Management of companies under South African law

By Jackwell Feris, Webber Wentzel
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Section 66(1) of South Africa’s Companies Act, No. 71 of 2008, provides that the business and affairs of a company must be managed by and/or under the direction of its board of directors. The board has the authority to exercise all of the powers and perform any of the functions of the company, except to the extent that the Companies Act or the memorandum of incorporation (MOI) of the company provides otherwise.

New approach

The power of the board to manage the business and affairs of the company is noteworthy in two respects. Firstly, the act now confers original and not delegated powers to the board to manage the business and affairs of the company. This approach is fundamentally different from that of the Companies Act, No. 61 of 1973, in terms of which board members were mere functionaries of the company with delegated powers from the shareholders. Secondly, the ultimate power in the company now vests with the board and not with the shareholders.

Jackwell Feris
Jackwell Feris

As a result of the original and ultimate nature of the board’s powers, the 2008 act has codified certain common law duties of directors and now bestows a statutory duty on directors to ensure that they always exercise the powers and perform the functions of director: (a) in good faith and for a proper purpose; (b) in the best interest of the company; and (c) with the degree of care, skill and diligence that may reasonably be expected from a director when carrying out his or her specific functions in respect of the company.

The shareholders do, however, have the authority to amend a company’s MOI to restrict or limit the power of the board.

Inherent authority

The board has the inherent authority in terms of the act, except if the MOI provides otherwise, to appoint any number of committees of directors, and to delegate to any committee any of the authority of the board, to the extent that the MOI allows. Such a delegation of authority should, however, not amount to an abdication of authority by the board, as the board ultimately remains liable for any decision or actions of the committee.

Case law has illustrated that directors cannot avoid responsibility for the conduct of a committee by “hiding behind” a committee.

Management companies

It however does not seem that the board has the inherent authority to appoint and delegate its powers to manage and direct the business and affairs of the company to any entity which does not form part of company’s internal management structure. Reading section 66 with section 72 of the act, it seems that the appointment of management companies is not precluded. Rather the MOI should make specific provision for the board to appoint and delegate certain of its powers to manage and direct the company’s business and affairs to a third party.

It seems that should the board appoint a management company to manage or direct the business or affairs of the company without being empowered to do so by the MOI, the appointment could be challenged by a shareholder or a trade union representing employees in terms of section 19(3) to (6) of the act.

It should however be noted that despite any management contract between the company and a third party, the board of the company remains liable for all decisions and actions taken by a management company, and such actions may not merely be “rubber-stamped” by the board.

In addition to the above, the act provides that in respect of any particular matter arising in the exercise of the powers or performance of the functions of director, a particular director of a company is entitled to rely on the performance of any person to whom the board may reasonably have delegated, formally or informally, by course of conduct, the authority or duty to perform one or more of the board’s functions that are delegable under the applicable law.

A director may also rely on any information, opinions, recommendations, reports or statements, including financial statements and other financial data prepared or presented by: (a) one or more employees of the company whom the director reasonably believed to be reliable and competent in the functions performed or the information, opinions, reports or statements provided; and (b) legal counsel, accountants or other professional persons retained by the company, the board or a committee as to matters involving skills or expertise that a director reasonably believes are matters (1) within the particular person’s professional or expert competence, or (2) as to which the particular person merits confidence.

In terms of the act a company’s board of directors accordingly has wide powers to manage the company’s business and affairs, but by doing so must not abuse those powers and must always exercise them in the best interest of the company.

Jackwell Feris is a senior associate at Webber Wentzel, one of the leading corporate law firms in Africa and the South African member of ALN, an established group of Africa’s 12 foremost law firms.

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