Director's liability: Circumstances under which a director can be held personally liable for the company's debts.

A director of a company holds a fiduciary position.

- Ya-fan Wong

This has always been the case in terms of our common law in that to stand in a position of director, you are expected to act in good faith and in the best interests of the company at all times. Breach of these fiduciary duties can result in the director incurring personal liability. This article will examine the circumstances under which personal liability of directors can arise, provisions for which have now been codified under sections 75, 76 and 77 of the Companies Act, 71 of 2008 (“the Companies Act”).

Standards of a director's conduct:

In terms of section 76(3) of the Companies Act, a director of a company, when acting in that capacity, must exercise the powers and perform the functions of director:

1. in good faith and for a proper purpose;

2. in the best interests of the company; and

3. with the degree of care, skill and diligence that may be reasonably expected of a person:

3.1. carrying out the same functions in relation to the company as those carried out by the director; and

3.2. having the general knowledge, skill and experience of that director.

Following from the above, a director of a company may be held liable in terms of section 77(2) for any loss, damages or costs sustained by the company in accordance with the principles of the common law relating to the breach of a fiduciary duty or delict.

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