Day to day or not?

The notion of corporate accountability has been a source of criticism (and praise) for juristic entities across the world. While theories surrounding holding wrongdoing directors accountable continue to develop, a converse debate regarding the rights and entitlements of certain directors continues. Important to this debate is the right that certain directors have in the day to day management of a company’s business.

9 Feb 2021 2 min read Dispute Resolution Alert Article

At a glance

  • Corporate accountability and the rights of directors are subjects of debate in the legal realm.
  • Section 66(1) of the Companies Act 71 of 2008 states that the business and affairs of a company are managed by its board, unless otherwise provided by the Act or the Memorandum of Incorporation (MOI).
  • The case of Kaimowitz v Delahunt clarified that directors do not have an inherent right to be involved in the day-to-day management of a company, as such involvement can be delegated by the board to specific individuals or committees. The court emphasized that a director's involvement should align with their appointed duties and that the overall management responsibility rests with the collective board.

Section 66 (1) of the Companies Act 71 of 2008 (the Act) provides that;

“the business and affairs of a company must be managed by or under the direction of its board, which has the authority to exercise all of the powers and perform any of the function of the company, except to the extent that this Act or the company’s Memorandum of Incorporation provides otherwise”.

The 2017 Western Cape High Court decision in Kaimowitz V Delahunt And Others 2017 (3) SA 201 (WCC) presents a useful assessment of the limitations of directors’ rights. The applicant was a director and employee of a respondent company. On receiving notice that his employment was to be terminated, the applicant’s role within the company altered dramatically. Importantly, his directorship would be sustained, albeit as a capacity as non-executive director. While he was entitled to attend directors’ meetings, he was prohibited from being involved in the day-to-day management of the company. The court was therefore called upon to determine whether a director, save for where provided for in the Memorandum of Incorporation (MOI), is entitled to be involved in the day to day running of the company.

The court distinguished between the roles of a director and a manager, aiding the conclusion that on the facts before it a director is not entitled as a right to be involved in the day to day activities of the company. On a proper interpretation of section 66(1) of the Act, the day to day management of a company may be delegated by the board of directors (the board) to a managing director and/or committees of the board. The right to such involvement does not, therefore, reside with each director individually. As the court went on to note, “the involvement of a director in the affairs of the company must be assessed in terms of enabling a director to perform those duties which are imposed upon him / her as a result of his/her appointment as a director”. The court thus concluded that the management of a company in terms of its overall supervision resides in the board as a collective as opposed to individual directors.

This decision sheds light on the importance of clarified roles for directors, particularly where directors operate in dual capacities of director and employee. The decision further provides some semblance of a framework on which to conceptualise the boundaries of responsibility that directors are tasked with, and indeed entitled to in respect of the day to day management of the company as and when permitted by the board.

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