Increased Liability of Directors and Liability Insurance

With the implementation of the Companies Act 71 of 2008, there is an increased interest in the duties and liabilities of directors. Section 78 allows a company to purchase insurance to protect a director against certain liabilities which are not specifically excluded in the Act. Amongst these exclusions are ‘wilful misconduct’ and ‘wilful breach of trust’, and these terms, when interpreted, do not include negligence. Bearing in mind that the honest director is already protected by s76 and s77, this article discusses the untenable result of s78; which is that a director may be protected, through insurance, for his negligent conduct. This departure from the position of the previous Companies Act 61 of 1973, is unacceptable if one considers that with the modern corporate environment, directors are highly skilled persons who are handpicked for prestigious positions and such a person should not be protected to the detriment of the company and its stakeholders.