Vol 9 (2012) - Issue 2

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Directors’ Difficulties and Dilemmas in South African Business Rescue Proceedings: Companies Act 71 of 2008

Introduction
The commencement on 1 May 2011 of a new Companies Act1 has introduced a novel approach to the revival of companies in South African Company law. The new procedure, aptly termed 'business rescue', replaces and enhances the previous judicial management regime which has been a feature of South African company law since the Companies Act of 1926 and which was used to aid companies in the rescue of failing businesses. Due to the novelty of the provisions it is to be expected that the interpretation of such provisions is uncertain. The provisions in the Companies Act 71 of 2008, whilst in essence a modification of the judicial management regime in line with the legacy of the Companies Act 61 of 1973, allow for innovative interpretation by the courts regarding the powers and duties of directors. During business rescue proceedings there is a shift in power and the Act expressly purports to relieve directors of certain responsibilities. This paper examines the provisions of the Act relating to the duties of directors during the business rescue process.

The powers of directors pre and post business rescue
The 1973 Companies Act made no specific reference to the rights and powers of directors to manage the company. The only reference could be found in Regulation 59 of Table A in Schedule 1 where provision was made for the business of the company to be managed by the directors. Common practice was for the board of directors to manage the company unless there was specific mention in the 1973 Act or the articles of association that certain acts be performed by other organs of the company. The state of affairs has finally been made unequivocal as the Act explicitly states that the directors are conferred with the powers of the company in order to manage the business except where the Act or the memorandum of incorporation provides otherwise. Accordingly directors have more powers than they previously possessed. As soon as a company experiences financial difficulties, and business rescue proceedings commence, the situation differs considerably.