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I am not a director…… or am I?

Q: A legal adviser to a particular company regularly attends board meetings at the invitation of the board to advise on matters of significance. Can the legal adviser be subject to the same codified duties and liabilities of directors as referred to in the Companies Act of South Africa, No 71 of 2008, (the Act)?

A: The Act generally includes a “prescribed officer” (meaning any person who fulfils the role of a director but who is operating, whether intentionally or otherwise, under a different designation) in the scope of legislation pertaining to individuals acting as directors.

Regulation 38(1) of the Act defines a “prescribed officer” as any person, despite not being a director of a particular company –

  1. who exercises general executive control over the management of the whole, or a significant portion, of the business and activities of the company, or
  2. who 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.

To evaluate whether the legal adviser should be regarded as a prescribed officer in terms of the Act, one should first ascertain if the adviser is participating in exercising executive control or not. It is important to note that the adviser’s attendance at a board meeting does not automatically qualify him/her as a prescribed officer. The adviser may only be in attendance in a consulting capacity and may enable board members to exercise their executive control, without specifically participating in the decision-making process. In this scenario we would argue that the legal adviser does not satisfy the requirements to qualify as a prescribed officer.

In the case of a financial manager of a particular company, should the financial manager not report to a financial director, the financial manager may have authority to participate in the evaluation and subsequent approval of ongoing projects. Therefore it is justified to regard the financial manager as regularly participating to a material degree in the executive control over the management of the business and activities of that particular company.

Acting in the capacity of a prescribed officer, the financial manager is subject to the same rights, duties, and liabilities as the directors of the company. Please be on the lookout for our next article in this series dealing with these issues and the subsequent implications for governance of the company.

To conclude, we advise the board of directors to identify individuals that satisfy the requirements of prescribed officers. Individuals should also take caution and ascertain whether they fit the criteria. By not knowing who the prescribed officers are, boards of directors are subjecting themselves and the prescribed officers to a significant risk of non-compliance with the Act. 

It should be noted that the above scenarios are mere examples and each should be evaluated according to the actual situation. 

If you have any questions with regard to the above, please contact Joanie Viviers at joanie@asl.co.za or 021 840 1600.