Tag archives: Companies Act

D & O insurance and reflective loss claims

At common law when a wrong is done to a company only the company can sue for the damage caused to it. That does not mean that the shareholders of the company may not consequentially suffer any loss (what is known as a reflective loss). Any negative impact the wrongdoing has on the company is … Continue reading

External companies cannot have prescribed officers

An external company is not a company as defined in the Companies Act, and it cannot therefore have prescribed officers with the obligations and liabilities imposed by the Act. Prescribed officers are employees or other persons who, although they are not directors, exercise executive control over a significant part of a company’s business or participate … Continue reading

Directors’ responsibilities and risk taking

Businesses across the country are facing serious headwinds. South African law requires that directors must exercise their powers in the best interests of the company, and with the degree of care, skill and diligence that may be reasonably expected of a person carrying out those functions. Directors can be held personally liable, and are now … Continue reading

Managing a company and COVID-19: South African directors and their duties

Limiting risk in a pandemic The effects of COVID-19 on the economy has led to many companies facing the possibility of being declared financially distressed. The mounting pressure on directors to appropriately fulfil their duties in response to this crisis will continue into the foreseeable future. Risk advisory: Practical considerations and steps for directors While … Continue reading

Director’s duties, the business judgment rule, and COVID-19

Where a director has taken reasonable steps to become informed of a matter and has made, or supported, a decision in relation to that matter (which they rationally believed was in the best interests of the company), then that director cannot be seen to have breached their fiduciary duties if the decision later turns out … Continue reading

Directors beware: The CIPC has not temporarily softened the solvency and liquidity test

The content of a recent Companies and Intellectual Property Commission (CIPC) practice note in which the CIPC committed not to exercise its powers relating to temporarily insolvent companies must not be confused with the solvency and liquidity test. The board of a company is still obliged to fully apply the solvency and liquidity test wherever … Continue reading

The South African Companies Amendment Bill 2018

The long awaited South African Companies Amendment Bill (Bill) was published on 21 September 2018 for comment. Substantial changes to the South African Companies Act 2008 (Companies Act), which became law in 2011, have been proposed. Comments may be submitted to the SA Department of Trade and Industry by 20 November 2018, and we encourage business to consider … Continue reading

Deregistered corporation comes back to life retrospectively on reinstatement

A corporation which is deregistered under the Companies Act 2008 is automatically and retrospectively re-vested with its rights when it is reinstated (under section 82(4)). In ZNK Investments CC v Luckytso Transport and Construction CC, a sale in execution of a deregistered close corporation had taken place whilst it was deregistered. It was held that the … Continue reading

Economic and social consequences of liquidation relevant to business rescue

The Supreme Court of Appeal has aligned itself with a statement by the high court that where the liquidation of a company will occasion significant collateral damage both economically and socially and destroy wealth and livelihoods, the Companies Act recognises that business rescue is the better option. Adverse socio-economic consequences like job losses should be … Continue reading

Prove liquidation claims in three months

If a company goes into liquidation claims must be lodged and proved within three months as from the conclusion of the second meeting of creditors of the insolvent company. The case of Wishart v Billiton is a reminder that although the Companies Act 1973 was largely repealed, the provisions relating to winding-up of companies remain … Continue reading

Is anti-competitive behaviour insurable?

The August 2016 first-of-its-kind judgment against South African Airways in favour of Nationwide Airlines, for damages arising from conduct that was held to be an anti-competitive exclusionary act preventing Nationwide from entering into or expanding within the travel market, raises the interesting question whether the loss is insurable by the company and the directors. SAA … Continue reading

Business rescue after liquidation

If prospects of success of business rescue exist a court will allow business rescue to commence even if the company is in final liquidation. In Richter v Absa Bank Limited, the Supreme Court of Appeal pointed out that business rescue protects interests of a wider group of people than liquidation and interpreted the Companies Act … Continue reading

Business rescue: binding offer to purchase voting interest is not automatically binding on creditor that votes against the plan

In an important judgment delivered by the Supreme Court of Appeal on 20 May 2015 in African Banking Corporation of Botswana Ltd v Kariba Furniture Manufacturers (Pty) Ltd and others, the Supreme Court of Appeal held that a purportedly binding offer made to a creditor, who opposes a business rescue plan, is not automatically binding … Continue reading

How many directors must pass a round robin resolution?

A round robin resolution can be passed by a majority of the directors (provided all directors get notice of the proposed resolution) unless the MOI of the company provides otherwise (section 74(1) of the Companies Act 2008). But many registered companies have not updated their MOIs and still use the form of the old Table B … Continue reading

Moratorium in business rescue: what does it cover?

The moratorium on legal proceedings against a company in business rescue offers critical breathing space to the company from its creditors, allowing the business rescue practitioner the opportunity to investigate affairs of the company and develop the business rescue plan for its restructure. A recent case offers a useful interpretation of the extent and implications … Continue reading

Section 163 of Companies Act not wide enough to allow a court to authorise a shareholder to institute action in the name of the company

If the board of directors of a company refuses or is unable to institute legal proceedings to recover any loss suffered by the company from a third party, an aggrieved shareholder or director should not rely on Section 163 of the Companies Act to obtain permission from a court to institute or continue legal proceedings … Continue reading

Pre-incorporation contracts may bind you personally

This is a reminder that a person (company or individual) who enters into, or purports to act for, a company still to be incorporated under the Companies Act 2008 is jointly and severally liable for liabilities under the pre-incorporation contract if the entity is not incorporated or doesn’t fully adopt the pre-incorporation agreement. Section 21 … Continue reading

Sureties may not be affected by business rescue plan

Without deciding the point, the Supreme Court of Appeal in New Port Finance Company (Pty) Ltd v Nedbank Limited held that the decision in Tuning Fork (Pty) Limited v Greeff may not be correct in saying that where the principal debts are diminished or expunged by a business rescue plan the sureties are released accordingly. … Continue reading