Directors Liability: Where Does it Start and End?
With all the accusations and counter accusations related to boards and directors doing the rounds it is vital to clarify what many of these words entail.
Directors liability is in linked to whether a director acted in terms of their legal duties – summed up as acting in the best interests of the company, and with due care, skill and diligence.
Should a director not do so they could be found personally liable for any damages, costs or losses incurred – this liability rests on the shoulders of all directors in their individual and collective capacity. It also extends beyond the board to other people who are considered to have had a significant part to play in the control or management of the company and decision making. This broader category of people is known as prescribed officers.
Liability in the South African Companies Act is both civil liability and criminal liability (where the actions or omissions are judged fraudulent or criminal). Aside from these forms of liability one of the most serious results of gross misconduct, malfeasance or gross and wilful negligence and breach of trust would be being declared a delinquent director. This sanction would ban a person from serving as a director for a minimum of seven years – the resultant reputational damage and stigma would be difficult to overcome.
Whereas in business a common catchphrase used in the past was ‘buyer beware’ it is probably more accurate today to state ‘director beware’, and certainly ‘director be aware’ of the load you are carrying.