The duty of care and skill, and reckless trading : remedies in flux

Stevens, Richard ; De Beer, Philip (2016-06)

CITATION: Stevens, R. & De Beer, P. 2016. The duty of care and skill, and reckless trading : remedies in flux. SA Mercantile Law Journal 28(2):250-284.

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In terms of South African common law, directors of companies have two duties. First is fiduciary duties, which do not require fault for liability (a form of strict liability). Second is the duty of care and skill, which has always been accepted as delictual in nature. The rationale behind the duty of care and skill is to prevent those in charge of the management of the company from allowing it to act in a manner that could harm such a company. The law therefore utilises the law of delict to hold these company stewards to account, and to make good the harm suffered by the wronged party, being the company which such wrongdoers are managing. The Companies Act (‘the Act’) has to an extent codified the common law duty of care and skill of directors, and has confirmed that the liability for the breach of this duty is delictual in nature. South African company law further provides that a company’s business may not be conducted with gross negligence, ‘recklessly’ or fraudulently. In s 424 of the Companies Act 61 of 1973 (‘the 1973 Act’), any person could hold another person liable who essentially allowed the company to conduct business in a reckless manner. At face value, it appeared (and case law seems to have confirmed this) that the statutory remedy was intended primarily for creditors, and mostly utilised by such creditors when a company was in liquidation. Section 424 of the 1973 Act has been replaced by s 22(1), as read with section 77(3)(b) of the Act. The Act, however, also provides that Chapter XIV of the 1973 Act continues to apply in respect of the liquidation of insolvent companies.

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