and acquisitions, as well as other cooperative governance issues, and would be attended by delegates from business, law practitioners, government officials, as well as other entities and organisations affected by the legislation.
“Feedback gathered from previous seminars has indicated that people are still battling with the implementation of certain aspects of the Act and that there is a need to engage with the public on the topical issues and related sections to flesh them out and give a proper context,” he commented.
He added that as part of the implementation process of the Companies Act of 2008 the DTI had established entities such as the Companies Tribunal to adjudicate on company matters, the Companies and Intellectual Property Commission to implement, enforce and register businesses and the Specialist Company Law Committee to advise on legislation.