The Companies Act 71 of 2008, also known as the Companies Act, is a legal framework that governs the operation and management of companies in South Africa.
One of the key sections of this act is Section 75, which deals with the duties and responsibilities of directors when it comes to the interests of the company. In particular, this section addresses the conflicting interests that directors may have when doing business with a company.
Company directors have a fiduciary duty
Directors of a company have a fiduciary duty to act in the best interests of the company at all times. This means that they must put the interests of the company ahead of their own personal interests or those of any other party.
However, when it comes to doing business with a company, directors may find themselves in a position where their personal interests conflict with those of the company. For example, a director may own a business that they would like to sell goods or services to the company they are a director of, albeit at a higher price than other businesses may render the goods or services.
Conflicts of interest must be disclosed
Section 75 of the Companies Act addresses this issue by requiring directors to disclose any conflicts of interest to the board of directors. This disclosure must be made in writing and must include details of the nature and extent of the conflict. Once the conflict has been disclosed, the board of directors must decide whether or not to approve the transaction. If the board decides to approve the transaction, they must do so in a manner that is in the best interests of the company.
It is important to note that if a director does not disclose a conflict of interest and enters into a transaction with the company, they may be held liable for any loss that the company suffers as a result. This could include fines, penalties or even criminal charges.
Section 75 protects the company and ensures that directors are accountable
In conclusion, Section 75 of the Companies Act 71 of 2008 serves as a safeguard against directors engaging in transactions that may benefit them at the expense of the company. It ensures that directors are held accountable for any conflicts of interest and that any transactions that are approved are done so in the best interests of the company. Directors must be transparent and disclose any potential conflicts of interest to the board of directors and let the board decide whether to approve the transaction or not.
For expert advice on directors’ conflict of interest, the Companies Act and Section 75, speak to our Corporate and Commercial Law team at Abrahams & Gross.
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The articles on these web pages are provided for general information purposes only. Whilst care has been taken to ensure accuracy, the content provided is not intended to stand alone as legal advice. Always consult a suitably qualified attorney on any specific legal problem or matter.