Company Directors: Are You Really Protected Against The Risks of Non-Compliance?
The Companies and Intellectual Property Commission (CIPC) issued Guideline 1 of 2025 to raise awareness among company directors about the serious consequences of failing to uphold their statutory and fiduciary duties in terms of the Companies Act No. 71 of 2008 (Companies Act).
A director is required to act in good faith, with proper purpose, in the best interests of the company and not abuse their position to knowingly cause harm to the company. Directors must adhere to standards of care, skill, and diligence, avoid conflicts of interest, and maintain proper records and internal controls.
Being a director isn’t just a title; it’s a legal responsibility.
-
Civil and Criminal Liability
Directors can be held personally liable (civilly) for any loss or damage the company suffers if they¹:
- act without authority.
- allow reckless, grossly negligent, or fraudulent business conduct.
- are complicit in fraud-related acts or omissions.
- approve false or misleading financial statements or prospectuses.
- fail to oppose decisions they know contravene the Companies Act.
Directors may face criminal charges if they²:
- disclose confidential information improperly.
- falsify accounting records.
- provide false or misleading information with intent to defraud.
- participate in fraudulent acts or statements (e.g., false prospectus).
2. Consequences of non-compliance
CIPC has the authority to issue compliance notices and refer matters to the National Prosecuting Authority (NPA) or SAPS for criminal investigation.
Directors may be declared delinquent, meaning they’re barred from serving as directors in South African companies if a person is convicted in terms of section 213 (1)³ or 214 (1)¹¹ of the Companies Act, they can be liable for a fine or imprisonment for period not exceeding 10 years or both.
Even though a director may have directors’ insurance, the CIPC has highlighted that this does not absolve the director from liabilities arising out of the non-compliance with certain fiduciary duties and directors may still be held liable, these provisions are:
- Section 75 – Directors must disclose any personal financial interest they or a related person have in a company matter.
- Section 76 – Directors must act in good faith, in the company’s best interests with the degree of care, skill, and diligence expected of someone in that role
- Section 77 – Directors can be personally liable for losses caused by misconduct or negligence.
- Section 78 – There are limits to what directors can be protected against.
- Section 213 – It’s a criminal offence to disclose confidential information obtained while performing duties under the Act, unless allowed by law.
- Section 214 – It’s a criminal offence to knowingly submit false information to the CIPC, mislead or obstruct CIPC investigations and create false records and conceal the truth.
- Section 215 – Directors can’t obstruct or hinder officials from carrying out their duties.
Guideline 1 of 2025 serves as a clear warning, directors must be pro-active in understanding and complying with their legal duties. There’s no room for ignorance, companies cannot shield directors from liability, and breaches can lead to career-ending outcomes and personal financial ruin.
Spencer West provides the expertise and support to South African directors to navigate these risks with confidence, ensuring compliance while protecting both business and personal interests.
This article was written by Sanusha Govender, Partner Corporate, Commercial & Mining, and assisted by Emaka Afrika. Contact us: [email protected]
¹ Section 77(3) of Companies Act 7 of 2008.
² Sections 213 & 214 of Companies Act 7 of 2008.
³ Section 213 (1) of the Companies Act 7 of 2008.
¹¹ Section 214 (1) of the Companies Act 7 of 2008.
