The judgement passed down by the North Gauteng High Court declaring former chairperson of SAA, Dudu Myeni, a delinquent director for life is a very topical issue, and a ruling that was welcomed by many. Now a delinquency application can only be successful where the director is found guilty of serious misconduct in relation to their fiduciary duties, indicating that the courts do not take this matter lightly. As small business owners, how does this judgement affect us?
What is very important to realize is that even small private companies and close corporations have to comply with the Companies Act. Its regulations don’t only apply to large corporations, and owner-managed entities that operate as either a (Pty) Ltd or a CC are not absolved. If you are a director of a (Pty) Ltd or a member of a CC, you too have a fiduciary duty towards your business.
For the purposes of this article, director and member are used interchangeably.
If you take the time to Google what a director’s responsibilities are, you’ll find a lot of talk about corporate governance and King IV, but this does not really answer the question in a practical SME environment. So what do these responsibilities actually entail?
First off, let’s clarify “fiduciary duty”. Fiduciary duty is not specifically defined by the Companies Act, so the common-law meaning is applied. A fiduciary duty means that a director must act in good faith, in the best interests of the company, and with care, skill, and diligence.
Practically applied, this means that it is the director’s responsibility to make and carry out decisions in the best interests of the company. It is up to them to ensure compliance with current, relevant legislation. A director’s decisions should not only benefit the shareholders, but also ensure that the company can be seen as a responsible corporate citizen – and so the list goes on.
Ask yourself the following questions:
- Am I paying personal expenses out of my business? Has this resulted in a loan account, where I actually owe my business money?
- Is my company a little behind with its tax submissions?
- Is my company registered for COIDA, and am I deducting the correct PAYE and UIF for my employees, including myself?
- Do I know the requirements of the Companies Act when it comes to declaring dividends?
- Is my company factually insolvent, or could there be any other indications that the company may be guilty of reckless trading as defined by Section 22 of the Act?
- Am I making decisions that are self-serving, or am I acting in the best interests of the company?
- Is my family trust (of which I am also a trustee) a shareholder of my company? Could there be a possible conflict of interest?
If you answered yes to any of the above, you may be in breach of your fiduciary duty. As we’ve seen with Dudu Myeni’s case, there could be severe consequences. You may be held personally liable by stakeholders like creditors, employees, and SARS.
But wait, there’s hope! As an entrepreneur and small business owner, you don’t have to run out and get a degree in law or accounting. The Companies Act stipulates that a director may rely on legal counsel, accountants, and other professionals to assist them in performing their duties. You can’t be expected to know everything, but you are expected to take diligent steps to fill the gaps in your expertise.
If there is any doubt about whether you as a director are at risk of being in breach of your fiduciary duties, or if you’d like assistance navigating the relevant legislation, speak to your attorney or your accountant. Even though they are there to provide you with assistance, the responsibility to act still lies with you.
For a free consultation, please feel free to send an email to admin@axiaconsulting.co.za and we’ll gladly set up a “COVID-19 friendly” meeting.
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