Director's Duty to Act for a Proper Purpose in the Context of Distribution under the Companies Act 71 of 2008

  • Simphiwe Bidie University of Fort Hare
Keywords: company law, Companies Act 2008, proper purpose, duties of directors, distribution, primary purpose test, dominant test, subjective test, objective test

Abstract

This paper seeks to critically analyse the requirements of the duty imposed on directors to act for a proper purpose as provided in section 76(3)(a) of the 2008 Act (Companies Act 71 of 2008) whenever they distribute company money and/or property. This analysis is conducted with the obligations imposed under sections 4 and 46 of the 2008 Act in mind. The purpose is not to question the inclusion of this duty in the 2008 Act. It is simply to question whether the common law interpretation of the duty still suffices in the face of section 76(3) of the 2008 Act, which seems to suggest that a different standard of judgment must be used. The argument that is made here is that the use of common law principles in interpreting proper purpose is well and good when the actions of directors are challenged based on the common law, but, where this duty has been incorporated into statutory law the interpretation of the duty in the context of the wording of the statute should be paramount. In addition, when interpreting any provision of the Act, consideration of the objects of the statute becomes inevitable. The interpretation of the duty cannot, in the face of the changes brought about by the statute, remain stagnant as a result of reliance on common law standards of judgment. The wording of the provision in question and the purpose of the statute cannot and must not be ignored; they must be given effect. A comparative approach will be adopted, using legislation and case law from Australia and Canada. The selection of these particular jurisdictions is based solely on the fact that like South Africa, their legal heritage is based on English common law, and a comparison of the three jurisdictions therefore makes sense.

 

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Author Biography

Simphiwe Bidie, University of Fort Hare

Lecturer, law

References

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LIST OF ABBREVIATIONS
Bond LR Bond Law Review
CBCA Canada Business Corporations Act, 1985
ICLR Incorporated Council of Law Reporting for England and Wales
JBL Journal of Business Law
JCCL&P Journal of Corporate and Commercial Law and Practice
JJS Journal of Juridical Science
LMCLQ Lloyd's Maritime and Commercial Law Quarterly
MLR Modern Law Review
SA Merc LJ South African Mercantile Law Journal
TSAR Tydskrif vir die Suid-Afrikaanse Reg
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Published
2019-09-19
Section
Articles