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Prescribed officers - Tag! You're it!

During consultation with clients, the question often arises as to which individuals in a company would be considered to be a Prescribed Officer in terms of the Companies Act 71 of 2008 (“the Act”), and what does this mean for such an individual? Is it merely a selection based on random function, or is there a logic and motivation driving who such individuals will be?

This article will set out to address the abovementioned questions in the light of the provisions of the Act, as well as relevant case law addressing this issue.       

PRESCRIBED OFFICERS IN TERMS OF THE ACT

The Act introduces the definition of a Prescribed Officer which, in terms of Regulation 38 of the Act, is a person who, despite not being a director of a company, exercises general executive control and management over the whole, or a significant portion of the business activities of a company or a person who regularly participates, to a material degree, in the exercise of general executive control and management over the whole, or a significant portion, of the business and activities of the company. This is the case irrespective of any particular title given by the company to the office held by the individual in the company or the function performed by the individual in the company.

The effect of being a Prescribed Officer in terms of the Act would be that such an individual would be subject to the same duties and liabilities of directors, including adherence to Section 75 and Section 76 of the Act, relating to personal financial interests and director’s standards of conduct. This would entail that such an individual would owe fiduciary duties to the company to act in the company’s best interest, not to make a secret profit or misappropriate opportunities that should be opportunities of the company. 

APPLICABLE CASE LAW

In the matter of Volvo (Southern Africa) (Pty) Ltd v Yssel [2009] JOL 24109 (SCA), the court had to decide whether an individual rendering services to the appellant owed a fiduciary duty to the appellant. In this particular case, the appellant required a manager for its information technology division. The respondent was placed by a personnel placement agency in such position. During the course of rendering services to the appellant, the respondent entered into an agreement with the relevant personnel placement agency in terms of which the respondent would earn a commission if he arranged for personnel placed by other labour brokers at the appellant, to be transferred to the particular personnel placement agency that placed the respondent. The respondent did not disclose this commission to be earned by him to the appellant.

The question before the court was whether the respondent owed a duty to the appellant to disclose such secret commission and whether the respondent was under a fiduciary duty to act in the best interests of the appellant and not his own.

In its judgment, the court did not refer to the provisions of the Act. However, the court sets out the following reasons for finding that the respondent did, in fact, owe a fiduciary duty to the appellant:

  • The respondent occupied the most senior position in the appellant’s information technology division.
  • The fact that there was no contractual relationship between the appellant and the respondent is not of meaningful consequence. It is the position to which the respondent was appointed, as opposed to the contractual relationship, that determined what the appellant could expect from the respondent.
  • The respondent attended to arrange matters between the appellant and its staff as an incident of his function as manager of the division.
  • It is because of his position as manager of the division that the appellant could be induced to relax the care and vigilance it would generally have excercised if it was dealing with a stranger.

CONCLUSION

If one considers both the requirements of Regulation 38 of the Act, as well as the reasons for the judgment handed down in Volvo (Southern Africa) (Pty) Ltd v Yssel [2009] JOL 24109 (SCA), it has to be concluded that the determination of who will be a Prescibed Officer in term of the Act is not determined merely as a selection based on random function. In my view, the logic and motivation applied by the court Volvo (Southern Africa) (Pty) Ltd v Yssel [2009] JOL 24109 (SCA) fuels how the requirements of Regulation 38 of the Act should be applied. It is clear that an individual should only be deemed to be a Prescribed Officer if there is good reason to state that such individual stands in a position of trust to the company, and as such, such an individual should not allow their own interests to prevail over the best interest of the company.

Phillip Kruger

Regional Divisional Director | Legal, Johannesburg

*Originally published in Without Prejudice Magazine

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Phillip Kruger
Divisional Director | Legal