This blog was co-authored by Bongubuhle Sibanda, Candidate Attorney
During the lifespan of a company, there are occasions when a director is unable to perform their functions as envisaged in the Companies Act, 2008. Despite such occasions, the business operations cannot be halted. It is in these instances that an alternate director may take up the role of the director whom they substitute, in managing the affairs of the company. A primary consideration is whether an alternate director acts independently of the replaced director during this time.
As a point of departure, section 1 of the Act, defines an alternate director as “a person elected or appointed to serve, as the occasion requires, as a member of the board of a company in substitution for a particular elected or appointed director of that company”. The term “alternate director” is also incorporated into the definition of a director which means that an alternate director is a member of the board of directors, as contemplated in section 66 of the Act. Section 66 empowers a company to elect or appoint alternate directors in accordance with the provisions of its memorandum of incorporation.
The intention of the Act is to ensure that alternate directors are subject to the same set of duties and responsibilities to which directors must adhere. This notion is provided for in section 76(1) of the Act, which makes it explicit that the fiduciary duties and standards of conduct of directors apply to alternate directors. For example, alternate directors must –
not use their position as director, nor any information obtained while acting in the capacity of a director –
- to gain an advantage for the director, or for another person other than the company or a wholly-owned subsidiary of the company; nor
- to knowingly cause harm to the company or a subsidiary of the company; and must
communicate to the board at the earliest practicable opportunity any information that comes to the alternate director’s attention, unless the alternate director reasonably believes that the information is –
- immaterial to the company; or
- generally available to the public, or known to the other directors; or
- bound not to disclose that information by a legal or ethical obligation of confidentiality.
The nature and urgency of the information will determine the necessity for the directors to call a board meeting in terms of section 73(1) of the Act or an empowering provision of the company’s memorandum of incorporation, if the scheduled board meeting is not imminent.
A separate fiduciary relationship exists between an alternate director and a company. Therefore, the exercise of powers in a manner that is not in the best interest of the company is an abdication of an alternate director’s common law fiduciary duties. Such fiduciary duties are summarised in section 76 of the Act and among others, oblige the alternate director to act –
- in good faith and for a proper purpose;
- in the best interests of the company; and
- with the degree of care, skill and diligence reasonably expected of a person with their knowledge, skills and experience and carrying out their same functions.
An alternate director only exercises the powers of the director for whom they were elected and appointed as a substitute. On a practical note, alternate directors must keep apprised of the affairs of the company and it is therefore a good idea for alternate directors to receive board packs and board minutes of all meetings, even those at which they are not present.
An alternate director acts independently and does not act in a capacity akin to that of an agent or a proxy of a director or shareholder. They do not function at the behest of the director but rather in their stead and independently. Ultimately, an alternate director is a fiduciary and the interests of the company must be of paramount importance to them for as long as they perform this office.