On the 13th of February 2020, the Companies & Other Business Entities Act (Chapter 24:31)

came into force. The new Companies Act clearly delineates the fiduciary duties of directors.
In other words, the fiduciary duties of directors have been set in stone. Directors are required
to know their duties as enshrined in the new Companies Act. The fiduciary duties and
obligations of directors are outlined below.

Duty of care and business judgment rule According to section 54

According to section 54 of the new Companies Act, every director of a company has a duty to
perform as such in good faith, in the best interests of the company, and with the care, skill,
and attention that a diligent business person would exercise in the same circumstances. In
performing this duty, a director may rely on information, opinions, reports, or statements of
independent auditors or legal practitioners or of experts or employees of the company.
Related to this director’s duty is the introduction of “the business judgment rule” which I
shall discuss in further detail in the next article. The provision of section 54(1) shows that the
standard by which a director’s conduct is measured, is an objective one. Therefore, a director
will have breached his duty of care negligently in the event that he fails to do something
which a reasonable person would have done under the same instances or did something that a
reasonable person would not have done under the same circumstances. However, the
qualifying phrase ‘in the same circumstances’ stated under section 54(1) indicates the
involvement of subjective elements to the objective test. In essence, where the director is an
expert, the reasonable person will be placed in the same category namely that of the
reasonable expert.

The inclusion of the directors’ duty of care and skill in section 54(1) of the new Companies
Act seems to be a codification of the common law duty of care and skill. Internationally there
has been a move towards codifying the common-law duty of care and skill. Jurisdictions like
Australia, Canada, New Zealand, the United Kingdom and South Africa are examples of
countries that have codified directors’ duty of care and skill. Although Zimbabwe lagged
behind other nations that undertook relevant corporate law reform reviews, the move to
codify the common law duty of care and skill is welcomed because directors will have a
better understanding what their duties are.

Duty of loyalty to the company Section 55 of the new Companies Act

Section 55 of the new Companies Act provides that a director has a duty to act with loyalty to
the company. The duty of loyalty impose on directors, a largely negative obligation to do
nothing which conflicts with the company’s interest. Section 55(3) imposes the following
duties on a director:

A duty not to use property of the company for his or her personal benefit or for the benefit
of another person other than the company.Directors must be very mindful of this duty. This
particular duty has been abused by some directors who have, for instance, taken company
property for use by family members.

A duty not to disclose confidential information of the company or to use confidential

information of the company for his or her personal benefit or for the benefit of another
person other than the company.Strict compliance with this duty is of utmost importance.
Inside information acquired by a director in the scope of his or her capacity as director must
be kept confidential. An example of misuse of confidential information by a director would
be where the director commits insider trading. A director who discloses inside information to
another person for his own benefit or for the benefit of another person, can be convicted of
the crime of insider trading in terms of the Securities Act (Chapter 24:25).

A duty to communicate to the board at the earliest practicable opportunity any

information that comes to his or her attention.A director who knows information which is
crucial to the success or failure of the company must communicate such information to the
board as soon as possible. However, if the director reasonably believes that the information is
(1)immaterial to the company or (2)is generally available to the public or known to the other
managers, directors, officers or shareholders, or (3) is bound not to disclose the information
by a legal or ethical obligation of confidentiality, the director is not obliged to communicate
the information to the company.

A duty not to abuse the person’s position in the company for his or her personal benefit,
or for the benefit of another person other than the company.A director may not place
herself in a position where she has a personal interest which conflicts, or which may possibly
conflict, with her duty to act in the interests of the company.

A duty not to take business opportunities of the company for his or her personal benefit,
or for the benefit another person other than the company.It is a well-entrenched principle of
corporate law that a director has a fiduciary duty not to make a secret profit out of his trust,
and generally must not place himself in a position in which his duty and self-interest may
conflict. If an opportunity is acquired for the director’s own benefit rather than for the
company, it is said that the director usurped or expropriated the business opportunity.
According to established principles of company law, the director’s intention is then
disregarded and the acquisition is treated as having been made on behalf of the company,
who may claim the property from the director.

A duty not to compete in business with the company.A director has a fundamental duty to
promote the business of the company, to act with complete good faith towards it, and not to
embark on a course of conduct in which his or her own interests will conflict with the
company. A director cannot compete with the company for the same business or clientele.
Furthermore, an incumbent director may not set up a business that is in direct competition
with the company.

A duty not to accept a benefit from a third party for doing or not doing anything.A director
must be extremely careful not to accept benefits in any form e.g. gifts, from third parties who
may want business from the company, but this shall not include benefits which are de
minimis in value or cannot reasonably be regarded as likely to give rise to a conflict of
interest with the company concerned
 A duty to never knowingly cause harm to the companyDirectors often know confidential
information that can bring either success or harm to the company. Corporate espionage is
often a threat to a company and directors must be mindful not to disclose confidential
information to outsiders who may use the information to cause harm to the company.

A duty to serve only the company’s interest in all transactions involving the company in
which the director has a personal interestA director must always put the interests of the
company first, even if he or she has a personal interest in a particular transaction.

A director who breaches any of the aforementioned duties will be held liable. I shall look at
the liabilities of directors in greater detail in the next article.

Duty to disclose conflict of interest Section 57

Section 57 of the new Companies Act provides that a director has a duty to disclose conflict
of interest. This particular section states that if a director has a personal financial interest in
any matter to be considered at a meeting of the board of directors, or knows an associate who
has a personal financial interest, the interested director must adhere to the following:

The director must disclose the interest and its general nature before the matter is considered
at the meeting.

The director must disclose to the meeting any material information relating to the matter, and
known to him or her.

The director may disclose any observations or pertinent insights relating to the matter if
requested to do so by the other persons.

If the director is present at the meeting, he or she must leave the meeting immediately after
making any disclosure contemplated in paragraph 3.2.2 or 3.2.3.

The director must not take part in the consideration of the matter.

The director must not execute any document on behalf of the company in relation to the
matter unless specifically requested or directed to do so by the board.

A director who fails to comply with the provisions of section 57 shall be guilty of an offence
and liable to a fine not exceeding level fourteen or to imprisonment for a period not
exceeding two years or to both such fine and imprisonment. Therefore, directors must ensure
that any conflict of interest of any nature is disclosed to the board before it deliberates on the
matter.
Every director of a company must take note of the new statutory duties and of directors.
Furthermore, every director must ensure that he or she acts in the best interest of the company
at all time and avoid conflict of interest. The codification of the duty of care and skill
contained in the new Companies Act was a sensible move.es.