Directors liabilities
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DIRECTORS’ LIABILITIES. Personal Liability of Directors and Members – Callum Smythe Trusts – Samantha Naidoo Transfer of Contracts of Employment – Richard Scott Environmental Legislation – Andrew Muir Contingent Financial Liability – Neil Cairns of Quantum Financial Planning.

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DIRECTORS’ LIABILITIES

  • Personal Liability of Directors and Members – Callum Smythe

  • Trusts – Samantha Naidoo

  • Transfer of Contracts of Employment – Richard Scott

  • Environmental Legislation – Andrew Muir

  • Contingent Financial Liability – Neil Cairns of Quantum Financial Planning


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Personal Liability of Members and Directors

  • Avoid signing as surety or becoming a joint debtor

  • Piercing of the corporate veil

    • Members/directors liable where

      • no other means of recourse

      • complete ownership

    • Fraud

    • Promoting private interests

    • Interests of company or individual?

    • Section 65 of the Close Corporations Act


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  • Other liabilities:

    • Represent a company

    • Section 50(3) of the Companies Act:

      • Close Corporations Act, Section 23(2)

  • Director acts beyond authority

  • Acting negligently through employees

  • Section 424 of the Companies Act

    • Trading without being able to pay debts

    • Criminal sanction

  • Fiduciary duty – utmost good faith

  • Section 42(2) of the Close Corporations Act:

    • act honestly and in good faith

    • avoid conflict of personal interests with the cc’s

  • Section 43 of the Close Corporations Act

  • Section 252 of the Companies Act


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  • Section 247(2) of the Companies Act

    • power to indemnify directors

  • Court may excuse a director’s negligence

  • Section 53 of the Companies Act:

    • Memorandum of Association

    • contractual obligations

  • “Technical” infringements

    • Section 24 of the Close Corporations Act

      • Initial contribution within 90 days

    • Section 63(e)

    • Same personal liability occurs where:

      • assistance when insolvent

      • disqualified person in management

      • accounting officer vacant for 6 months

        Section 280 of the Companies Act

      • Auditor’s office vacant for > 3 months


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    • Section 64 of the Close Corporations Act equivalent to Section 424 of the Companies Act

      • trading recklessly; or

      • intent to defraud creditors

        Court may declare person liable

      • Difference:

        • Company: only directors are liable

        • Close corporation: members take risk

      • Deregistered with debt - members liable

      • Section 26(1):

        • Registrar may deregister corporation

    • Other technical failures:

      • Trading prior to Registrar issuing certificate

      • Trading for > 6 months with < 7 members

    • Common sense will tell you what sort of activities are likely to cause trouble


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    Trusts Section 424 of the Companies Act

    • Classic role of trusts

      • Preservation of wealth

      • Estate and tax planning

      • Movement of assets

      • Protection of assets

      • Alternative to commercial partnerships and companies


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    • Business trust Section 424 of the Companies Act

      • Trust Property Control Act

      • Sec 30 Companies Act

      • Vesting

      • Transparency

        • Vrystaat Mielies v Nieuwoudt

          Pre-incorporation contracts


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    • Trustees Section 424 of the Companies Act

      • NOT shareholders

      • Fiduciary capacity

      • Control

        • The one-man band

        • Joint control of assets of trust

        • The “silent” trustee

        • Nude prohibition

      • Indemnity


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    • Duties of trustees Section 424 of the Companies Act

      • Act in good faith and jointly

      • Observe the Trust Deed

      • Trust Property

        • Tjimstra v Blunt Mackenzie 2001 1 SA 459 T

      • Preservation of capital

        • Administrators, Estate Richards v Nichol and Another 1999 1 SA 551 SCA

      • Exercise due care and diligence


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    • Liability of trustees Section 424 of the Companies Act

      • Limited liability

      • Personal undertakings by trustees

      • Breach of trust

      • Representative taxpayer

      • Reserve of trust capital

      • Claims of beneficiaries


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    Transfer of Contracts of Employment Section 424 of the Companies Act

    • Section 197 of the LRA

      • Employment consequences when transferring business as a going concern

        • New employer substituted

        • Prior rights and obligations

        • Prior unfair dismissals and unfair labour practices

        • Transfer does not interrupt continuity of service


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    • Liability Section 424 of the Companies Act

    • Transport Fleet Maintenance (Pty) Ltd v Numsa & others (LAC) (2003)

    • Implications of partial transfers

    • Compliance if employees’ terms and conditions are “on the whole not less favourable”

    • Purpose to limit job losses

    • Implications where collective agreement

    • Pension transferrals


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    • Written agreement Section 424 of the Companies Act

      • Leave pay accrued

      • Severance pay

      • Accrued payments

    • Due diligence

    • Agreement specify

      • who will be liable and the apportionment

      • provision for payment

    • Agreement disclosed to employees

    • No joint and several liability where compliance

    • Joint and severally liable if the claim is based on a term/condition


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    Environmental Legislation Section 424 of the Companies Act

    • May be either Civil Liability or Criminal Liability

    • Liability may be founded on two grounds, either:

      • Pollution, or

      • Lack of Authorisation


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    • Pollution Section 424 of the Companies Act– Civil Liability – NEMA

      • 28. Duty of care and remediation of environmental damage.—

      • Every person who causes, has caused or may cause significant pollution or degradation of the environment must take reasonable measures to prevent such pollution or degradation from occurring, continuing or recurring, or, in so far as such harm to the environment is authorised by law or cannot reasonably be avoided or stopped, to minimise and rectify such pollution or degradation of the environment.

      • Without limiting the generality of the duty in subsection (1), the persons on whom subsection (1) imposes an obligation to take reasonable measures, include an owner of land or premises, a person in control of land or premises or a person who has a right to use the land or premises on which or in which—


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    • Pollution – Civil Liability – NWA Section 424 of the Companies Act

      • 19.   Prevention and remedying effects of pollution.—(1)  An owner of land, a person in control of land or a person who occupies or uses the land on which—

        • (a) any activity or process is or was performed or undertaken; or

        • (b) any other situation exists,

      • which causes, has caused or is likely to cause pollution of a water resource, must take all reasonable measures to prevent any such pollution from occurring, continuing or recurring.


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    • Subsection 5 of Section 19 NWA states that: Section 424 of the Companies Act

      • Costs can be recovered, jointly and severally, from:

        • the person responsible

        • The person in control

        • The owner of the land, or

        • any person who negligently failed to prevent (i)the activity or the process being performed or undertaken; or (ii)the situation from coming about.

    • Subsection 6 states that costs may also be recovered from ‘any other person who, in the opinion of the catchment management agency, benefited from the [rehabilitation measures]…, to the extent of such benefit.’


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    • Pollution Consequences Section 424 of the Companies Act

      • Person to ‘clean up’ and rehabilitate pollution site

      • Responsible person to pay costs

      • Director-General may do the remedial work and recover costs


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    • Criminal Liability Section 424 of the Companies Act

      • Section 34 of NEMA

      • (7)  Any person who is or was a director of a firm at the time of the commission by that firm of an offence under any provision listed in Schedule 3 shall himself or herself be guilty of the said offence and liable on conviction to the penalty specified in the relevant law, including an order [to pay for the consequential damages and rehabilitation], if the offence in question resulted from the failure of the director to take all reasonable steps that were necessary under the circumstances to prevent the commission of the offence: Provided that proof of the said offence by the firm shall constitute prima facie evidence that the director is guilty under this subsection


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    • (6)  Whenever any manager, agent or employee does or omits to do an act which it had been his or her task to do or to refrain from doing on behalf of the employer and which would be an offence under any provision listed in Schedule 3 for the employer to do or omit to do, he or she shall be liable to be convicted and sentenced in respect thereof as if he or she were the employer.


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    • Section 34 to do an act which it had been his or her task to do or to refrain from doing on behalf of the employer and which would be an offence under any provision listed in Schedule 3 for the employer to do or omit to do, he or she shall be liable to be convicted and sentenced in respect thereof as if he or she were the employer.

      • (8)  Any such manager, agent, employee or director may be so convicted and sentenced in addition to the employer or firm.

      • (9)  In subsection (7) and (8)—

        • (a) “firm” shall mean a body incorporated by or in terms of any law as well as a partnership; and

        • (b) “director” shall mean a member of the board, executive committee, or other managing body of a corporate body and, in the case of a close corporation, a member of that close corporation or in the case of a partnership, a member of that partnership.


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    Health Act to do an act which it had been his or her task to do or to refrain from doing on behalf of the employer and which would be an offence under any provision listed in Schedule 3 for the employer to do or omit to do, he or she shall be liable to be convicted and sentenced in respect thereof as if he or she were the employer.

    Atmospheric Pollution

    Environment Conservation Act

    Waste Disposal

    Identified Activity

    National Water Act

    Pollution and / or degradation

    NEMA to replace ECA

    R500 and / or 6 months

    R500 and / or 6 months

    R100 000 and / or 10 years

    Fine and / or 5 years

    R 5m and / or 10 years

    Schedule 3


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    • NEMA to do an act which it had been his or her task to do or to refrain from doing on behalf of the employer and which would be an offence under any provision listed in Schedule 3 for the employer to do or omit to do, he or she shall be liable to be convicted and sentenced in respect thereof as if he or she were the employer.

      • Private Prosecution under NEMA

      • Costs orders

      • Administrative Penalty

      • Rehabilitation and Costs orders


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