Foreign directorships

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S1 of the Act limits the definition of “company” to juristic persons incorporated under the Act. On a strict interpretation, s75(1)(b) would therefore not apply to cross-directorships between a South African company and a foreign company. This gives rise to a potentially anomalous position, where disclosure of a PFI may be required where a cross-directorship relates to two South African companies, but not where the same decision, agreement or transaction involves a South African company and a foreign company.

Although there is no express statutory requirement to disclose a cross-directorship involving a foreign company, disclosure may nonetheless be required under common law, depending on the circumstances. These common law obligations should be carefully considered where directors sit on boards across multiple jurisdictions, and should also be kept in mind when multi-national companies consider the composition of their boards.

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Relationship between the common law and the Act

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Among other provisions, directors’ duties are partially codified in  s75 of the Act. However, the common law continues to apply unless it is expressly excluded or in conflict with the Act.1      

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S75 deals with a director’s duty not to have a PFI in existing or proposed contracts with the company on whose board they serve, or in any matter in which the company has a material interest, and to disclose that interest and recuse themselves from voting on a matter where such PFI arises. Although not expressly codified as such, this captures (among other principles) the “secret profit rule” under the common law. This rule requires that directors must not make secret profits from their position, and must account to the company for any such profits. Specifically, a director should not obtain any financial benefit other than in terms of a contract with the company following full disclosure, or by virtue of their office (for example, remuneration). Such financial benefit will constitute a “secret profit” if the interests of the director and the company are in conflict.

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Under common law, a director is required to disclose a financial benefit and recuse themselves from decision-making where a conflict exists. A failure to do so does not automatically invalidate an agreement. Instead, the agreement is voidable at the election of the company, and the director may be required to account for any profit made. While this differs from s75, where an agreement is automatically void but can be ratified, the practical consequences of the non-disclosure and failure to recuse are broadly similar. 

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In multi-jurisdictional groups, it is important not to overlook potential disclosure obligations arising under common law, notwithstanding the restricted definition of “company” in the Act.  The mere existence of a cross-directorship with a foreign company does not, in and of itself, trigger a disclosure obligation. However, disclosure becomes necessary where a matter arises in which the foreign company has a financial interest, or where a director’s fiduciary duties place them in a position of conflict. Whether disclosure is required must therefore be assessed on a case-by-case basis, with reference to the specific transaction, contract or decision under consideration. The consequences of failing to do so are far-reaching – not only for directors themselves, who may face potential liability, but also for matters considered by the board of a company, where transactions or agreements may be voidable.

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1. Dimension Data Facilities (Pty) Ltd and Others v Identity Property Co (Pty) Ltd and Others (2022/040174)

[2024] ZAGPJHC 1209 (25 November 2024)
2. Ibid.