The new Companies Act

If one looks at the current business press, a notable amount has been written on a number of changes in legislation, particularly the new Companies Act.

Our current Companies Act was gazetted in 1973 and our government has seen the need for amendments to be made to keep in line with international standards and hold our Directors more accountable for their actions. The new act will be implemented in April 2011.

The new Companies Act increases the personal liability of Directors and whilst the legal community has received these new changes with favour, it has left Directors pondering if it is worth the risk of taking up such onerous board positions.

As a result you may have found that many of your clients have been querying this new exposure with yourselves, and if not it may be advisable to discuss it with them. By doing so not only do you make your client aware of these changes but you also reduce your exposure to potential Professional Indemnity exposure.

The following are a few of the major changes in the new Companies Act which you may wish to bring to your clients attention :

• Director’s duties have now been codified into the new act and they cannot claim as a defence that they were unaware of their fiduciary duties.
• The definition of knowledge has been widened to include negligence which directors can be held liable for. It will be important that Directors satisfy themselves that they have obtained all relevant information needed to make informed business decisions or they could be held liable for such decisions . Should Directors not posses this knowledge they must acquire the assistance of consultants, lawyers and experts who can assist them in making informed decisions. Even if duties are performed with absolute care and there was no negligence, this would not stop a disgruntled plaintiff instituting a frivolous legal action resulting in your client incurring substantial legal fees.
• Directors can be held liable for the company’s and third parties losses if in breach of the new act
• The new act opens the doorway for class actions previously not allowed.

The good news is that there is a way for your client to manage their risk as Camargue offers a policy which responds to actions under both the old and new Companies Act by providing defence costs, investigation costs and awards for a valid claim.

Furthermore, Camargue offers your client the following additional benefits at no additional cost:

• Sponsored Membership to The Institute of Directors (IOD) for executive board members of the holding company (Maximum of five Members). This includes the IOD Courses “Being a Director” 1 & 2.
• If a commercial dispute does arise we offer private arbitration through Tokiso Dispute Settlement (Pty) Ltd, as successful arbitration keeps sensitive disputes out of the media and saves your client from drawn out court proceedings.
• Corporate Governance Surveys.

Even though Directors and Officers Liability claims are infrequent, they are generally quite severe in nature. Directors involved in litigation may spend vast amounts on legal defence costs, not to mention the awards that may be involved should they lose their case.

For more information on the new Companies Act, Camargues Directors & Officers policy and it’s additional benefits please contact Geoffrey de Pinchart on (011) 356 4837 or Geoffrey@camargueum.co.za