The companies Act of 2008 had laid out a number of duties expected from a director of a company. A director must at all time act in the best interest of the company and he/she must avoid any conflict of interest between his/her personal financial interest and that of the company. A director is required to disclose any personal financial interest which may be in conflict with that of the company.

In terms of Section 75 and 76 of the Companies Act 2008, A director is expected to act with a reasonable degree of care, skill and diligence; to act in the best interest of the company; to act in good faith and use his position for the intended purpose; to disclose to the board of directors any material information that comes to the his/her attention; not to use his position as director or use the information he obtained while acting in the capacity of a director, to gain an advantage for himself/herself or another person or knowingly  cause harm to the company and the last is to disclose to the board of directors any personal financial interest in a matter in which the company may also have an interest.

For the purpose of this article, we shall focus on the last mentioned duty in terms of section 75 of the Act which states that a director is to disclose any personal financial interest in a matter in which the company also has an material interest. The reason the legislature inserted this clause was to deter a director from engaging in any business interests that may possibly cause a conflict of interest  between the personal financial interest of the director and that of the company.

Conflict of interest refers to a situation where for example a director of a company benefits financially, in other way other than through his/her remuneration as a director, as a result of his position as a director. In other words, a director may not make personal gain from information he/she obtained in his/her capacity as a director, even if the advantage was obtained openly, in good faith and at no expense to the company (this also applies even if the director resigns).

In the case of Robinson v Randfontein Estates Gold Mining Co Ltd, the Randfontein Estate Company could not buy a farm from the seller due to a purchase price disagreement. Mr Robinson, who was a director of the company, then decided to buy the farm and resold it to the company (Randfontein Estate Gold Mining Co Ltd) at a profit of R550 000. The court concluded that the profit Mr Robinson had made was unjustified because the profit had been made as a result of his position as a director in the Randfontein Estate Gold Mining Company.

Section 75 of the Act, require the director to disclose in advance any personal financial interest in a matter in which a director may be involved and which the company may have an interest. The disclosure is to be made through a written notice, tabled before board of directors and the shareholders.

If the director fails to make the disclosure in terms of section 75, any contract, entered into by the director who failed to disclose the personal financial interest, may be later rectified by the Board of director and the shareholder or may be validated by a court order.

A director of a company ought to act in line with the standards set out in the Companies Act of 2008.  If a director particularly fails to disclose a personal financial interest, the affected agreement may be invalidated if found to be in breach of section 75 of the Act. A director must at all times be vigilant to avoid conflict of interest between himself and the company he/she serves as a director.  

Reference list:

Cassim FHI, Cassim MF, Cassim R, Jooste R, Shev J and Yeats J THE LAW OF BUSINESS STRUCTURES (2012) Juta Cape Town.

Juta’s Pocket Statutes The Companies Act 71 of 2008 & Regulations 10th ed (2017) Juta Cape Town