Johan De Lange | Schoemanlaw Inc 

Category: Commercial Law

Section 75 of the Companies Act, 2008, provides a critical framework for managing conflicts of interest within corporate governance. This section outlines the requirements for directors to disclose personal financial interests and the consequences of failing to do so. The case of Atlas Park Holdings (Pty) Ltd v Tailifts South Africa (Pty) Ltd1 has highlighted critical interpretations of these provisions, which this article will explore in detail. 

Definition of Personal Financial Interest 

The Companies Act defines "personal financial interest" to include direct material interests of a financial, monetary, or economic nature. However, interests in unit trusts or collective investment schemes are excluded unless the person has direct control over investment decisions. The term "material" is also defined, emphasising the significance of the interest in the context of the specific matter being considered. 

Disclosure Requirements and Obligations 

Section 75 mandates that directors disclose any personal financial interest in matters to be considered by the board of directors. The director must then recuse themselves from the meeting and refrain from participating further in the decision-making process. This prohibition extends to agreements in which a director or related person has a personal financial interest, unless ratified by shareholders or declared valid by a court. 

Case Study: Atlas Park Holdings v Tailifts South Africa 

In Atlas Park, the court examined an application under Section 75(8) to validate lease agreements. The applicant, Atlas Park Holdings, argued that the director, who held directorships in both the applicant and respondent companies, should have disclosed his conflict of interest. The court's interpretation emphasised that the obligation to disclose extends to interests held by related persons and that these must be direct and material. 

Interpretation and Implications of "Direct" Financial Interest 

The court clarified that the term "direct" must be understood within the broader context of Section 75, including transactions involving related persons with personal financial interests. This interpretation aligns with the legislative intent to prevent directors from evading disclosure requirements through indirect means. The court also noted that shareholding in another company with a financial interest in a transaction constitutes a direct financial interest for disclosure purposes. 

Economic Nature of Interests and Conflict Resolution 

The Act's definition of "personal financial interest" includes interests that can be converted to economic value, not just purely pecuniary interests. Section 75(3) specifically addresses conflicts of interest, rendering transactions void unless properly disclosed and validated by the court. This provision reinforces the common law principle that directors must act in the company's best interests and avoid conflicts of interest. 

Fiduciary Duties and Common Law Principles 

The Companies Act integrates common law principles regarding directors' fiduciary duties. These include the duty to disclose conflicts of interest, avoid misappropriating corporate opportunities, and refrain from competing with the company. The court in Atlas Park emphasised that the Act does not curtail these common law principles but enhances them by providing statutory teeth. 

Broader Governance Framework: Sections 75, 76, and 77 

Sections 75, 76, and 77 of the Companies Act collectively address directors' duties and standards of conduct. Section 76 outlines the general standards of directors' conduct, including the duty to act in good faith and with care and diligence. Section 77 extends liability for breaches of fiduciary duty, negligence, and statutory protections. These sections ensure a comprehensive framework for corporate governance, holding directors to high standards of accountability. 

Conclusion 

The disclosure requirements under Section 75 of the Companies Act are essential for maintaining transparency and integrity in corporate governance. The Atlas Park case illustrates the critical role of these provisions in preventing conflicts of interest and ensuring directors act in the best interests of the company. By integrating statutory and common law principles, the Act provides a robust mechanism to uphold fiduciary duties and protect corporate interests. 

Johan De Lange | Schoemanlaw Inc  

Attorney  

https://schoemanlaw.co.za/our-services/commercial-law/  

https://schoemanlaw.co.za/our-services/commercial-law/