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South Africa: New Law to Make Company Directors More Accountable

(Mar. 11, 2009) It was reported on March 5, 2009, that a new Companies Act, whose passage is expected next year, will change the scope and procedure for bringing class actions and derivative actions that will empower shareholders and other stakeholders while exposing company directors and officers, to a much greater extent than before, to potential legal actions and personal liability. Heretofore the only tool shareholders have had at their disposal to curtail directors' powers has been the annual voting on issuing of shares for cash, a remedy, however pale by comparison, not available to minority shareholders and other stakeholders.

Under the draft law, which is said to have been modeled after trends in company law legislation in the United States and the United Kingdom, a class action may be filed by a person acting as a member of a group or by a class of affected people. The law will also have provisions to allow derivative actions with broad application. It will allow “a director of the company or related entity; a registered trade union or another representative or the company's employees; or a person who has been granted leave of the court to do so” an opportunity to go to court on their company's behalf to force directors to take legal action to remedy losses suffered by the entity, a privilege that has thus far been available only to directors. Not only will these provisions have broad implications in terms of the class of individuals that they allow to initiate a legal action, but also in terms of the persons that can be sued and the subject matter for which a suit may be instituted. According to this proposed new law, legal action could be brought against anyone in the company to “protect the interest of the company,” a concept that courts have interpreted liberally in the past. (Sachia Temkin, New Law Will Put Company Directors in Firing Line, BUSINESSDAY, Mar. 5, 2009, available at