What are the reasons for the determination whether a company secretary is a prescribed officer of a company or not?
Written by Dr. Adv. Leigh Hefer & Jayne Hunter-Rhys. COMPANY SECRETARY’S HANDBOOK (2021). Published by Genesis Corporate Services.
It is imperative to know whether a company secretary meets the definition of a prescribed officer of a company since specified provisions of the Act which apply to company directors, will also apply to prescribed officers.
The following sections of the Act which apply to company directors also apply to prescribed officers namely: section 20: validity of actions of the company; section 69: ineligibility and disqualification of persons to be a prescribed officer of a company; section 75: prescribed officer’s disclosure of financial interests; section 76: prescribed officer’s standards of conduct; section 77: liability of prescribed officers; section 78: indemnity of prescribed officers.
A. VALIDITY OF COMPANY ACTIONS
SECTION 20 OF THE COMPANIES ACT 2008
Section 20 provides that each shareholder of a company has a claim for damages against any person who intentionally, fraudulently or due to gross negligence causes the company to do anything inconsistent with the Act, or a limitation, restriction or qualification contemplated in the company’s MOI unless that action has been ratified by the shareholders.
B. INELIGIBILITY AND DISQUALIFICATION OF PERSONS TO BE PRESCRIBED OFFICERS
SECTION 69 OF THE COMPANIES ACT 2008
A person who is ineligible or disqualified must not be appointed or elected as a prescribed officer of a company, consent to being appointed or elected as a prescribed officer, or act as a prescribed officer of a company.
A company must not knowingly permit an ineligible or disqualified person to serve or act as a prescribed officer.
A person who becomes ineligible or disqualified while serving as a prescribed officer of a company ceases to be entitled to continue to act as a prescribed officer immediately.
A person who has been placed under probation by a Court in terms of section 162 of Act 2008, or in terms of section 47 of Close Corporations Act 69 of 1984, must not serve as a prescribed officer except to the extent permitted by the Order of Probation.
In addition to the provisions of section 69, the MOI of the company may impose:
5.1 additional grounds of ineligibility or disqualification of prescribed officers;
5.2 minimum qualifications to be met by prescribed officers of that company.
A person is ineligible to be a prescribed officer of a company if the person:
6.1 is a juristic person;
6.2 is an unemancipated minor, or is under a similar legal disability;
6.3 does not satisfy any qualification set out in the company’s MOI.
A person is disqualified to be a prescribed officer of a company if:
7.1 a Court has prohibited that person to be a prescribed officer;
7.2 a Court has declared the person to be delinquent in terms of section 162 of the Act, or in terms of section 47 of Close Corporations Act 69 of 1984;
7.3 is an unrehabilitated insolvent;
7.4 is prohibited in terms of any public regulation to be a prescribed officer of the company;
7.5 has been removed from an office of trust on the grounds of misconduct involving dishonesty;
7.6 has been convicted in the Republic or elsewhere and imprisoned without the option of a fine, or fined more than the prescribed amount, for theft, fraud, forgery, perjury or offences specified in section 69(8)(b)(iv).
The offences specified in section 69(8)(b)(iv) are:
8.1 an offence involving fraud, misrepresentation or dishonesty;
8.2 an offence in connection with the promotion, formation or management of a company;
8.3 an offence under the Companies Act 2008, the Insolvency Act 24 of 1936, Close Corporations Act 1984, the Competition Act, the Financial Intelligence Centre Act 38 of 2001, the Financial Markets Act 19 of 2012, or Chapter 2 of the Prevention and Combating of Corruption Activities Act 12 of 2004.
C. DIRECTORS’ AND PRESCRIBED OFFICERS’ FINANCIAL INTERESTS
SECTION 75 OF THE COMPANIES ACT 2008
In terms of section 75, “director” includes an alternate director; a prescribed officer, and a person who is a member of a committee of the board of a company, irrespective of whether the person is also a member of the company’s board.
1.1 Disclosure of Personal Financial Interest in Advance At any time, a prescribed officer may disclose any personal financial interest in advance by delivering to the board or shareholders a Notice in writing setting out the:
1.1.1 nature and extent of that interest, until changed or withdrawn by further written Notice from that prescribed officer.
1.2 Disclosure of Personal Financial Interest at a Meeting of the Board of Directors If a prescribed officer of a company has a personal financial interest in respect of a matter to be considered at a meeting of the board, or knows that a related person has a personal financial interest in the matter, the prescribed officer:
1.2.1 must disclose the interest and its general nature before the matter is considered at the board meeting;
1.2.2 must disclose to the board meeting any material information relating to the matter and known to the prescribed officer;
1.2.3 may disclose to the board meeting any observations or pertinent insights relating to the matter if requested to do so by the other prescribed officers;
1.2.4 if present at the meeting must leave the meeting immediately after making any disclosure;
1.2.5 must not take part in the consideration of the matter at the board meeting;
1.2.6 while absent from the board meeting, must not execute any document on behalf of the company in relation to the matter unless specifically requested or directed to do so by the board.
1.3 Disclosure of Personal Financial Interest After the Agreement/Matter has been Approved by the Board If a prescribed officer of a company acquires a personal financial interest in an agreement or other matter in which the company has a material interest, or knows that a related person has acquired a personal financial interest in the matter after the agreement or another matter has been approved by the board, the prescribed officer must promptly disclose to the board or to the shareholders:
1.3.1 the nature and extent of that interest;
1.3.2 the material circumstances relating to the prescribed officer or related person’s acquisition of that interest.
D. STANDARDS OF DIRECTORS’ AND PRESCRIBED OFFICERS’ CONDUCT
SECTION 76 OF THE COMPANIES ACT 2008
In terms of section 76, “director” includes an alternate director; a prescribed officer, a person who is a member of a committee of the board of a company, or of the audit committee of a company, irrespective of whether or not the person is also a member of the company’s board.
A prescribed officer of a company must:
2.1 not use the position of prescribed officer, or any information obtained while acting in the capacity of a prescribed officer to gain an advantage for the prescribed officer, or for another person other than the company or a wholly-owned subsidiary of the company, or to knowingly cause harm to the company or a subsidiary of the company;
2.2 communicate to the board at the earliest practicable opportunity any information that comes to the prescribed officer’s attention, unless the prescribed officer reasonably believes that the information is immaterial to the company, generally available to the public, or known to the directors, or is bound not to disclose that information by a legal or ethical obligation of confidentiality.
A prescribed officer of a company, when acting in that capacity, must exercise the powers and perform the functions of the prescribed officer:
3.1 in good faith;
3.2 for a proper purpose;
3.3 in the best interests of the company;
3.4 with the degree of care, skill and diligence that may reasonably be expected of a person carrying out the same functions in relation to the company as those carried out by that prescribed officer, and having general knowledge, skill and experience of that prescribed officer.
In respect of any particular matter arising in the exercise of the powers or the performance of the functions of the prescribed officer, a particular prescribed officer of a company will have satisfied the obligations of sections 76(3)(b) and (c) if the prescribed officer has taken reasonably diligent steps to become informed about the matter:
4.1 either the prescribed officer had no material personal financial interest in the subject matter of the decision;
4.2 the prescribed officer had no reasonable basis to know that any related person had a personal financial interest in the matter;
4.3 the prescribed officer complied with the requirements of section 75 with respect to any interest;
4.4 the prescribed officer made a decision or supported the decision of a committee of the board with regard to that matter, and the director had a rational basis for believing and did believe that the decision was in the best interests of the company.
E. LIABILITY OF DIRECTORS AND PRESCRIBED OFFICERS
SECTION 77 OF THE COMPANIES ACT 2008
In terms of section 77, “director” includes an alternate director; a prescribed officer, a person who is a member of a committee of the board of a company, or of the audit committee of a company, irrespective of whether or not the person is also a member of the company’s board.
A prescribed officer of a company may be held liable:
2.1 in accordance with the principles of the common law relating to breach of fiduciary duty, for any loss, damages or costs sustained by the company as a consequence of any breach by the prescribed officer of a duty contemplated in sections 75, 76(2), 76(3)(a) and 76(3)(b);
2.2 in accordance with the principles of the common law relating to delict for any loss, damages or costs sustained by the company as a consequence of any breach by the prescribed officer of a duty contemplated in section 76(3)(c), any provision of the Act not otherwise mentioned in section 77, or any provision of the company’s MOI.
A prescribed officer of a company is liable for any loss, damages or costs sustained by the company as a consequence of the prescribed officer having:
3.1 acted in the name of the company, signed anything on behalf of the company, or purported to bind the company or authorise the taking of any action by or on behalf of the company, despite knowing that the prescribed officer lacked the authority to do so;
3.2 acquiesced in the carrying on of the company’s business despite knowing that it was being conducted in a reckless manner prohibited by section 22(1);
3.3 been a party to an act or omission by the company despite knowing that the act or omission was calculated to defraud a creditor, employee or shareholder of the company, or had another fraudulent purpose;
3.4 signed, consented to, or authorised, the publication of any financial statements which were false or misleading in a material respect, or a prospectus, or a written statement contemplated in section 101, which contained an untrue statement as defined and described in section 95, or a statement to the effect that a person had consented to be a director of the company, when no such consent had been given, despite knowing that the statement was false, misleading or untrue, but the provisions of section 104(3), read with the changes required by the context, apply to limit the liability of a prescribed officer;
3.5 been present at a meeting, or participated in the making of a decision and failed to vote against:
3.5.1 the issuing of any unauthorised shares, despite knowing that those shares had not been authorised in accordance with section 36;
3.5.2 the issuing of any authorised securities, despite knowing that the issue of those securities was inconsistent with section 41;
3.5.3 the granting of options to any person contemplated in section 42(4), despite knowing that any shares for which the options could be exercised, or into which any securities could be converted, had not been authorised in terms of section 36;
3.5.4 the provision of financial assistance to any person contemplated in section 44 for the acquisition of securities of the company, despite knowing that the provision of financial assistance was inconsistent with section 44 or the company’s MOI,
3.5.5 the provision of financial assistance to a director for a purpose contemplated in section 45, despite knowing that the provision of financial assistance was inconsistent with section 45 or the company’s MOI;
3.5.6 a resolution approving a distribution, despite knowing that the distribution was contrary to section 46;
3.5.7 the acquisition by the company of any of its shares, or the shares of its holding company, despite knowing that the acquisition was contrary to section 46 or section 48;
3.5.8 an allotment by the company, despite knowing that the allotment was contrary to any provision of Chapter 4 of the Act.
3.6 The liability of a prescribed officer in terms of section 77 is joint and several with any other person who is or may be held liable for the same act.
3.7 In addition to the liability set out elsewhere in section 77, any prescribed officer who would be so liable is jointly and severally liable with all other such persons to pay the costs of all parties in the Court in a proceeding contemplated in section 77 unless the proceedings are abandoned, or exculpate that prescribed officer, and to restore to the company any amount improperly paid by the company as a consequence of the impugned act, and not recoverable in terms of the Act.
F. INDEMNIFICATION AND INSURANCE OF DIRECTORS AND PRESCRIBED OFFICERS
SECTION 78 OF THE COMPANIES ACT 2008
In section 78 ‘‘director’’ includes a former director and an alternate director, and a prescribed officer, or a person who is a member of a committee of a board of a company, or of the audit committee of a company, irrespective of whether or not the person is also a member of the company’s board.
Any provision of an agreement, the MOI or Rules of a company, or a resolution adopted by a company, whether express or implied, is void to the extent that it purports to relieve a prescribed officer of a duty contemplated in section 75 (Disclosure of personal financial interest), section 76 (standards of directors’ and prescribed officers’ conduct) or liability contemplated in section 77.
Any provision of an agreement, the MOI or Rules of a company, or a resolution adopted by a company, whether express or implied, is void to the extent that it negates, limits or restricts any legal consequences arising from an act or omission which constitutes willful misconduct or wilful breach of trust on the part of the prescribed officer.
Source: Sections 20, 22(1), 36, 41, 42(4), 44, 45, 46, 48, 69, 75, 76, 77, 78, 95, 101, 104(3), 162 of Companies Act 71 of 2008; section 47 of Close Corporations Act 69 of 1984
Hard copy and E-Book Publications for the Professionals, Company Secretaries, Company Directors and Prescribed Officers, Members of CCs, Business Owners, Lecturers and Students on various business, compliance and legislative topics.
It is imperative to know whether a company secretary meets the definition of a prescribed officer of a company since specified provisions of the Act which apply to company directors, will also apply to prescribed officers.
The following sections of the Act which apply to company directors also apply to prescribed officers namely: section 20: validity of actions of the company; section 69: ineligibility and disqualification of persons to be a prescribed officer of a company; section 75: prescribed officer’s disclosure of financial interests; section 76: prescribed officer’s standards of conduct; section 77: liability of prescribed officers; section 78: indemnity of prescribed officers.
A. VALIDITY OF COMPANY ACTIONS
SECTION 20 OF THE COMPANIES ACT 2008
Section 20 provides that each shareholder of a company has a claim for damages against any person who intentionally, fraudulently or due to gross negligence causes the company to do anything inconsistent with the Act, or a limitation, restriction or qualification contemplated in the company’s MOI unless that action has been ratified by the shareholders.
B. INELIGIBILITY AND DISQUALIFICATION OF PERSONS TO BE PRESCRIBED OFFICERS
SECTION 69 OF THE COMPANIES ACT 2008
A person who is ineligible or disqualified must not be appointed or elected as a prescribed officer of a company, consent to being appointed or elected as a prescribed officer, or act as a prescribed officer of a company.
A company must not knowingly permit an ineligible or disqualified person to serve or act as a prescribed officer.
A person who becomes ineligible or disqualified while serving as a prescribed officer of a company ceases to be entitled to continue to act as a prescribed officer immediately.
A person who has been placed under probation by a Court in terms of section 162 of Act 2008, or in terms of section 47 of Close Corporations Act 69 of 1984, must not serve as a prescribed officer except to the extent permitted by the Order of Probation.
In addition to the provisions of section 69, the MOI of the company may impose:
5.1 additional grounds of ineligibility or disqualification of prescribed officers;
5.2 minimum qualifications to be met by prescribed officers of that company.
A person is ineligible to be a prescribed officer of a company if the person:
6.1 is a juristic person;
6.2 is an unemancipated minor, or is under a similar legal disability;
6.3 does not satisfy any qualification set out in the company’s MOI.
A person is disqualified to be a prescribed officer of a company if:
7.1 a Court has prohibited that person to be a prescribed officer;
7.2 a Court has declared the person to be delinquent in terms of section 162 of the Act, or in terms of section 47 of Close Corporations Act 69 of 1984;
7.3 is an unrehabilitated insolvent;
7.4 is prohibited in terms of any public regulation to be a prescribed officer of the company;
7.5 has been removed from an office of trust on the grounds of misconduct involving dishonesty;
7.6 has been convicted in the Republic or elsewhere and imprisoned without the option of a fine, or fined more than the prescribed amount, for theft, fraud, forgery, perjury or offences specified in section 69(8)(b)(iv).
The offences specified in section 69(8)(b)(iv) are:
8.1 an offence involving fraud, misrepresentation or dishonesty;
8.2 an offence in connection with the promotion, formation or management of a company;
8.3 an offence under the Companies Act 2008, the Insolvency Act 24 of 1936, Close Corporations Act 1984, the Competition Act, the Financial Intelligence Centre Act 38 of 2001, the Financial Markets Act 19 of 2012, or Chapter 2 of the Prevention and Combating of Corruption Activities Act 12 of 2004.
C. DIRECTORS’ AND PRESCRIBED OFFICERS’ FINANCIAL INTERESTS
SECTION 75 OF THE COMPANIES ACT 2008
In terms of section 75, “director” includes an alternate director; a prescribed officer, and a person who is a member of a committee of the board of a company, irrespective of whether the person is also a member of the company’s board.
1.1 Disclosure of Personal Financial Interest in Advance At any time, a prescribed officer may disclose any personal financial interest in advance by delivering to the board or shareholders a Notice in writing setting out the:
1.1.1 nature and extent of that interest, until changed or withdrawn by further written Notice from that prescribed officer.
1.2 Disclosure of Personal Financial Interest at a Meeting of the Board of Directors If a prescribed officer of a company has a personal financial interest in respect of a matter to be considered at a meeting of the board, or knows that a related person has a personal financial interest in the matter, the prescribed officer:
1.2.1 must disclose the interest and its general nature before the matter is considered at the board meeting;
1.2.2 must disclose to the board meeting any material information relating to the matter and known to the prescribed officer;
1.2.3 may disclose to the board meeting any observations or pertinent insights relating to the matter if requested to do so by the other prescribed officers;
1.2.4 if present at the meeting must leave the meeting immediately after making any disclosure;
1.2.5 must not take part in the consideration of the matter at the board meeting;
1.2.6 while absent from the board meeting, must not execute any document on behalf of the company in relation to the matter unless specifically requested or directed to do so by the board.
1.3 Disclosure of Personal Financial Interest After the Agreement/Matter has been Approved by the Board If a prescribed officer of a company acquires a personal financial interest in an agreement or other matter in which the company has a material interest, or knows that a related person has acquired a personal financial interest in the matter after the agreement or another matter has been approved by the board, the prescribed officer must promptly disclose to the board or to the shareholders:
1.3.1 the nature and extent of that interest;
1.3.2 the material circumstances relating to the prescribed officer or related person’s acquisition of that interest.
D. STANDARDS OF DIRECTORS’ AND PRESCRIBED OFFICERS’ CONDUCT
SECTION 76 OF THE COMPANIES ACT 2008
In terms of section 76, “director” includes an alternate director; a prescribed officer, a person who is a member of a committee of the board of a company, or of the audit committee of a company, irrespective of whether or not the person is also a member of the company’s board.
A prescribed officer of a company must:
2.1 not use the position of prescribed officer, or any information obtained while acting in the capacity of a prescribed officer to gain an advantage for the prescribed officer, or for another person other than the company or a wholly-owned subsidiary of the company, or to knowingly cause harm to the company or a subsidiary of the company;
2.2 communicate to the board at the earliest practicable opportunity any information that comes to the prescribed officer’s attention, unless the prescribed officer reasonably believes that the information is immaterial to the company, generally available to the public, or known to the directors, or is bound not to disclose that information by a legal or ethical obligation of confidentiality.
A prescribed officer of a company, when acting in that capacity, must exercise the powers and perform the functions of the prescribed officer:
3.1 in good faith;
3.2 for a proper purpose;
3.3 in the best interests of the company;
3.4 with the degree of care, skill and diligence that may reasonably be expected of a person carrying out the same functions in relation to the company as those carried out by that prescribed officer, and having general knowledge, skill and experience of that prescribed officer.
In respect of any particular matter arising in the exercise of the powers or the performance of the functions of the prescribed officer, a particular prescribed officer of a company will have satisfied the obligations of sections 76(3)(b) and (c) if the prescribed officer has taken reasonably diligent steps to become informed about the matter:
4.1 either the prescribed officer had no material personal financial interest in the subject matter of the decision;
4.2 the prescribed officer had no reasonable basis to know that any related person had a personal financial interest in the matter;
4.3 the prescribed officer complied with the requirements of section 75 with respect to any interest;
4.4 the prescribed officer made a decision or supported the decision of a committee of the board with regard to that matter, and the director had a rational basis for believing and did believe that the decision was in the best interests of the company.
E. LIABILITY OF DIRECTORS AND PRESCRIBED OFFICERS
SECTION 77 OF THE COMPANIES ACT 2008
In terms of section 77, “director” includes an alternate director; a prescribed officer, a person who is a member of a committee of the board of a company, or of the audit committee of a company, irrespective of whether or not the person is also a member of the company’s board.
A prescribed officer of a company may be held liable:
2.1 in accordance with the principles of the common law relating to breach of fiduciary duty, for any loss, damages or costs sustained by the company as a consequence of any breach by the prescribed officer of a duty contemplated in sections 75, 76(2), 76(3)(a) and 76(3)(b);
2.2 in accordance with the principles of the common law relating to delict for any loss, damages or costs sustained by the company as a consequence of any breach by the prescribed officer of a duty contemplated in section 76(3)(c), any provision of the Act not otherwise mentioned in section 77, or any provision of the company’s MOI.
A prescribed officer of a company is liable for any loss, damages or costs sustained by the company as a consequence of the prescribed officer having:
3.1 acted in the name of the company, signed anything on behalf of the company, or purported to bind the company or authorise the taking of any action by or on behalf of the company, despite knowing that the prescribed officer lacked the authority to do so;
3.2 acquiesced in the carrying on of the company’s business despite knowing that it was being conducted in a reckless manner prohibited by section 22(1);
3.3 been a party to an act or omission by the company despite knowing that the act or omission was calculated to defraud a creditor, employee or shareholder of the company, or had another fraudulent purpose;
3.4 signed, consented to, or authorised, the publication of any financial statements which were false or misleading in a material respect, or a prospectus, or a written statement contemplated in section 101, which contained an untrue statement as defined and described in section 95, or a statement to the effect that a person had consented to be a director of the company, when no such consent had been given, despite knowing that the statement was false, misleading or untrue, but the provisions of section 104(3), read with the changes required by the context, apply to limit the liability of a prescribed officer;
3.5 been present at a meeting, or participated in the making of a decision and failed to vote against:
3.5.1 the issuing of any unauthorised shares, despite knowing that those shares had not been authorised in accordance with section 36;
3.5.2 the issuing of any authorised securities, despite knowing that the issue of those securities was inconsistent with section 41;
3.5.3 the granting of options to any person contemplated in section 42(4), despite knowing that any shares for which the options could be exercised, or into which any securities could be converted, had not been authorised in terms of section 36;
3.5.4 the provision of financial assistance to any person contemplated in section 44 for the acquisition of securities of the company, despite knowing that the provision of financial assistance was inconsistent with section 44 or the company’s MOI,
3.5.5 the provision of financial assistance to a director for a purpose contemplated in section 45, despite knowing that the provision of financial assistance was inconsistent with section 45 or the company’s MOI;
3.5.6 a resolution approving a distribution, despite knowing that the distribution was contrary to section 46;
3.5.7 the acquisition by the company of any of its shares, or the shares of its holding company, despite knowing that the acquisition was contrary to section 46 or section 48;
3.5.8 an allotment by the company, despite knowing that the allotment was contrary to any provision of Chapter 4 of the Act.
3.6 The liability of a prescribed officer in terms of section 77 is joint and several with any other person who is or may be held liable for the same act.
3.7 In addition to the liability set out elsewhere in section 77, any prescribed officer who would be so liable is jointly and severally liable with all other such persons to pay the costs of all parties in the Court in a proceeding contemplated in section 77 unless the proceedings are abandoned, or exculpate that prescribed officer, and to restore to the company any amount improperly paid by the company as a consequence of the impugned act, and not recoverable in terms of the Act.
F. INDEMNIFICATION AND INSURANCE OF DIRECTORS AND PRESCRIBED OFFICERS
SECTION 78 OF THE COMPANIES ACT 2008
In section 78 ‘‘director’’ includes a former director and an alternate director, and a prescribed officer, or a person who is a member of a committee of a board of a company, or of the audit committee of a company, irrespective of whether or not the person is also a member of the company’s board.
Any provision of an agreement, the MOI or Rules of a company, or a resolution adopted by a company, whether express or implied, is void to the extent that it purports to relieve a prescribed officer of a duty contemplated in section 75 (Disclosure of personal financial interest), section 76 (standards of directors’ and prescribed officers’ conduct) or liability contemplated in section 77.
Any provision of an agreement, the MOI or Rules of a company, or a resolution adopted by a company, whether express or implied, is void to the extent that it negates, limits or restricts any legal consequences arising from an act or omission which constitutes willful misconduct or wilful breach of trust on the part of the prescribed officer.
Source: Sections 20, 22(1), 36, 41, 42(4), 44, 45, 46, 48, 69, 75, 76, 77, 78, 95, 101, 104(3), 162 of Companies Act 71 of 2008; section 47 of Close Corporations Act 69 of 1984
Hard copy and E-Book Publications for the Professionals, Company Secretaries, Company Directors and Prescribed Officers, Members of CCs, Business Owners, Lecturers and Students on various business, compliance and legislative topics.
Updated on: 23/05/2023
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