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[2020] ZASCA 17
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Caratco (Pty) Ltd v Independent Advisory (Pty) Ltd (982/18) [2020] ZASCA 17; 2020 (5) SA 35 (SCA) (25 March 2020)
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case
no: 982/18
In the
matter between:
CARATCO (PTY)
LTD
APPELLANT
and
INDEPENDENT ADVISORY (PTY)
LTD
RESPONDENT
Neutral
citation:
Caratco (Pty) Ltd v Independent Advisory (Pty) Ltd
(Case no 982/18)
[2020] ZASCA 17
(25 March 2020)
Coram:
CACHALIA, WALLIS, NICHOLLS AND DLODLO JJA AND KOEN AJA
Heard
:
25 February 2020
Delivered
:
25 March 2020
Summary:
Companies Act 71 of 2008
– whether special fee for
remuneration of business rescue practitioner outside of
s 143
prohibited – special fee agreed with creditor of company under
business rescue – whether void for illegality or contrary
to
public policy – business rescue practitioner’s duties
under
ss 75
and
76
considered.
ORDER
On
appeal from:
Gauteng Division of the High Court, Johannesburg
(Makume J, sitting as court of first instance):
The
application is dismissed with costs.
JUDGMENT
Cachalia
JA (Wallis, Nicholls and Dlodlo JJA and Koen AJA concurring)
[1]
This
is
an
application
for
leave
to appeal against an
order
of
the
Gauteng Local Division of the High Court (Makume
J) ordering the applicant, Caratco (Pty)
Ltd,
to
pay
to Independent Advisory
Services (Pty)
Ltd
(IAS)
the amount of R2 280
000 plus costs on an attorney and client scale. IAS claimed the
amount from Caratco as a ‘success fee’
for having
implemented the business rescue of a financially distressed company,
Galaxy Jewellers (Pty) Ltd. Caratco is a creditor
and holds an
indirect controlling interest in the Galaxy group of
companies.
It
is therefore a
company
‘related’
to
Galaxy
as envisaged in
s 2
of
the
Companies Act 71 of 2008
[1]
(the Act). IAS sued Caratco because it alleged that Caratco had
undertaken liability for payment of the success fee. Caratco denied
liability, but the court a quo rejected all its pleaded defences and
also refused it leave to appeal against the order. Caratco
then
applied for leave to appeal to this court, which referred the
application for oral argument in terms of
s 17(2)
(d)
of the
Superior Courts Act 10 of 2013
, with
the parties having to be prepared to address the court on the merits
if
necessary.
[2]
In order to be granted leave to appeal in terms
of
s 17(1)
(a)
(i) and
s
17(1)
(a)
(ii)
[2]
of the
Superior Courts Act an
applicant for leave must satisfy the
court that the appeal would have a reasonable prospect of success or
that there is some other
compelling reason why the appeal should be
heard. If the court is unpersuaded of the prospects of success, it
must still enquire
into whether there is a compelling reason to
entertain the appeal. A compelling reason includes an important
question of law or
a discreet issue of public importance that will
have an effect on future disputes. But here too, the merits remain
vitally important
and are often decisive.
[3]
Caratco must satisfy this court that it has met this threshold.
[3]
IAS is a company specialising in business rescue.
On 9 October 2015, two of its directors, Mr Frederick Johannes
Klopper and Ms
Rynette Peters were appointed as joint business rescue
practitioners by Galaxy. Klopper discussed the payment of the success
fee
with Mr Stephan Olivier, Galaxy’s managing director, who in
turn agreed the fee of R2 million with Mr Tom Watson. Watson is
Caratco’s managing director and the Galaxy group’s
controlling mind. On 20 February 2016 he confirmed this agreement
in
an email to Klopper. On 24 March 2016 Caratco’s attorney, Mr
Christopher Holfeld of Webber Wentzel Attorneys, informed
Klopper
that he would advise him in due course which entity in the Galaxy
group would be chosen to be responsible for payment of
the fee so as
to maximize any income tax advantage to the group.
[4]
On 30 March 2016, Holfeld requested Klopper by
email to submit his company’s invoice to Caratco. He added that
IAS had to
file its notice of substantial implementation to bring an
end to the business rescue proceedings with the Companies and
Intellectual
Property Commission and publish a notice to this effect
in terms of the applicable regulation. He stated further that ‘until
this has occurred, our client (Caratco) is not obliged to pay any
further amount to you’. IAS complied with the notice and
publication requirement on the same day and duly invoiced Caratco for
payment of the R2 million, excluding VAT. But Caratco ignored
the
invoice and IAS’s subsequent demand for payment.
[5]
Relying on these essential facts IAS launched
motion proceedings against Caratco for payment of the debt on 4
August 2016. Watson
deposed to Caratco’s answering affidavit
opposing the relief claimed. Importantly, he admitted the agreement
between IAS
and Caratco but denied liability on several other
grounds. On 3 March 2017, the motion court referred the matter to
trial. IAS
filed its declaration to which Caratco filed a plea, and
IAS a replication.
[6]
Despite having initially conceded that it had
concluded the agreement with IAS in its answering affidavit, Caratco
now denied this
in its plea. Among several other defences it also
pleaded that if there was an agreement, Holfeld had not been
authorised to conclude
it on its behalf. In the alternative it
pleaded that the agreement was concluded due to its unilateral
mistake, induced by Klopper’s
misrepresentation that a special
fee was due in terms of
s 143
(when it was not a fee contemplated in
the section) and was therefore void. As a measure of last resort
Caratco pleaded that the
agreement was illegal and contrary to public
policy.
[7]
Klopper testified for IAS. He was the only
witness who testified at the trial. He was cross-examined at length.
His version of the
events and correspondence preceding Holfeld’s
communication with him on 30 March 2016, when he was asked to invoice
Caratco,
was largely unchallenged. Significantly, no version was put
to him regarding the factual basis for any of Caratco’s pleaded
defences other than that no agreement was concluded. Caratco closed
its case without calling any witnesses to rebut Klopper’s
version. In particular it did not call Watson to explain why he had
accepted that an agreement was concluded in his answering affidavit,
which was now denied in its plea, or to support its unilateral
mistake defence. And Holfeld, being an attorney, was unsurprisingly
not called to confirm Caratco’s pleaded case that he was not
authorised to conclude the agreement, or crucially, why he
had
asked
Klopper
to
invoice
Caratco
for
the
special
fee,
if
it
had
no
obligation to pay the fee. He would doubtlessly have had some
difficulty explaining this in the light of Klopper’s
uncontested
version.
[8]
The court a quo, therefore, had little difficulty
in finding that Caratco had agreed to pay the success fee of R2
million (plus
VAT) and that it had failed to establish any
of
its
defences,
including
the
illegality
and public
policy
defences, which I shall consider later. The learned judge was also
correct in drawing an adverse inference against Caratco
for having
failed to call Watson and Holfeld, and in finding that a punitive
costs order was warranted against it for the manner
in which it had
conducted the litigation.
[9]
In its application to this court Caratco, wisely,
did not persist with the defences relating to mistake or Holfeld’s
alleged
lack of authority to conclude the agreement. But it persisted
with its unmeritorious defence that no agreement had been concluded.
This despite Watsons’s earlier admission to the contrary. It is
unnecessary to consider the merits of the ‘no agreement
defence’ in any detail because there is no reasonable prospect
of this court overturning the factual findings of the high
court on
this aspect. And it was not suggested that there is any compelling
reason to entertain the appeal on this ground either.
[10]
Instead, in this court Caratco focused on its
statutory illegality and public policy defence/s. It contended that
the issue as to
whether a business rescue practitioner may earn a
success fee outside the strictures of
s 143
of the Act involved
important questions of public policy and constituted a ‘compelling
reason’ for the appeal to be
entertained as contemplated in
s
17(1)
(a)
(ii) of the
Superior Courts Act.
[11
]
The defence was pleaded as follows:
‘5.3
The consensus is illegal,
alternatively
, contrary to public
policy and accordingly void and the Court should declare the
agreement void under the provisions of
section 218
of the Act;
alternatively
, the agreement is unenforceable;
5.3.1
In terms of
section 145
of the Act, the plaintiff (as the business
rescue practitioner) has powers to manage and control the company,
but has the responsibilities,
duties and liabilities of a director as
set out in
sections 75
to
77
of the Act.
5.3.2
In terms of
section 75(3)
of the Act, a business rescue practitioner
may not approve or enter into any agreement in which he/she or a
related person has
a personal financial interest; or determine any
other matter in which the person or a related person has a personal
financial interest.
5.3.3
Section 76
prohibits the business rescue practitioner from gaining an
advantage for itself.
5.3.4 A
business rescue practitioner is not entitled to earn a special fee
from a third party in consequence of acting as the business
rescue
practitioner, such special fee not being one in terms of
section 143
of the Act.
5.3.5
Properly construed,
section 143
of the Act is the only means by which
a practitioner can be remunerated for her services in business rescue
proceedings.’
[12]
I shall consider the illegality defence first.
Caratco has pleaded no facts to support this defence. It is however
beyond dispute
– now that the ‘no agreement’
defence has been found to have no reasonable prospect of success
–
that Caratco undertook the obligation to settle the
success fee. That being so, it contended that
s 143
[4]
of the Act, which provides for the remuneration of business rescue
practitioners, is the sole means by which they may be remunerated.
Therefore, the argument continued, any fees agreed upon outside of
its terms are impliedly prohibited. The court ‘should’
therefore, it concluded, declare the agreement void in accordance
with its powers under
s 218
of the Act.
[13]
The first difficulty with this contention is that
s 143
regulates the remuneration of business rescue practitioners by
the company under business rescue. It says nothing about any other
fee arrangements that may be concluded between a practitioner and a
third party, which is what the agreement in issue in this case
is.
So, whatever the scope of
s 143
regarding such fee arrangements, it
does not apply here.
[14]
But even if we accept the dubious proposition
that
s 143
is the
sole basis
by which business rescue practitioners may be paid, there are no
indications in the section suggesting that an agreement
that does not
fall within its ambit is void. In the absence of any such clear
expression, the question as to whether or not the
agreement is void
depends on whether this inference may be drawn from the language of
the statute, or put differently, whether
such intention may be
imputed to the lawmaker. One such indication would be if the statute
penalises the act; it could then be
said to impliedly prohibit it and
render it null and void. But this is not a hard and fast rule. It is
only if a court is convinced
that the lawmaker intended to invalidate
the act that a court would so hold.
[5]
Section 143
contains no language entitling a court to draw any such
inference, much less here where the agreement is with a third party.
[15]
Realising the difficulties it faced relying on
s
143
to invalidate the agreement, Caratco attempted to bolster its
case by relying generally on two other provisions,
ss 75(3)
and
76
.
It pleaded that because a business rescue practitioner has the powers
to manage and control the company in terms of
s 140(3)
(b)
,
[6]
and the responsibilities, duties and liabilities of a director as set
out in
ss 75(3)
and
76
, its failure to fulfil its responsibilities
and duties for which these sections provide renders the agreement
void.
[7]
[16]
Section 75
deals with a director’s duty not
to have personal financial interests in future or existing contracts
with the company.
[8]
Section 140(3)
(b)
imposes
the same general obligations and fiduciary duties of a director under
s 75
upon a business rescue practitioner when he or she assumes this
responsibility,
mutatis
mutandis
.
[9]
The
directors
remain
in
office
under
s 137(2)
acting under the practitioner’s
authority. The practitioner does not become a director. At common
law, which applies to
s 75
, a director has a fiduciary duty to avoid
any conflicts of interest with the company. In general, therefore, a
director cannot
have an interest in a contract with the company
unless it approves the contract at a general meeting after disclosure
of the interest
by the director. Where no disclosure is made the
contract is voidable (not void) at the company’s instance.
[10]
[17]
Section 75(3)
, one of the two provisions Caratco
attempts to rely upon to invalidate the agreement, deals with one
such instance where an ‘only
director of a company’ is
required to disclose any personal financial interest in a contract
with the company to its shareholders.
To assist the reader the
section is repeated here. It provides:
‘(3)
If a person is the only director of a company, but does not hold all
of the beneficial interests of all of the issued
securities of the
company, that person may not-
(a)
approve or enter into any agreement in which the
person or a related person has a personal financial interest; or
(b)
as
a director, determine any other matter in which the person or a
related person has a personal financial interest,
unless
the agreement or determination is approved by an ordinary resolution
of the shareholders after the director has disclosed
the nature and
extent of that interest to the shareholders.’
[18]
There are several problems with Caratco’s
attempt to rely on this section. The first obvious one is that it
applies only where
there is a single director, who does not hold all
the shares in the company. In addition, even assuming the section is
broad enough
to include agreements between the director and a third
party, as opposed to with the company itself, the agreement must, at
the
very least, be one in which the company has a material
interest.
[11]
The
agreement between IAS
and Caratco is not one
in
which Galaxy has any interest. It therefore did not apply to Galaxy,
which has a board of directors, not a single director; secondly,
Caratco did not specify which subsection –
s 75(3)
(a)
or
s 75(3)
(b)
–
applied in this case; thirdly, it pleaded no facts to bring the
contract within the ambit of the provision,
[12]
nor did it even suggest to Klopper in cross-examination that Galaxy
had any interest in the agreement or that the business rescue
practitioners had a duty to disclose the agreement with Caratco to
the Galaxy board.
[19]
On the contrary it is clear from the evidence
that Watson, who was the managing director of Caratco and the
controlling mind of
the Galaxy group, was a central figure in
negotiating and concluding the agreement. So, neither Caratco nor
anyone else in the
Galaxy group can complain that they were unaware
of the agreement or that it amounted to a conflict of interest having
regard to
the business rescue practitioner’s fiduciary duty to
Galaxy. On the contrary if anyone had cause to complain it may have
been Galaxy (the entity under business rescue) and not Caratco, which
now deploys this argument cynically to escape the consequences
of its
agreement.
[20]
Caratco’s reliance on
s 76
of the Act is
equally unmeritorious. The section deals with directors’
fiduciary duties and their duty of care, skill and
diligence owed to
the company. At common law the duty includes a prohibition against a
director gaining an advantage for himself
by, for example,
misappropriating the company’s corporate opportunities. As with
s 75
, and also by virtue of
s 140(3)
(b)
,
these duties apply equally to business practice practitioners.
[21]
Section 76
is extensive in its scope and
comprises five sub-sections that also contain further
sub-sections.
[13]
Here too, Caratco has not pleaded which sub-section it specifically
relies upon or the facts that supposedly bring the business
rescue
practitioner’s conduct in concluding the success fee
arrangement with it, within its ambit. And, as I pointed out
earlier
in relation to the
s 75(3)
complaint, it did not suggest to Klopper
during his cross- examination how his conduct supposedly fell foul of
any of its provisions.
IAS cannot sensibly be expected to answer this
allegation.
[22]
Finally Caratco pleaded that because the
agreement is ‘illegal’ the court ‘should’
declare it void under
the provisions of
s 218
of the Act.
[14]
Section 218
contains three sub-sections but Caratco did not
specifically refer to the sub- section it wishes to rely upon,
either. But it seems
that it had
s 218(1)
in mind for this purpose.
The section permits a court to declare an agreement void if it is
‘prohibited, void, voidable or
may be declared unlawful’.
[23]
I have already indicated that there is no
substance in any of Caratco’s ‘illegality’
complaints. On that basis
it is unnecessary to consider the court’s
power to declare a contract concluded contrary to the provisions of
the Act, void
under
s 218(1).
That point is not reached in this case.
[24]
What remains is Caratco’s public policy
defence. It contended that the agreement is contrary to public policy
on two grounds:
First, it said that Klopper ‘subverted the
democratic vote of the majority of creditors’ by claiming the
debt under
the pretext that it was due in terms of
s 143
, when it was
not. In this regard
s 143(3)
provides for a meeting of the creditors
to consider and approve the proposed agreement, and
s 143
(4)
provides for a creditor, who voted against the proposal, to apply
to a court within 10 business days of the meeting
for an order setting aside the agreement on the grounds that it is
not just and
equitable or that the fee charged is egregiously
unreasonable having regard to the financial circumstances of the
company. Thus,
submitted Caratco, the other creditors could have
secured a greater dividend for themselves than the amount they
received and the
conclusion of the private treaty between IAS and one
of the creditors
–
Caratco – without disclosure to the other creditors was
inimical to the legislative purposes of the Act.
[25]
Secondly, and related to the first ground, it
contended that because business rescue practitioners have a duty of
impartiality and
independence towards the company under business
rescue, the agreement for payment of a success fee with a single
creditor without
seeking the approval of the general body of
creditors offended this duty. This is so, it is contended, because
the creditor with
whom the agreement is concluded would be ‘captured’
by the business rescue practitioner and secure its own interests
outside of the general body
of
creditors. This implied that there was some sort of bribery or
collusive behaviour between the practitioner and the creditor.
[26]
These submissions were not only extraordinary but
utterly without
any merit. It
is trite that it is for the party seeking to impugn an agreement on
public policy grounds to plead and prove the facts
upon which it is
founded.
[15]
Caratco has done neither. Even worse, the proven facts are against
it.
[27]
The evidence reveals that Klopper had initially
included the success fee in the draft business rescue plan that he
had prepared
on 19 February 2016, which would be voted on as
envisaged in
s 143(4).
However, Holfeld requested him to delete the
fee from the plan so that it could be dealt with in a separate
agreement with another
company – Outlast (Pty) Ltd – that
is also controlled by Mr Watson and his co-directors. Klopper agreed
to this proposal.
That
agreement
never
materialised
because
Caratco
subsequently
undertook liability for the payment of the success fee. So, when
Galaxy’s creditors and shareholders adopted
the business rescue
plan on 1 March 2016 there was no separate success fee to be voted
on. There was therefore no factual basis
for the suggestion that Mr
Klopper was subverting the democratic vote of the creditors by
agreeing to delete the success fee at
Mr Holfeld’s request. If
there was any prejudice to the other creditors that would have to be
laid at Caratco’s door,
not IAS.
[28]
The facts, however, show there was no prejudice
to any creditor either. Caratco submitted that in consequence of the
fee, the creditors
had to take less money than was otherwise
available for distribution to them. But Mr Klopper’s evidence
contradicted this
expressly. He testified that the fee had no
financial impact on creditors at all as it was an additional amount
that Caratco had
undertaken to pay. It was not earmarked for the
creditors and if they were dissatisfied with their dividend, they
would have voted
against it, but they did not.
[29]
It hardly lies in the mouth of Caratco, which
seeks only to avoid having to meet its payment obligations, to now
opportunistically
invoke some unproven prejudice to creditors, to
this end. If this was truly its concern, it would have joined the
other creditors
to enable them to make this case.
[30]
Even more extraordinary is the submission that
the agreement for payment of
the
success fee with a
single
creditor, without
seeking
the approval of the body of creditors, was offensive because it would
lead to a creditor being ‘captured’ by
the business
rescue practitioner to the disadvantage of the general body
of creditors. But it was Watson and Holfeld,
Caratco’s managing director and attorney respectively –
not IAS –
who proposed that the additional fee be deleted from
the draft plan. The idea that IAS through Klopper was somehow engaged
in some
sort of collusive process that resulted in Caratco’s
‘capture’ was not only at odds with the facts, but also
defies any logic.
[31]
Importantly, Caratco did not contend – and
was unable to make a
case –
that the fee it freely negotiated and agreed upon with the business
rescue practitioner was either unjust, inequitable
or ‘egregiously
unreasonable’ as envisaged in
s 143(4)
of the Act. In these
circumstances the public policy defence is also without any merit.
[32]
For these reasons Caratco has neither made out a
case that it has reasonable prospects of success in the appeal nor
that there are
other compelling reasons to grant it leave to appeal.
[33]
The application is accordingly dismissed with
costs.
_____________________
A
CACHALIA
JUDGE OF
APPEAL
Appearances
For appellant: D J
Vetten
Instructed by: Nel
Van der Merwe & Smalman Attorneys, The Willows Honey Attorneys,
Bloemfontein
For respondent: G D
Wickins
Instructed by:
Brooks & Braatvedt Inc, Johannesburg
Symington & De
Kok, Bloemfontein
[1]
‘Related and inter-related persons, and control
(1) For all
purposes of this Act-
(a) . . .
(b) . . .
(c) a juristic
person is related to another juristic person if-
(i) either of them
directly or indirectly controls the other, or the business of the
other, as determined in accordance with subsection
(2);
(ii) either is a
subsidiary of the other; or
(iii) a person
directly or indirectly controls each of them, or the business of
each of them, as determined in accordance with
subsection (2).’
[2]
‘Leave to appeal
(1) Leave to appeal
may only be given where the judge or judges concerned are of the
opinion that-
(a) (i) the appeal
would have a reasonable prospect of success; or
(ii) there is some
other compelling reason why the appeal should be heard, including
conflicting judgments on the matter under
consideration.’
[3]
Minister of Justice and Constitutional Development and Others v
Southern Africa Litigation Centre and Others
[2016] ZASCA 17
;
2016
(3) SA 317
(SCA) paras 23 and 24.
[4]
Section 143
reads:
‘Remuneration
of practitioner
(1) The
practitioner is entitled to charge an amount to the company for the
remuneration and expenses of the practitioner in accordance
with the
tariff prescribed in terms of subsection (6).
(2) The
practitioner may propose an agreement with the company providing for
further remuneration, additional to that contemplated
in subsection
(1), to be calculated on the basis of a contingency related to-
(a) the adoption of
a business rescue plan at all, or within a particular time, or the
inclusion of any particular matter within
such a plan; or
(b) the attainment
of any particular result or combination of results relating to the
business rescue proceedings.
(3) Subject to
subsection (4), an agreement contemplated in subsection (2) is final
and binding on the company if it is approved
by-
(a) the holders of
a majority of the creditors’ voting interests, as determined
in accordance with
section 145(4)
to (6), present and voting at a
meeting called for the purpose of considering the proposed
agreement; and
(b) the holders of
a majority of the voting rights attached to any shares of the
company that entitle the shareholder to a portion
of the residual
value of the company on winding-up, present and voting at a meeting
called for the purpose of considering the
proposed agreement.
(4) A creditor or
shareholder who voted against a proposal contemplated in this
section may apply
to a court within 10 business days after the date of voting on that
proposal, for an order setting aside the
agreement on the grounds
that-
(a) the agreement
is not just and equitable; or
(b) the
remuneration provided for in the agreement is egregiously
unreasonable having regard to the financial circumstances of
the
company.
(5) To the extent
that the practitioner’s remuneration and expenses are not
fully paid, the practitioner’s claim for
those amounts will
rank in priority before the claims of all other secured and
unsecured creditors.
(6) The Minister
may make regulations prescribing a tariff of fees and expenses for
the purposes of subsection (1).’
[5]
Geue and Another v Van Der Lith and Another
[2003] ZASCA 118
;
2004 (3) SA 333
(SCA)
para 18.
[6]
Mistakenly pleaded as
s 145
of the Act.
[7]
Caratco also included
s 77
among the responsibilities, duties and
liabilities of director and business rescue practitioner it pleaded.
But no argument was
presented regarding this section.
[8]
‘Director's personal financial interests
(1) In this
section-
(a) “director”
includes-
(i) an alternate
director;
(ii) a prescribed
officer; and
(iii) a person who
is a member of a committee of the board of a company, irrespective
of whether the person is also a member of
the company's board; and
(b) “related
person”, when used in reference to a director, has the meaning
set out in
section 1
, but also includes a second company of which
the director or a related person is also a director, or a close
corporation of which
the director or a related person is a member
(2) This section
does not apply-
(a) to a director
of a company-
(i) in respect of a
decision that may generally affect-
(aa) all of the
directors of the company in their capacity as directors; or
(bb) a class of
persons, despite the fact that the director is one member of that
class of persons, unless the only members of
the class are the
director or persons related or inter-related to the director; or
(ii) in respect of
a proposal to remove that director from office as contemplated in
section 71
; or
(b) to a company or
its director, if one person-
(i) holds all of
the beneficial interests of all of the issued securities of the
company; and
(ii) is the only
director of that company.
(3) If a person is
the only director of a company, but does not hold all of the
beneficial interests of all of the issued securities
of the company,
that person may not-
(a) approve or
enter into any agreement in which the person or a related person has
a personal financial interest; or
(b) as a director,
determine any other matter in which the person or a related person
has a personal financial interest,
unless the
agreement or determination is approved by an ordinary resolution of
the shareholders after the director has disclosed
the nature and
extent of that interest to the shareholders.
(4) At any time, a
director may disclose any personal financial interest in advance, by
delivering to the board, or shareholders
in the case of a company
contemplated in subsection (3), a notice in writing setting out the
nature and extent of that interest,
to be used generally for the
purposes of this section until changed or withdrawn by further
written notice from that director.
(5) If a director
of a company, other than a company contemplated in subsection (2)
(b) or (3), has a personal financial interest
in respect of a matter
to be considered at a meeting of the board, or knows that a related
person has a personal financial interest
in the matter, the
director-
(a) must disclose
the interest and its general nature before the matter is considered
at the meeting;
(b) must disclose
to the meeting any material information relating to the matter, and
known to the director;
(c) may disclose
any observations or pertinent insights relating to the matter if
requested to do so by the other directors;
(d) if present at
the meeting, must leave the meeting immediately after making any
disclosure contemplated in paragraph (b) or
(c);
(e) must not take
part in the consideration of the matter, except to the extent
contemplated in paragraphs
(b) and (c);
(f) while absent
from the meeting in terms of this subsection-
(i) is to be
regarded as being present at the meeting for the purpose of
determining whether sufficient directors are present
to constitute
the meeting; and
(ii) is not to be
regarded as being present at the meeting for the purpose of
determining whether a resolution has sufficient
support to be
adopted; and
(g) must not
execute any document on behalf of the company in relation to the
matter unless specifically requested or directed
to do so by the
board.
(6) If a director
of a company acquires a personal financial interest in an agreement
or other matter in which the company has
a material interest, or
knows that a related person has acquired a personal financial
interest in the matter, after the agreement
or other matter has been
approved by the company, the director must promptly disclose to the
board, or to the shareholders in
the case of a company contemplated
in subsection (3), the nature and extent of that interest, and the
material circumstances
relating to the director or related person's
acquisition of that interest.
(7) A decision by
the board, or a transaction or agreement approved by the board, or
by a company as contemplated in subsection
(3), is valid despite any
personal financial interest of a director or person related to the
director, only if-
(a) it was approved
following disclosure of that interest in the manner contemplated in
this section; or
(b) despite having
been approved without disclosure of that interest, it-
(c) has
subsequently been ratified by an ordinary resolution of the
shareholders following disclosure of that interest; or
(d) has been
declared to be valid by a court in terms of subsection (8).
(8) A court, on
application by any interested person, may declare valid a
transaction or agreement that had been approved by the
board, or
shareholders, as the case may be, despite the failure of the
director to satisfy the disclosure requirements of this
section.’
[9]
Section 140(3)(b)
provides that during a company’s business
rescue proceedings, the practitioner has the responsibilities,
duties and liabilities
of a director of the company, as set out in
ss 75
to
77
.
[10]
See generally P Delport Henochsberg on the
Companies Act 71 of 2008
Vol 1 [issue18] at 292(2)–292(5) (online version).
[11]
See
s 75(6)
and
s 75(7).
[12]
Cf Yannakou v Apollo Club
1974 (1) SA 614
(A) at 623F-H; Naude and
Another v Fraser
[1998] ZASCA 56
;
1998 (4) SA 539
(SCA) at 563F-G; Bato Star Fishing
(Pty) Ltd v Minister of Environmental Affairs and Tourism and Others
[2004] ZACC 15
;
2004 (4) SA 490
(CC) para 27.
[13]
‘Standards of directors conduct
(1) In this
section, “director” includes an alternate director, and-
(a) a prescribed
officer; or
(b) a person who is
a member of a committee of a board of a company, or of the audit
committee of a company,
irrespective of
whether or not the person is also a member of the company's board.
(2) A director of a
company must-
(a) not use the
position of director, or any information obtained while acting in
the capacity of a director-
(i) to gain an
advantage for the director, or for another person other than the
company or a wholly-owned subsidiary of the company;
or
(ii) to knowingly
cause harm to the company or a subsidiary of the company; and
(b) communicate to
the board at the earliest practicable opportunity any information
that comes to the director's attention, unless
the director-
(i) reasonably
believes that the information is-
(aa) immaterial to
the company; or
(bb) generally
available to the public, or known to the other directors; or
(ii) is bound not
to disclose that information by a legal or ethical obligation of
confidentiality.
(3) Subject to
subsections (4) and (5), a director of a company, when acting in
that capacity, must exercise the powers and perform
the functions of
director-
(a) in good faith
and for a proper purpose;
(b) in the best
interests of the company; and
(c) with the degree
of care, skill and diligence that may reasonably be expected of a
person-
(i) carrying out
the same functions in relation to the company as those carried out
by that director; and
(ii) having the
general knowledge, skill and experience of that director.
(4) In respect of
any particular matter arising in the exercise of the powers or the
performance of the functions of director,
a particular director of a
company-
(a) will have
satisfied the obligations of subsection (3) (b) and (c) if-
(i) the director
has taken reasonably diligent steps to become informed about the
matter;
(ii) either-
(aa) the director
had no material personal financial interest in the subject matter of
the decision, and had no reasonable basis
to know that any related
person had a personal financial interest in the matter; or
(b) the director
complied with the requirements of
section 75
with respect to any
interest contemplated in subparagraph (aa); and
(iii) the director
made a decision, or supported the decision of a committee or the
board, with regard to that matter, and the
director had a rational
basis for believing, and did believe, that the decision was in the
best interests of the company; and
(b) is entitled to
rely on-
(i) the performance
by any of the persons-
(aa) referred to in
subsection (5); or
(bb) 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 applicable law; and
(ii) any
information, opinions, recommendations, reports or statements,
including financial statements and other financial data,
prepared or
presented by any of the persons specified in subsection (5).
(5) To the extent
contemplated in subsection (4) (b), a director is entitled to rely
on-
(a) one or more
employees of the company whom the director reasonably believes to be
reliable and competent in the functions performed
or the
information, opinions, reports or statements provided;
(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 the director reasonably believes are matters-
(i) within the
particular person's professional or expert competence; or
(ii) as to which
the particular person merits confidence; or
(c) a committee of
the board of which the director is not a member, unless the director
has reason to believe that the actions
of the committee do not merit
confidence.’
[14]
‘Civil actions
(1) Subject to any
provision in this Act specifically declaring void an agreement,
resolution or provision of an agreement, Memorandum
of
Incorporation, or rules of a company, nothing in this Act renders
void any other agreement, resolution or provision of an
agreement,
Memorandum of Incorporation or rules of a company that is
prohibited, voidable or that may be declared unlawful in
terms of
this Act, unless a court has made a declaration to that effect
regarding that agreement, resolution or provision.
(2) Any person who
contravenes any provision of this Act is liable to any other person
for any loss or damage suffered by that
person as a result of that
contravention.
(3) The provisions
of this section do not affect the right to any remedy that a person
may otherwise have.’
[15]
AB v Pridwin Preparatory School
[2018] ZASCA 150
;
2019 (1) SA 327
(SCA) para 27.