1 October 2009 by Cliffe Dekker Hofmeyr

Board committees in the new Companies Act

It is common practice for directors to delegate their authority to one or more board committees. For some companies it will be a statutory requirement in terms of the Companies Act No 71 of 2008 (the Act) to have an audit committee and a social and ethics committee.

Section 94(2) of the Act makes it compulsory for a public company, state-owned company, or a company that has voluntarily determined to do so, to have an audit committee.

Section 72(4) of the Act provides that certain companies will also be obliged to have a "social and ethics" committee. The Minister may in terms of these provisions prescribe by regulation that a company or category of companies must have such a committee if it is, among other things, "desirable in the public interest". The nature and purpose of this committee is still unclear and will hopefully be clarified when the regulations are published.

A company may (except to the extent that its memorandum of incorporation provides otherwise) appoint any number of committees of directors and delegate its authority to such board committees in terms of section 72. This section is of a general nature and does not prescribe what type of board committees (other than an audit and social and ethics committee) a company must or should have.

As there are no limitations, a board will be entitled to delegate any authority in its discretion to a board committee. In this regard it is stated that a board committee "has the full authority of the board in respect of a matter referred to it".

This does not mean that directors can hide behind board committees, or in any way dissipate the discharge of their duties and responsibilities.

Section 72(3) clearly states that the implementation of board committees alone will "...not alone satisfy or constitute compliance by a director with the required duty of a director to the company, as set out in section 76".

Section 76 in turn contains provisions under the heading "Standards of directors conduct", which creates certain statutory requirements for directors to fulfill their duties towards the company.

An interesting provision is that section 72(2)(a) provides that a board committee (except for an audit committee, which must consist only of directors) may include persons who are not directors of the company. Such a person must, however, not be ineligible or disqualified to be a director and will not be entitled to vote on a matter to be decided by the committee.

The fact that a non-director member will not have any voting rights may make it unattractive to serve on a board committee, especially if the risk of liability to act in such capacity is taken into account. The effect is in any event that the majority of members on a board committee will have to be directors in order to effectively operate and take decisions.

It is important to note that the provisions of sections 75, 76 and 77 of the Act will apply not only to directors, alternate directors or a prescribed officer, but also to all other members of a board committee. This means that board committee members will have the same statutory duties as directors of a company and board committee members will have to act accordingly in order to avoid liability.

Johan Coetzee,
Director, Corporate and Commercial

The information and material published on this website is provided for general purposes only and does not constitute legal advice.

We make every effort to ensure that the content is updated regularly and to offer the most current and accurate information. Please consult one of our lawyers on any specific legal problem or matter.

We accept no responsibility for any loss or damage, whether direct or consequential, which may arise from reliance on the information contained in these pages.

Please refer to the full terms and conditions on the website.

Copyright © 2019 Cliffe Dekker Hofmeyr. All rights reserved. For permission to reproduce an article or publication, please contact us cliffedekkerhofmeyr@cdhlegal.com