Are You A “Prescribed Officer”? If So Be Aware Of Your Onerous Liabilities And Responsibilities
The 2008 Companies Act introduced the concept of “prescribed officers” three years ago. They are senior employees (not directors) deemed by the Act to have the obligations of directors. As such they are bound by the duties and responsibilities of directors. They also incur the liabilities imposed by the Act on directors.
Employees: If you think you may be a “prescribed officer”, ask your directors to urgently take action to protect your position as set out below.
Directors: Imagine your senior management make an error which exposes them to civil liabilities. As you have taken out directors’ insurance you at least know that directors are not financially exposed. Then you learn that some of your senior managers can be deemed to have the same liabilities as directors. These managers suddenly face litigation without any insurance which could financially ruin them, with potentially devastating consequences for your business.
What are prescribed officers?
The Act defines a prescribed officer as a person who either -
The difficulty with this is that it is not specific and there is no case law to give more concrete meaning to this definition. This is because the Act is still relatively new and the South African definition of “prescribed officer” differs from other countries.
Managing the risks
If you do have staff who potentially could be “prescribed officers” as defined, it is clearly worth doing the exercise to determine whether they are or not. To do this you will need to look at -
Not only is it in your interests to identify prescribed officers but it is clearly very much in their own interests also. They will need to be advised of their duties, responsibilities and liabilities so they can prepare for what the law requires. Most important, they can be covered with director’s insurance.
Finally, as there are differing roles and expectations for directors as opposed to employees, it is important for the proper workings of the business that prescribed officers are identified.
What are prescribed officers?
The Act defines a prescribed officer as a person who either -
- “Exercises general executive control over and management of the whole, or a significant portion, of the business and activities of the company”; or
- “Regularly participates to a material degree in the exercise of general executive control over and management of the whole, or a significant portion, of the business and activities of the company."
The difficulty with this is that it is not specific and there is no case law to give more concrete meaning to this definition. This is because the Act is still relatively new and the South African definition of “prescribed officer” differs from other countries.
Managing the risks
If you do have staff who potentially could be “prescribed officers” as defined, it is clearly worth doing the exercise to determine whether they are or not. To do this you will need to look at -
- Their job descriptions
- Their levels of authority – to what extent can they authorise budgets, strategy and expenditure?
- Are they included in on key strategic meetings?
- What committees do they sit on? What do these committees do?
- If they are part of a group, do they manage subsidiaries?
- To what extent are they supervised by the directors?
Not only is it in your interests to identify prescribed officers but it is clearly very much in their own interests also. They will need to be advised of their duties, responsibilities and liabilities so they can prepare for what the law requires. Most important, they can be covered with director’s insurance.
Finally, as there are differing roles and expectations for directors as opposed to employees, it is important for the proper workings of the business that prescribed officers are identified.
Provided by May and Company
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