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Under The South African Companies Act can a director operate

a business in opposition to...
Under The South African Companies Act can a director operate a business in opposition to the company they are a director of ?
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Answered in 2 hours by:
11/14/2017
CaseLaw
CaseLaw, Attorney
Category: South Africa Law
Satisfied Customers: 1,632
Experience: BCom; LLB; Masters in Law
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Hi there and thank you for your question,

I am a practicing attorney based in South Africa and I will try to assist you with your legal question but please feel free to ask as many follow up questions in order to clarify your initial question. If you have a new question, you must please open a new thread.

Legally, yes. You won't find anything in the Companies Act which says that a director can't be a director in another company that operates in competition to the first.

BUT, if a director were to do that he would be doing so in breach of his "fiduciary duties" that he owes to the company and owes to the shareholders. On that basis, the shareholders could get rid of the director.

Remember, a director is appointed as a director by the shareholders, so if the director does something that the shareholders don't like, they get rid of the director.

There is no reason why the same thing wouldn't apply here.

If my answer hasn't provided you with enough clarity regarding your initial question, please send me a REPLY with follow up questions so that I can continue to assist you in this same thread for as long as you need. Let me know if you need more advice - don't just rate my answer as "bad".

If my are HAPPY with my answer then please click one of the STAR ratings or the SMILEY FACES to rate my answer!

Good luck and best regards,

CaseLaw

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Customer reply replied 30 days ago
My situation is that my co-director has started another business in direct opposition, using the company's intellectual property and poaching clients. I am aware that I can apply for removal as a director, but does this constitute a contravention of The South African Companies Act.
If not, would this fall in the category of common law.

The common law Fiduciary duties are duties based on the concept of good faith, and are owed to the company as a result of the control that directors exercise over the assets of the company, and the power that is held by such directors to act on behalf of another. Fiduciary duties are non-negotiable and cannot be waived in any manner or form. These duties include:

  • Duty not to exceed powers, i.e. directors may not act ultra vires or otherwise beyond their capacity;

    Duty to exercise their powers for the proper purpose, i.e. not to act for an improper or collateral purpose, to act bona fide in the interests of the company and in a manner in which he/she conceives to be for the benefit of the company as a whole;

  • Duty to exercise an independent and unfettered discretion;

  • Duty not to place themselves in a position of conflict between their personal interests and those of the company – this includes the duty to disclose any such personal interests to the company and the duty not to make secret and/or incidental profits at the expense of the company;

  • Duty to account for profits, and not to make secret or incidental profits;

  • Duty not to act on behalf of company in any matter in which he/she has an interest that conflicts, or may conflict, with his duties to his/her company.

Section 76 of the Companies Act makes provision for the codification of the fiduciary duties of directors, as well as the standards of conduct required to be performed and exercised by a director.

More specifically, section 76(2) places a positive obligation on a director to avoid any conflict of interests with the company. This obligation is two-fold, namely that a director must:

  • not use the position of director to gain an advantage for the director or for another person other than the company or a wholly-owned subsidiary of the company; or knowingly cause harm to the company or a subsidiary of the company; and
  • communicate to the board, at the earliest moment possible, any information that comes to the director’s attention, unless he/she reasonably believes that such information is immaterial to the company or is generally available to the public or known to other directors; or unless he/she is bound not to disclose that information by a legal or ethical obligation of confidentiality.

Section 76(3) expressly states that a director, when acting on behalf of the company, should perform all of his/her functions and powers in good faith, for a proper purpose, in the best interests of the company, and with the requisite degree of care, skill and diligence that may reasonably be expected of a person holding such office, with the same level of knowledge and skill as that director.

Does that assist?

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Customer reply replied 30 days ago
New Thread:
In an application for liquidation of a company, once the answering affidavit and reply affidavit has been lodged, do both applicant and respondent need to lodge Heads of Argument prior to hearing.

Hi there,

Please can you rate my answer above, and I can then assist with your further questions which do form a "new thread". Thanks!

CaseLaw
CaseLaw, Attorney
Category: South Africa Law
Satisfied Customers: 1,632
Experience: BCom; LLB; Masters in Law
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CaseLaw and 87 other South Africa Law Specialists are ready to help you
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Yes, you're 100% correct. Both applicant and respondent are required to file heads of argument setting out the crux of their legal argument. The affidavits contain the evidence, the heads of argument the actual argument - referencing the evidence contained in the affidavit.

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CaseLaw
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