The Impact of the Companies Act 71 of 2008 on the Traditional Director’s Duty to Avoid Conflict of Interest

Abstract

The director’s duty to avoid conflict of interest has been recognised and developed by common law. This duty includes various rules. The self-dealing rule precludes a director from acting on behalf of the company in a transaction where he/she has an interest. The fair dealing rule requires the director to disclose his or her interest if he/she wants to perform a transaction with the company, or has an interest in a contract that the company plans to conclude with a third party. The director is not allowed to make secret profits at the expense of the company, nor to act in conflict with his/her duty. The director is prohibited from taking corporate opportunities that rightfully belong to the company. Occasionally, this duty may continue to exist beyond the period a person has ceased to be a director. Directors should refrain from competing with their companies. Directors must also keep information confidential in the performance of their duties. The Companies Act 71 of 2008 has codified the traditional director’s common law duty to avoid conflict of interest, specifically the self-dealing and fair dealing rules. The Companies Act provides for director’s personal financial interests, standards of directors’ conduct, liability of directors and prescribed officers, and indemnification and directors’ insurance. The codification of the duty to avoid conflict of interest will promote good corporate governance in South Africa.

DOI: 10.5901/mjss.2014.v5n9p75