Directors And Personal Liability: The Little-Known Section Waiting In Ambush

Since the “new” 2008 Companies Act came into effect in 2011, directors and other company officers have had to shoulder a raft of additional responsibilities and risks, amongst them a significantly increased risk of personal liability.

Consider for example the little-known section 218(2) which waits in ambush for the unwary in the “Miscellaneous Matters” section at the tail-end of the Act, and which reads: “Any person who contravenes any provision of this Act is liable to any other person for any loss or damage suffered by that person as a result of that contravention”.   

 That’s wide wording –
  • Anyone who has a duty to comply with the Act – not just directors - is in the firing line
      
  • They can be sued for any loss caused by any contravention

  • They risk personal liability to anyone who has suffered a loss – the company itself, shareholders, employees, creditors, suppliers, customers, etc. and the section has indeed been used several times to successfully attack directors.

Two directors go down R1.5m

A good example is a recent High Court case involving a liquidated company which failed to pay R1.5m in levies and provident fund contributions/salary deductions to a Bargaining Council.  The two directors were ordered to pay the claims personally having, held the Court, acted in a grossly negligent manner, recklessly and with an intention to defraud not only the Council but also employees.

That of course was a serious contravention of the Act but the wording of the section suggests that even minor or technical contraventions will lead to liability - be warned accordingly!
Disclaimer
The information provided herein should not be used or relied on as 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 professional adviser for specific and detailed advice.