Directors: Your New Risk of Personal Liability for Pension Contributions

DirectorsRisks
“Corporation: An ingenious device for obtaining individual profit without individual responsibility” (P.T. Barnum)

All too often employees of a cash-strapped business only find out too late (when the business finally fails and is liquidated) that management has been deducting pension fund contributions from their earnings and not paying them over to the pension fund. The losers of course are the employees, whose pension benefits are often seriously prejudiced.

And until now, where the employer was a company or other corporate entity, employees had no easy recourse against management personally. They were left with a claim (probably a worthless one) against the company itself as the actual employer.

That has all changed with new legislation which exposes directors (and their equivalents in other corporate entities) to both –

  1. Personal liability for such non-payment, and
  2. Criminal liability.  The penalties are harsh – a fine of up to R10m and/or 10 years’ imprisonment.

Reduce your risk!

  • Not all directors are at risk, only those exercising control of or with regular involvement in the employer’s “overall financial affairs”. So if you aren’t involved in the financial affairs of the business make sure that the pension fund is informed accordingly – if those personally responsible aren’t identified to the fund, all directors are liable.
  • Ensure that your business has strict controls in place to ensure full and timeous payment of all pension fund contributions.  Note that payment has to be made to the pension fund within 7 days of month end.

Take advice immediately if your business runs into cash flow issues and can’t pay over contributions.

Ashersons Attorneys

Ashersons Attorneys

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

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