New years’ property resolutions – 2020 legislation that promises change like never before
January 8, 2020

A director’s duty to disclose his/her personal financial interest

X acts as a non-executive director of A (Pty) Ltd. and is also a director and shareholder of B (Pty) Ltd. The board of directors of A (Pty) Ltd. does not know of X’s involvement in B (Pty) Ltd. and intends on doing business with B (Pty) Ltd. Will X have a duty to disclose his interest in the matter to the board of directors of A (Pty) Ltd?

A director’s personal financial interests is governed by section 75 of the Companies Act, 71 of 2008 (“the Act“). Section 75 of the Act defines a director for these purposes as an alternate director, prescribed officer and a person who is a member of a committee of the board of a company, whether that person is a member of the company’s board or not.

Section 75(5) regulates disclosures of a director’s personal financial interests in a transaction. It provides that in the instance that a director of a company has a personal financial interest with regard to a transaction which should be considered at a meeting of the company’s board of directors, that the director must disclose his/her interest and the nature of such interest before the transaction is considered at the meeting.[1] It is thus a requirement that a director which has a personal financial interest in a proposed transaction, disclose that interest to the board beforehand or at the meeting.

The director who has the personal financial interest must then leave such meeting, should he be present, right after making any such disclosure to the board and must not take part in any further consideration of the transaction.[2] After leaving the meeting, the director will be considered present for purposes of determining a quorum for the meeting,[3] but is not to be regarded as present for purposes of determining whether enough support for a resolution to be adopted exists.[4] The director may further not execute any documentation with regard to the transaction unless he/she has been authorised to do so.

The procedure to inform the board of directors of a director’s personal financial interest is governed by section 75(4) of the Act. It provides that a director may deliver a notice in writing setting out the nature and extent of his personal financial interest to the board of the company in advance.[5] Should he/she not do so in advance, he/she may still disclose such interest at the meeting of the board.

Should the director decide not to disclose his/her personal financial interest in the transaction at the board meeting, any transaction concluded may still be valid, subject to section 75(7) of the Act. Section 75(7) provides that a decision made by the board to enter into a transaction is still valid notwithstanding the personal financial interest of a director if it was approved after disclosure,[6] or if it was approved without the disclosure but was ratified by an ordinary resolution of the shareholders following such disclosure,[7] or has been declared valid by the court on application.[8]

Thus, based on the discussion above, the answer to the question as to whether X has a duty to disclose his interest in the transaction to the board of directors of A (Pty) Ltd. is yes; X will have a duty placed on him in terms of the Act to disclose his interest in B (Pty) Ltd. to the board of A (Pty) Ltd.

[1]           Section 75(5)(a) of the Act.

[2]           Section 75(5)(d) and (e) of the Act.

[3]           Section 75(5)(f)(i) of the Act.

[4]           Section 75(5)(f)(ii) of the Act.

[5]           Section 75(4) of the Act.

[6]           Section 75(7)(a) of the Act.

[7]           Section 75(7)(b)(i) of the Act.

[8]           Section 75(7)(b)(ii) and 75(8) of the Act.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)