Running a company in South Africa comes with big responsibilities, especially for directors. Many business owners and executives often ask: when can a director be held personally liable for company conduct under the Companies Act 71 of 2008?

The Act sets clear expectations for directors and outlines circumstances where they can be held personally accountable. Below we break down the key principles that every business owner should understand.

Directors’ Duties Under the Companies Act

The Companies Act partially codifies directors’ common law duties. Where the Act is silent, the common law still applies.

In particular, section 76 requires directors to:

• Act honestly, in good faith, and for a proper purpose.
• Always act in the best interests of the company.

Failing to uphold these duties can expose directors to personal claims for damages.

Key Provisions on Director Liability

The Act goes beyond general duties by spelling out scenarios where directors may face liability.

1. Section 20(6) – A shareholder may claim damages from any person (including directors) who, through fraud, intent, or gross negligence, causes the company to act outside the Act.
2. Section 22(1) – A company may not carry on business recklessly, with gross negligence, or with intent to defraud.
3. Section 77 – Lists several circumstances where directors may be liable, including:
   • Acting outside their authority.
   • Allowing reckless or fraudulent trading.
   • Approving false or misleading financial statements.
   • Consenting to unlawful distributions, share issues, or financial assistance.
4. Section 218(2) – Any person who contravenes the Act can be held liable to another for damages suffered as a result.

ractical Examples

Directors can be held personally responsible if they:

• Approve false financial reports or misleading prospectuses.
• Fail to prevent reckless trading.
• Allow company assets to be misapplied or mismanaged.
• Ignore legal requirements for issuing shares or providing financial assistance.

In these cases, creditors, shareholders, or other affected parties may pursue claims directly against directors.

Are There Any Defences?

Yes. The Act recognises that directors should not be punished for every decision that turns out badly.

Under section 76(4), a director can defend themselves if they acted:

• In good faith,
• With reasonable care, skill, and diligence, and
• In the company’s best interests.

Courts also have discretion to excuse directors if they acted honestly and reasonably, even if things went wrong.

The Bottom Line for Business Owners

Being a director in South Africa carries both authority and personal risk. Directors who act recklessly, dishonestly, or outside their authority can be held personally liable for company losses, debts, or damages.

For business owners and executives, the takeaway is clear:

• Know your duties under the Companies Act.
• Act in good faith and in the company’s best interests.
• Seek legal advice before making high-risk decisions.

This ensures compliance, protects the company, and reduces the risk of personal liability.