Directors and personal liability: the little-known section waiting in ambush

Article_Directors-liability-wideSince the “new” 2008 Companies Act came into effect in 2011, directors and other company officers have had to shoulder a raft of additional responsibilities and risks, amongst them a significantly increased risk of personal liability.

Consider for example the little-known section 218(2) which waits in ambush for the unwary in the “Miscellaneous Matters” section at the tail-end of the Act, and which reads:

“Any person who contravenes any provision of this Act is liable to any other person for any loss or damage suffered by that person as a result of that contravention”.

That’s wide wording –

  • Anyone who has a duty to comply with the Act – not just directors – is in the firing line
  • They can be sued for any loss caused by any contravention
  • They risk personal liability to anyone who has suffered a loss – the company itself, shareholders, employees, creditors, suppliers, customers, etc.

And the section has indeed been used several times to successfully attack directors.

Two directors go down R1.5m

A good example is a recent High Court case involving a liquidated company which failed to pay R1.5m in levies and provident fund contributions/salary deductions to a Bargaining Council.  The two directors were ordered to pay the claims personally having, held the Court, acted in a grossly negligent manner, recklessly and with an intention to defraud not only the Council but also employees.

That of course was a serious contravention of the Act but the wording of the section suggests that even minor or technical contraventions will lead to liability – be warned accordingly!

Ashersons Attorneys

Ashersons Attorneys

Industry news and noteworthy articles from a boutique corporate law firm in Cape Town, South Africa

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