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It doesn’t matter if you agree with the Futuregrowth decision to halt loans to certain state owned entities or not. Especially if the point taken from the Companies Act by tax guru Matthew Lester is anything to go by.
In the fine print, directors can be held personally liable if losses are sustained due to dealings with an entity displaying poor standards of governance.
The King III recommendations have been in place since 2009, and all that’s needed is for it to used as it should be, says Lester. It all ties into accountability, and we know how well that’s adhered to in government. Another interesting read. – Stuart Lowman
By Matthew Lester*
Perhaps we are closer to the resolution of SA’s state capture nightmare than many believe. But we are in for a rough run in the short term.
The King III recommendations on corporate governance, 2009, have taken years to gain traction. And I don’t think the King IV draft, in itself, is going to take things a lot further unless they are adopted by government, that is. That would be worth a great deal.
The answers are firmly entrenched in the companies act and the fast evolving world of corporate governance. Now some say that Government is subject to the PFMA and other legislation. But they are missing the plot.
The crisp issue and indeed the turning point for SA may well be the new movement that started in the Oakbay debacle and extended last week. Financiers are pulling out from funding State Owned Enterprises or any company with questionable corporate governance standards. There is massive significance and hope in this.
The suggestion that this can be addressed by bringing banks under the control of the minister of finance instead of the Reserve Bank is just pathetic. Dismiss it as a desperate threat. That would just accelerate SA’s current state of economic chaos.
Picture courtesy of Twitter @brandanrey
Now that the movement has started all risk committees of investor companies are having to pay attention. Some pretty clued up minds are effectively saying that a ‘reasonable board of directors’ would not fund an investee enterprise with suspect governance standards. This has now the benchmark.
Turn to section 76 of the companies act. A director is required to perform his duties
• In good faith and for a proper purpose
• In the interests of the company
Now take it further. A director’s delictual liability includes:
- Failure to act with the due care, skill and diligence that might reasonably be expected of a person in a similar position and with the same knowledge, experience and skill of the director. So, and correct me if I am wrong please, if directors conclude dealings with an SOE or company displaying poor standards of governance and losses are sustained, the directors are potentially facing personal liability for the loss. Not only from the shareholders but from stakeholders as well.
Now if a group of concerned South Africans could entrench these principles through a substantial test case, the companies act may finally get the teeth it has had since 2009 but never used. Sooner or later it’s going to happen.
One wonders if Professor Mervyn King SC is smiling? Failure to implement good corporate governance standards is now the trigger to the wrath of the companies act.
By the time SA gets to the ANC national conference surely those looking for a job for the future government must surely realise that pinning your colours to the mast of state capture is just not going to work.
- Rhodes University Professor Matthew Lester was educated at St Johns College, Wits and Rhodes universities. He is a chartered accountant who has worked at Deloitte, SARS and BDO. A member of the Davis Tax Committee investigating the structure of aspects of the RSA tax system, he is based in Grahamstown. Follow him @ProfMattLester.
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