The Companies and Intellectual Property Commission (“CIPC”) published Guideline 1 of 2025 in order to “sensitize” directors about the consequences of non-compliance with their duties to a company.
In the Guideline, CIPC notes that directors must exercise their powers as a director and perform the functions of a director in good faith, for proper purpose and in the best interests of the company. They should not use their position to knowingly cause harm to the company. In essence, a company’s directors have fiduciary duties towards the company.
Directors who fail to fulfil these duties, in their personal capacity may incur civil liability as well as criminal liability under the Companies Act. No. 71 of 2008, as amended (the “Companies Act”).
Under Section 77(3) of the Companies Act, a director of a company may be held liable for any loss, damages or costs sustained by the company as a consequence of that director: −
- acting on behalf of the company whilst knowing that they lacked the authority to do so;
- acquiescing to the company carrying on its business recklessly, with gross negligence, with intent to defraud or for any fraudulent purpose;
- being a party to an act or omission by the company, despite knowing that the act or omission was calculated to defraud or had a fraudulent purpose;
- approving the publication of false or misleading financial statements;
- approving the publication of a prospectus or a written statement regarding a secondary offering of securities, which contains an untrue statement, despite knowing that the statement was false, misleading, or untrue;
- being present at a meeting or participating in the making of a decision, and failing to vote against the decision, despite knowing that the decision was contrary to relevant provisions of the Companies Act.
A director may be held criminally liable in terms of Sections 213(1) and 214(1) of the Companies Act for: −
- disclosing confidential information concerning the affairs of any person obtained in carrying out any function of the director under the Companies Act;
- being a party to the falsification of any accounting records of the company;
- with a fraudulent purpose, knowingly providing false or misleading information in any circumstances in which the Companies Act requires them to provide information or give notice to another person;
- knowingly being a party to an act or omission by the company which was calculated to defraud or had a fraudulent purpose;
- is a party to the preparation, approval or publication of a prospectus or a written statement regarding a secondary offering of securities, which contains an untrue statement;
A person convicted of an offence referred to above ls liable to a fine or to imprisonment for a period not exceeding 10 years, or to both a fine and imprisonment (Section 216(a) of the Companies Act).
A person convicted of any other offence under the Companies Act is liable to a fine or to imprisonment for a period not exceeding 12 months, or to both a fine and imprisonment (Section 216(b) of the Companies Act). Such offences may include: −
- failing to satisfy a compliance notice issued in terms of the Companies Act;
- knowingly providing false information to CIPC, the Takeover Regulation Panel, the Companies Tribunal, an inspector, or investigator,
(Sections 214(3) and 215(2)(e) of the Companies Act).
In its Guideline, CIPC notes that directors of companies frequently fail to appreciate the requirements of Section 78 of the Companies Act governing indemnification and directors’ insurance, which leads to an incorrect perception that they would be indemnified in the event that they breach Sections 75, 76, 77, 213, 214 and/or 215 of the Companies Act.
CIPC implores directors to ensure that they fully understand the provisions of the Companies Act which relate to the governance of companies, including: −
- Section 75 – Director’s personal financial interests;
- Section 76 – Standards of directors’ conduct;
- Section 77 – Liability of directors and prescribed officers;
- Section 78 – Indemnification and directors’ insurance
- Section 213 – Breach of confidence;
- Section 214 – False statements, reckless conduct and non-compliance;
- Section 215 – Hindering administration of the Act.
Specifically, and pursuant to CIPC’s Guideline, directors should be aware that: −
- In light of Section 78(2) of the Companies Act, any provision of an agreement, the Memorandum of Incorporation or rules of a company, or a resolution adopted by a company, is void to the extent that it purports to: relieve a director of a duty contemplated in section 75 or 76, or of a liability contemplated in section 77; or negate, limit or restrict any legal consequences arising from an act or omission that constitutes wilful misconduct or wilful breach of trust on the part of the director.
- With limited exceptions, a company may not pay any fine that may be imposed on a director of the company, or on a director of a related company, as a consequence of that director having been convicted of an offence, unless the conviction was based on strict liability (Section 78(3) of the Companies Act).
- In light of Section 78(6) of the Companies Act, a company may not indemnify a director in respect of: any liability arising in terms of section 77(3)(a), (b) or (c), or from wilful misconduct or wilful breach of trust on the part of the director; or any fine contemplated in Section 78(3).
Tel:+27 31 570 5469 Email: janine.will@gb.co.za