Since 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!