THE MEANING OF ‘PRESCRIBED OFFICERS’

UNDER THE COMPANIES ACT 71 OF 2008

KATHY IDENSOHN*
Senior Lecturer, Department of Commercial Law, University of Cape Town

Most of the provisions in the Companies Act 71 of 2008 that regulate directors also apply
to ‘prescribed officers’. This term is both new and unique to South African company law,
and is one with far-reaching legal implications. It is also one that has been defined in very
vague and general terms. This article suggests and discusses some considerations that may
be of assistance in finding an appropriate meaning for a ‘prescribed officer’. In particular, it
argues that the term must be interpreted with direct reference to the legal consequences that
attach to it, and that the most significant of those consequences is that ‘prescribed officers’
are subject to substantially the same fiduciary-type duties as directors. The article then
considers the principles governing the recognition of fiduciary duties and their implications
for the ‘prescribed officer’definition.

I INTRODUCTION
Most of the provisions in the new Companies Act 20081 (‘the Act’) that
regulate directors also apply to members of board and audit committees and
to ‘prescribed officers’.
The term ‘prescribed officer’ is both new and unique to South African
company law, and is one with far-reaching legal implications. With effect
from 1 May 2011, all who fall within its ambit are subject to substantially the
same statutory duties, standards of conduct, restrictions and liability as
company directors. These are extensive, and include duties to adhere to the
company’s constitutional documents;2 disclose personal interests in company
matters;3 exercise reasonable care, skill and diligence;4 and a number of duties
of a fiduciary nature.5 There are also references to ‘prescribed officers’ in the
Act’s provisions relating to the disclosure of information in annual financial
statements;6 the need for shareholder approval for share issues;7 the giving of
financial assistance by companies in relation to share acquisitions;8 ineligibil-
ity for and disqualification from office;9 liability for breach of statutory
duty;10 indemnification and insurance;11 and improper share allotments.12

* BA LLB (cum laude) (UCT) LLM (Cantab). Attorney of the High Court of
South Africa.
1
Act 71 of 2008.
2
Section 15(6).
3
Section 75.
4
Section 76(3)(c).
5
Section 76(3)(a) and (b).
6
Section 30(5)(a).
7
Section 41.
8
Section 45.
9
Section 69.
10
Section 77.
11
Section 78.
12
Section 108.

717
718 (2012) 129 THE SOUTH AFRICAN LAW JOURNAL

The concept of a ‘prescribed officer’ has however been defined in

particularly vague and general terms. It will accordingly be up to the courts to
find an appropriate interpretation that rationalises and justifies the conse-
quences that attach to it, and which is acceptable in terms of both principle
and policy. This article suggests some considerations that may be of assistance
in fashioning such an interpretation.

II THE DEFINITION OF A ‘PRESCRIBED OFFICER’

The Act describes a ‘prescribed officer’ as a person ‘who, in relation to a
company, performs any function that has been designated by the Minister by
Regulation’.13 The Minister has exercised his powers in this regard and has
defined a ‘prescribed officer’ in the Companies Regulations, 2011.14 That
definition provides:
‘(1) Despite not being a director of a particular company, a person is a
‘‘prescribed officer’’ of the company for all purposes of the Act if that
person —
(a) exercises general executive control over and management of the
whole, or a significant portion, of the business and activities of the
company; or
(b) regularly participates to a material degree in the exercise of general
executive control over and management of the whole, or a signifi-
cant portion, of the business and activities of the company.
(2) This regulation applies to a person contemplated in sub-regulation (1)
irrespective of any particular title given by the company to —
(a) an office held by the person in the company; or
(b) a function performed by the person for the company.’

III SOME DIFFICULTIES WITH THE DEFINITION

Although the definition is a significant improvement on the untenably vague
version of the definition that appeared in the Draft Companies Regulations,
2010,15 it remains problematic in a number of respects.
Most obviously, it is still based on very loose and open-ended criteria of
managerial involvement. Phrases such as ‘exercises general executive control’
over ‘a significant portion’, ‘regularly participates in’ and ‘to a material
degree’ are capable of very wide construction. There is nothing in the
definition itself that indicates where the limits of these criteria lie and,
therefore, no indication of the nature, degree, consistency or reach of the
participation or control that would suffice to render a person a ‘prescribed
officer’.

13
Section 1.
14
Regulation 38 of the Companies Regulations, 2011: GNR 351 GG 34239 of
26 April 2011.
15
Reg 45 of the Draft Companies Regulations Pursuant to the Companies Act,
2008: GN 1664 GG 328832 of 22 December 2009.
THE MEANING OF ‘PRESCRIBED OFFICERS’ UNDER THE COMPANIES ACT 719
For example, it is not clear whether the participation or control has to be
of a direct nature, or whether that which is effected indirectly through the
instrumentality of another person or entity would suffice. If such ‘indirect’
control or participation is insufficient to render a person a ‘prescribed
officer’, it would exclude for example the so-called ‘shadow director’ who
exercises indirect influence or control by way of the giving of instructions or
directions to a company’s directors. It is also not clear whether the definition
includes juristic persons such as holding companies that control the manage-
ment of their subsidiaries, or banks and other controlling creditors, and there
is no express exclusion of persons who participate in management in a purely
professional or advisory capacity.

IV SOME INTERPRETIVE CONSIDERATIONS

Some considerations that may be instructive in interpreting the definition of
‘prescribed officer’ are its own wording; the relationship between ‘prescribed
officers’, ‘directors’, company officers, ‘shadow directors’ and other manage-
rial participants; the way in which other jurisdictions have explored and
applied analogous criteria of executive influence and control in their
regulation of corporate managers; and the duties and liability that attach to
‘prescribed officers’.

(a) The definition’s own provisions

The definition’s own wording provides only one clear guiding principle for
its interpretation and application. That principle is the express statement in
sub-paragraph (2) that the assessment of whether a person fulfils the
definition’s requirements must be based on their actual conduct rather than
on any job title or function that may be formally attached to them. Whilst this
reality-based ‘substance over form’ approach is in keeping with the way in
which terms such as ‘director’ and ‘officer’ have traditionally been defined by
our law for the purposes of fixing the boundaries of managerial regulation, it
is of little specific interpretive assistance.

(b) The relationship between ‘prescribed officers’and ‘directors’

One consideration that may be of more help in determining the proper
meaning of the definition of ‘prescribed officer’ is its relationship with the
concept of a ‘director’. Unfortunately, this is a matter on which the Act is not
immediately clear.
The section that defines ‘prescribed officer’ begins with the words
‘[d]espite not being a director’. This could mean that a person need not be a
director in order to be a prescribed officer, but that they could be both.
Alternatively, it could mean that a person will not be a prescribed officer if
they are already a director, which would separate the concepts of ‘directors’
and ‘prescribed officers’ from each other and reserve the latter for persons
who are not directors. Of these two possible interpretations it is the second
that makes more sense. If a person falls within the Act’s definition of a
720 (2012) 129 THE SOUTH AFRICAN LAW JOURNAL

‘director’ they will already be subject to all of the same provisions and
regulation as prescribed officers in their capacity as a director, and there is no
need to classify them additionally as a ‘prescribed officer’. If this is correct,
the definition of a ‘prescribed officer’ needs to be construed with reference
to, and to the exclusion of, any circumstances that would constitute a person
a ‘director’.
In terms of s 1 of the Act, a ‘director’ means ‘a member of the board of a
company . . . or an alternate director of a company and includes any person
occupying the position of a director or alternate director, by whatever name
designated’.16 An ‘alternate director’ is ‘any person elected or appointed to
serve, as the occasion requires, as a member of the board of a company in
substitution for a particular elected or appointed director of that company’.17
Read together, these definitions are substantially the same as the definition of
a ‘director’ that was contained in the 1973 Companies Act18 and, like that
definition, are likely to be interpreted as including both de jure and de facto
directors.19
A de jure director is a person who has been properly and lawfully
appointed or elected to the office of director and who held office as such at
the time in question. The proper meaning of a de facto director is a little less
settled.20 One view is that the term only includes persons who a company has
attempted to place in office as a director, but has failed to do so effectively due
to some legal irregularity, and persons who were effectively put in office, but
whose office has legally ended at the time in question.21 The other more
generally accepted view is that a ‘de facto director’ includes any person who
in fact acts as, or has assumed the status, role or functions of, a director,
without the need for any prior effective or attempted appointment or
election as such. This has some South African case support22 and is also the
view that the English courts have favoured.
The most recent leading English case on the matter is Re Hydrodan (Corby)
Ltd23 in which Millett J described a de facto director as ‘a person who assumes
to act as a director . . . although never actually or validly appointed as such’.24

16
Section 1.
17
Ibid.
18
Act 61 of 1973. Section1 provided that a ‘director’ included ‘any person occu-
pying the position of director or alternate director of a company, by whatever name
. . . designated’.
19
By virtue of both definitions’ inclusion of ‘any person occupying the position of
a director’.
20
For a more detailed discussion of different interpretations of the terms ‘director’,
‘de jure director’ and ‘de facto director’ see J J du Plessis ‘Some subtle distinctions in
the term ‘‘director’’ ’ 1995 TSAR 153.
21
Some cases that support this interpretation include Morris v Kanssen [1946] AC
459, R v Mall 1959 (4) SA 607 (N), and Inland Revenue Commissioners v Heaver [1949]
2 All ER 367.
22
In cases such as S v Hepker 1973 (1) SA 472 (W); S v De Jager 1965 (2) SA 616 (A).
23
Re Hydrodan (Corby) Ltd [1994] BCC 161.
24
Ibid at 163.
THE MEANING OF ‘PRESCRIBED OFFICERS’ UNDER THE COMPANIES ACT 721
The enquiry as to whether a particular person is de facto director is thus a
factual one, the outcome of which will depend on all the circumstances of
the case.25 What is required is evidence that the person concerned undertook
the kinds of functions in relation to the company that could only be properly
discharged by a director,26 participated in directing the affairs of the
company, and exercised ‘real influence’ in the decision-making process of the
company.27 Such participation must however be ‘on an equal footing’ with
the de jure directors. ‘It is not sufficient to show that [they were] concerned
in the management of the company’s affairs or undertook tasks in relation to
its business which can properly be performed by a manager below board
level.’28 The basic test therefore is whether the person in question ‘assumed
the status and functions of a company director’,29 having regard to their
actions rather than what they call themselves.30 This would include persons
who claim to be and/or are held out as directors, as well as those who
perform the functions of, and act on an equal footing with, de jure
directors.31
(c) Shadow directors, company officers and other managerial participants
Even if the ‘prescribed officer’ definition excludes all de jure, de facto and
alternate directors, there is still space for the inclusion of a wide range of
persons who participate in managing a company’s business or activities. It is
here, in the identification of those non-director managerial participants who
exercise sufficient influence or control to justify the consequences that attach
to ‘prescribed officers’, that the real interpretative difficulties lie. Such
participants may participate in or exercise their influence or control in
various ways, to various degrees and they may do so either personally or
directly, or indirectly through another person or persons.
Those whose participation, influence or control is of a direct nature might
include, for example, chief executive, financial, accounting and operating
officers; company treasurers; and general secretaries.32 As regards indirect
participation, influence and control, one particularly problematic category of

25
Re Kaytech International plc; Portier v Secretary of State for Trade and Industry [1999]
BCC 390 at 402.
26
The Hydrodan case supra note 23 at 163.
27
Gemma Ltd v Davies [2008] BCC 812 para 40; Secretary of State for Trade and
Industry v Hollier [2007] BCC 11 paras 68–9 and 81.
28
The Hydrodan case supra note 23 at 163.
29
The Kaytech case supra note 25 at 402.
30
Ultraframe (UK) Ltd v Fielding [2005] EWHC 1638 (Ch) para 1255; The
Hydrodan case supra note 23 at 163.
31
Per Cooke J, at first instance, in Secretary of State for Trade and Industry v Deverell
1999 WL 1142641 at par 31.
32
The definition of a ‘prescribed officer’ that was contained in the Draft Compa-
nies Regulations (op cit note 16) expressly included Company Presidents; Chief
Executive Officers; Managing Directors; Executive Directors; Treasurers; Chief
Financial Officers; General Secretaries; General Counsel; Chief Operating Officers;
and ‘similar office holder[s]’.
722 (2012) 129 THE SOUTH AFRICAN LAW JOURNAL

person is the ‘shadow director’.33 This concept is used in a number of other

jurisdictions34 to regulate persons who exercise indirect influence or control
by giving directions or instructions to a company’s board of directors.
The English Companies Act, for example, defines a ‘shadow director’ as ‘a
person in accordance with whose directions or instructions the directors of a
company are accustomed to act’,35 but excluding persons who only give
advice in a professional capacity.36 There is also a proviso, in relation to
certain of the Act’s shadow director provisions,37 that a body corporate is not
to be regarded as a shadow director of any of its subsidiary companies ‘by
reason only that the directors of the subsidiary are accustomed to act in
accordance with its directions or instructions’.38 Similar ‘shadow director’
definitions are contained in the English Company Directors Disqualification
Act and Insolvency Act.39 Other jurisdictions that expressly refer to and
regulate shadow directors have defined them in substantially the same
terms.40
It is difficult to predict whether the South African courts will recognise
shadow directors as ‘prescribed officers’. Again, some assistance may be found
in the relationship between shadow directors and ‘directors’. If shadow
directors fall within the Act’s definition of a ‘director’, and if the suggested
interpretation regarding the relationship between ‘directors’ and ‘prescribed
officers’ is correct, shadow directors would be excluded from being pre-
scribed officers on that basis.41

33
For a discussion and comparative analysis of the nature and regulation of shadow
directors, see Kathy Idensohn ‘The regulation of shadow directors’ (2010) 22 SA Merc
LJ 326; Natania Locke ‘Shadow directors: Lessons from abroad’ (2002) 14 SA Merc LJ
420.
34
These include Australia, New Zealand, England and Hong Kong.
35
Section 251(1) of the English Companies Act, 2006.
36
Ibid s 251(2).
37
The provisions to which the proviso applies are those contained in chapter 2
(the general duties of directors); chapter 4 (transactions requiring members’ approval);
and chapter 6 (contracts between a company and a sole member who is also a direc-
tor).
38
Section 251(3) of the English Companies Act, 2006.
39
Section 22(5) of the Company Directors Disqualification Act, 1986 and s 251 of
the Insolvency Act, 1986.
40
For example ss 60(1) and 60(2) of the Australian Corporations Law, 2001; s 9 of
the Australian Corporations Act 50 of 2002; s 126 of the New Zealand Companies
Act, 1993; and s 351(2) as read with s 2 of the Hong Kong Companies Ordinance LN
139 of 2008. Both the Australian Corporations Law and the New Zealand Compa-
nies Act define a ‘shadow director’ as ‘a person in accordance with whose directions
or instructions the directors are accustomed to act’. ‘Shadow directors’ are then
included in the general definition of a ‘director’, thereby rendering them subject to
the same duties, restrictions, liability and general regulation as de jure and de facto
directors. A similar effect is achieved by s 351(2) as read with s 2 of the Hong Kong
Companies Ordinance. Although s 251(1) of the English Companies Act, 2006
defines a ‘shadow director’ in identical terms, it does not include ‘shadow directors’
within its definition of a ‘director’.
41
They would however then be subject to substantially the same provisions as
prescribed officers, but in their capacity as directors.
THE MEANING OF ‘PRESCRIBED OFFICERS’ UNDER THE COMPANIES ACT 723
It has been suggested in this regard that shadow directors are a species of
‘director’. There are two possible arguments in support of this view. One is
that shadow directors are a particular kind of de facto director and fall within
the definition of a ‘director’ on that basis. There is some support for this view
in the English case law where the courts have on a number of occasions failed
to draw a clear or absolute distinction between shadow and de facto directors.
The Court of Appeal in Re Tasbian Ltd (No 3),42 for example, did not clearly
distinguish the two, simply referring to a particular person as either a de facto
or shadow director for the purposes of disqualification proceedings. Cooke J
at first instance in Deverell 43 refused to decide whether shadow and de facto
directors are mutually exclusive concepts, while the Court of Appeal in the
same case44 appeared to accept a merging of the two concepts. In Kaytech, the
court said that the distinction between a de facto and a shadow director is not
always clear-cut.45
It is also true that shadow directors are similar to de facto directors in some
general respects. They both exercise real influence or control over a
company despite not properly occupying the office of a director; they both
may do so in a way that is concealed, open or a combination of the two;46 and
their statutory recognition reflects a common regulatory desire to ensure that
those who play a sufficiently significant role in corporate management are
held accountable for their conduct, regardless of labels and other matters of
form.
The more persuasive view, however, is that there is an ‘essential difference’
between shadow and de facto directors, that they are alternative and ‘in most
and . . . perhaps all cases . . . mutually exclusive’ concepts;47 although there
may be very exceptional cases where ‘it may not be entirely straightforward
which of the two descriptions is most apposite’.48 A de facto director is held
out as, acts as, or claims to be, a director although that person is not lawfully
in office as such. It is necessary to prove that they undertook functions which
only a de jure director could properly discharge, and it is not sufficient for
them to be involved in management or tasks that are, or can be, performed
by a manager. A shadow director, by contrast, does not claim to be a director,
and is not held out as such. Shadow directors direct or instruct the directors
on how to act in relation to the company’s affairs. As such, they also do not

42
Re Tasbian (No 3) Ltd [1991] BCLC 792.
43
The Deverell case at first instance supra note 31 para 36.
44
Ibid.
45
The Kaytech case supra note 25 at 402.
46
Ibid.
47
Per Millett J in the Hydrodan case supra note 23 at 161. For criticisms of the
failure treat shadow and de facto directors as mutually exclusive, see Stephen Griffin
‘Problems in the identification of a company director’ (2003) 54 Northern Ireland Legal
Quarterly 43; Chris Noonan & Susan Watson ‘The nature of shadow directorship: ad
hoc statutory intervention or core company law principle?’ 2006 Journal of Business
Law 763 at 772.
48
The Hollier case supra note 27 para 81.
724 (2012) 129 THE SOUTH AFRICAN LAW JOURNAL

act on an equal footing with the directors, but rather as controllers or

instructors who tell the directors what to do.49 To establish that someone is a
shadow director, it is necessary to prove who the de jure and de facto
directors of the company are; that the alleged shadow director instructed or
directed them on how to act; that those directors acted in accordance with
those instructions or directions; and that they were accustomed to doing so.50
The other argument for treating shadow directors as ‘directors’ is that even
if they are not de facto directors, they are still persons ‘occupying the position
of a director’.51 Again, this is not a particularly persuasive argument. It not
only relies on a somewhat strained reading of the word ‘occupying’,52 but
also fails to take account of the same kinds of factors that distinguish shadow
directors from de facto directors.53
The better conclusion therefore is that shadow directors are not ‘directors’
and there is accordingly scope for them to be classified as ‘prescribed officers’.

(d) Comparative measures of executive control and participation

The definition of a ‘prescribed officer’ rests on notions of ‘general executive
control’ over, or ‘regular’ participation ‘to a material degree’ in such control
over, the whole or a ‘significant portion’ of a company’s business and
activities. Foreign courts have considered similar criteria of control and
participation within the context of shadow directors. Despite their differ-
ences, the shadow director and prescribed officer concepts reflect similar
regulatory objectives. As such, foreign interpretations and applications of
analogous concepts of control and influence in relation to shadow directors
can be useful in determining the kinds of persons who can and should be
classified as ‘prescribed officers’.
The English courts, for example, began with more literal and restrictive
interpretations of a ‘shadow director’.54 Subsequent cases have however

49
The Hydrodan case supra note 23 at 163.
50
Ibid.
51
See for example the De Jager case supra note 22; J S McLennan ‘Directors’ duties
and misapplications of company funds’ (1982) 99 SALJ 394; F H I Cassim, M F
Cassim, R Cassim, R Jooste, J Shev & J Yeats Contemporary Company Law (2011) at
381–2.
52
The word ‘occupying’ in its ordinary literal sense suggests the need for a person
to directly act as, or be held out as, a director.
53
See also Hefer J’s statement in S v Vandenberg & others 1979 (1) SA 208 (D), in
relation to the Companies Act 61 of 1973, that there were clear indications that the
legislature never intended to recognise persons other than de jure and de facto direc-
tors as ‘directors’ for any purpose.
54
This restrictive approach is evident in, for example, Re Unisoft Group Ltd (No 3)
[1994] 1 BCLC 609, where it was held that a shadow directorship requires evidence
that the person in question influenced the majority of a company’s directors to the
extent that they were ‘the master controlling a puppet board’. See also Re PFTZM
Ltd (in liquidation) [1995] 2 BCLC 354 (ChD), where the court held that a person
would not be a shadow director if the directors had any choice as to whether to follow
his/her directions or instructions.
THE MEANING OF ‘PRESCRIBED OFFICERS’ UNDER THE COMPANIES ACT 725
moved towards a more flexible and pragmatic approach that emphasises that
the term should be interpreted in a way that gives effect to the legislative aim
of public protection and should not be narrowly construed merely because it
may have quasi-penal consequences.55 They have also increasingly empha-
sised that the question whether a particular person is a shadow director must
be determined objectively with reference to all of the surrounding circum-
stances.56 The subjective states of mind, intentions and motives of the parties
involved are not conclusive,57 although evidence of an understanding or
expectation of compliance on the part of either the alleged shadow director
or the receiver(s) of their directions or instructions may be a relevant factor.58
The English courts have, though, also gone further and have identified a
number of specific measures for determining whether a person exercises
sufficient influence or control to be a shadow director, such as the nature,
frequency, duration and extent of their involvement. With regard to the
extent of control or influence, they have held that it is not necessary for the
person concerned to give directions or instructions over every matter on
which a company’s directors act, or the whole ambit of a company’s activities
or affairs.59 They have also held that it is not necessary for the control or
influence to be frequent, or to cover an extended period. All that is required
is evidence of a period during which the requisite nature and extent of
control or influence was present,60 with the emphasis on the effect of that
control or influence.61
Reference to the ways in which foreign courts have used these kinds of
measures, and the policy perspective from which they have done so, can be
useful when interpreting the definition of a ‘prescribed officer’. This is of
course subject to a need to remain mindful of the differences between the
two concepts and their legal implications. In jurisdictions that expressly refer
to them, shadow directors are generally subject to a narrower range of duties
and potential personal liability than directors. In English law, for example,
shadow directors are not subject to the statutory duties that the English
Companies Act imposes on directors,62 and the courts have generally refused
to recognise shadow directors as being bound by any fiduciary duties.63
Prescribed officers, on the other hand, are subject to substantially the same

55
This has culminated in the leading judgment of Morritt LJ in the appeal case of
Secretary of State for Trade and Industry v Deverell [2001] Ch 340 (CA (CivDiv)), quoted
with approval in the Ultraframe case supra note 30 paras 1260–1.
56
The Kaytech case supra note 25.
57
The appeal case of Deverell supra note 55 at 375J.
58
Ibid at 354C.
59
Re Kaytech, Secretary of State for Trade and Industry v Kaczer & Others [1999] 2
BCLC 351 (CA) para 144.
60
The appeal case of Deverell supra note 55 at 375J.
61
Secretary of State for Trade and Industry v Becker [2003] 1 BCLC 555; the Unisoft
case supra note 54 at 775B.
62
Chapter 2 of Part 10 as read with s 251 of the English Companies Act, 2006.
63
This aspect is discussed in more detail later in this article.
726 (2012) 129 THE SOUTH AFRICAN LAW JOURNAL

statutory duties as directors, including some of a fiduciary nature. These

differences should affect the interpretive process and be reflected in the
meaning ultimately attributed to a ‘prescribed officer’.

(e) The duties and liability that attach to prescribed officers under the Act
Perhaps the most significant consideration in interpreting the definition of
‘prescribed officer’ is the kind of duties and potential personal liability that it
attracts.
Prescribed officers have a duty under s 75 to disclose any personal financial
interest that they or any ‘related person’64 have/has in any matter to be
considered by their company’s board of directors, or in any agreement or
other matter in which the company has a material interest, as well as any
material information they have relating to that interest, agreement or other
matter.65 In terms of s 76 they are also subject to a duty to communicate
certain information to the company’s board,66 and a general duty to exercise
reasonable care, skill and diligence.67 In addition to the s 75 duty of
disclosure, these include a duty not to use their position in relation to the
company, or any information derived by virtue of that position, to obtain any
gain for themselves or any person other than the company or a wholly-
owned subsidiary of it,68 or knowingly to cause harm to the company or any
of its subsidiaries.69 There are also duties to exercise their powers and
perform their functions in good faith, for a proper purpose,70 and in the best
interests of the company.71
These are onerous and far-reaching duties. The equivalent common law
duty of directors to act for a proper purpose, for example, prohibits the
exercise of any power or discretion for a purpose that is not expressly or
impliedly authorised by the company’s constitution72 or that defeats, frus-
trates or usurps the rights or powers of the company’s members.73 Compli-
ance with these requirements calls for a relatively sophisticated knowledge
and understanding of both the company’s constitution and broader legal
principles. The common law duty to act in the interests of ‘the company’ is
similarly demanding. The prevailing view is that ‘the company’ means all the
members of the company, both present and future.74 Once the company is in

64
‘Related persons’ are defined in s 1 as any two persons connected to one another
in any manner contemplated in s 2(1)(a)–(c).
65
Section 75.
66
Section 76(2)(b).
67
Section 76(3)(c).
68
Section 76(2)(a)(i).
69
Section 76(2)(a)(ii).
70
Section 76(3)(a).
71
Section 76(3)(b).
72
Rolled Steel Products (Holdings) Ltd v British Steel Corp [1982] 3 All ER 52 (CA);
Hogg v Cramphorn [1967] Ch 254.
73
Howard Smith v Ampol Petroleum Ltd [1974] AC 821 (PC).
74
Greenhalgh v Arderne Cinemas Ltd [1950] 2 All ER 1120 (CA).
THE MEANING OF ‘PRESCRIBED OFFICERS’ UNDER THE COMPANIES ACT 727
insolvent circumstances the duty is further complicated by the need to have
regard to creditors’ interests.75 This not only requires an identification of
legally relevant interests, but often also a drawing of difficult balances and
compromises between competing ones.76
The liability that can be imposed on prescribed officers in terms of the Act
is also relatively strict and extensive. In terms of s 77, and subject to certain
exceptions and provisos,77 prescribed officers can incur personal liability for
any ‘loss, damages or costs’ sustained by the company as a consequence of a
breach of any of their general s 76 duties, any provision of the Act not
specifically referred to in s 77, or any provision in the company’s Memoran-
dum of Incorporation (‘the MOI’), as well as for contraventions of certain,
specific provisions in the Act.78 This liability for breach of the general duty to
exercise reasonable care, skill and diligence, or breach of any unspecified
provision of the Act or of the MOI applies ‘in accordance with the principles
of the common law relating to delict’.79 The liability for breach of the duties
to disclose personal interests; not misuse their positions for improper
advantage or to harm the company; communicate information; and to act in
good faith, for a proper purpose and in the best interests of the company,
applies ‘in accordance with the principles of the common law relating to
breach of a fiduciary duty’.80
It is not only the extensive nature of these duties and potential liability that
is significant. There are also important issues of principle to consider in
relation to the way in which the Act imposes them on prescribed officers. The
provisions that refer and apply to prescribed officers generally expressly
incorporate them into the term ‘director’.81 Grouping the two concepts
together in this way suggests that the provisions concerned apply to

75
Kinsela v Russell Kinsela Pty Ltd (1986) 10 ACLR 395.
76
In cases of such conflicting and irreconcilable interests, the duty becomes an
even more difficult one of having to act fairly as between those different interests: see
the Howard Smith case supra note 73.
77
These exceptions and provisos to liability are set out in s 77(4).
78
These specific contraventions are listed in s 77(3) and consist of the following:
acting on behalf of the company with knowledge that they lacked authority to do so;
acquiescence in reckless, grossly negligent or fraudulent carrying on of business as
defined in s 22(1); knowingly being a party to any act or omission calculated to
defraud a creditor, employee or shareholder of the company or having another
fraudulent purpose; signing, consenting to or authorising any false or misleading
financial statements and certain kinds of false, misleading or untrue statements in a
prospectus or s 101 written statement relating to a secondary offer of securities to the
public; and being involved in certain ways in the issuing of unauthorised shares or
options, the giving of financial assistance contrary to s 44 or s 45, a distribution con-
trary to s 46, an acquisition of shares by the company contrary to s 46 or s 48, or an
allotment contrary to chapter 4.
79
Section 77(2)(b).
80
Section 77(2)(a).
81
The primary duty and liability ss 75, 76 and 77 for example all begin by expressly
stating that for the purposes of their provisions, ‘ ‘‘director’’ includes . . . a prescribed
officer’.
728 (2012) 129 THE SOUTH AFRICAN LAW JOURNAL

‘directors’ and ‘prescribed officers’ equally and in the same way: that
prescribed officers are subject to substantially identical duties, in the same
circumstances, and to the same extent as de jure, de facto and alternate
directors. It is here, and particularly in relation to the duties imposed, that
issues of principle are most relevant and potentially useful for distinguishing
between different managerial participants for the purposes of determining
which of them should be classified as ‘prescribed officers’.
The aim in this regard must be to find an interpretation that is consistent
with the theoretical basis and framework of the duties to which prescribed
officers are subjected. The initial enquiry must thus be whether, having
regard to the core theoretical constructs of the corresponding common law
duties, the person in question should be recognised as owing the company
concerned the kinds of duties contained in the Act at all. However, the same
general duties may apply to different persons in different ways. All fiduciaries,
for example, are not automatically subject to fiduciary duties of exactly the
same extent. Even where they share the same general duties, such as that of
loyalty, the ambit of those duties and what they require will vary in
accordance with each fiduciary’s particular circumstances.82 As such, even
where the application of the duties in question is appropriate, it is still
necessary to engage in a second enquiry: that is, whether those duties should
be of substantially the same nature and extent as those which the common
law imposes on directors; or, in effect, whether it is appropriate that they be
director-equivalent. It is only affirmative answers to both these enquiries that
would suggest, and justify, classifying that person as a ‘prescribed officer’.
These matters of principle are particularly pertinent in relation to the
fiduciary-type duties that the Act imposes on prescribed officers ‘in accor-
dance with the principles of the common law relating to . . . fiduciary
duty’.83
Despite its long history and extensive debate in most commonwealth
jurisdictions, the fiduciary concept is one that still lacks a settled and coherent
legal framework,84 and which therefore requires careful and considered
application and development. There are a number of fundamentally impor-
tant and complex issues that have yet to be resolved. In particular, there is
little certainty regarding the essential and distinctive features of a ‘fiduciary’
relationship, or the criteria for determining when one person should be

82
As stated in Hospital Products Ltd v United States Surgical Corporation (1984) 55
ALR 417 (HC of A) at 455, ‘fiduciary relationships are infinitely varied and the duties
of the fiduciary vary with the circumstances that [surround] the relationship’. See also
Woolworths Ltd v Kelly (1991) 4 ACSR 431 (CA (NSW)) at 445.
83
Section 77(2)(a).
84
For example, the court in the Ultraframe case supra note 30 para 1285 described
the law governing fiduciary relationships as ‘depressingly unclear’.
THE MEANING OF ‘PRESCRIBED OFFICERS’ UNDER THE COMPANIES ACT 729
recognised as owing fiduciary duties to another outside of those relationships
that have already become established as having a fiduciary character.85
Various criteria have been referred to in attempts to identify the circum-
stances in which the application of fiduciary duties is appropriate. Conven-
tionally, these include the placing of trust, confidence or reliance by one
person in another; voluntary assumptions of another’s trust, confidence or
reliance; one person’s ability to exercise some power over another person,
their property or their affairs; and resulting vulnerability to the risk of
exploitation or abuse of that power.
More recently it is the principle of justified expectation that has gained
prominence and increasing acceptance.86 In terms of this principle, the
defining and distinctive feature of a fiduciary relationship is a justified
expectation by one person (the beneficiary) that another person (the
fiduciary) will act for and on behalf of the beneficiary, in the interests of the
beneficiary and to the exclusion of his or her own several interests87 in
relation to the matter in issue. This is effectively a justified expectation of
another’s undivided loyalty, which is the core and definitive fiduciary duty.88
Whether or not this requirement of a justified expectation is fulfilled in
any given case will depend on its particular circumstances. Factors that may
be relevant include the influence or discretion that the one person has in
relation to the property or affairs of the other; the vulnerability of one person
to another; one person’s placing of trust, confidence or reliance in another;
and the latter’s voluntary assumption or acceptance of such trust, confidence
or reliance.89 In Volvo (Southern Africa) (Pty) Ltd v Yssel the Supreme Court of
Appeal, quoting from the Canadian case of Hodgkinson v Simms,90 referred to
a need for a state of affairs ‘which impels or induces one party ‘‘to relax the
care and vigilance it would and should have ordinarily exercised in dealing
with a stranger’’’.91 This is however merely a non-exhaustive list of
potentially relevant considerations, and none of them are essential or
decisive.
These are substantially the same kinds of considerations that have been
used in the past to identify fiduciary relationships, although the tendency has

85
Relationships that have already become established as fiduciary ones include
those between agent and principal, trustee and trust beneficiary, and the relationship
between partners.
86
See, for example, Volvo (Southern Africa) (Pty) Ltd v Yssel 2009 (6) SA 531 (SCA);
Hodgkinson v Simms (1995) 117 DLR (4th) 161 at 176–7; the Hospital Products case
supra note 82; Sinclair Investment Holdings SA v Versailles Trade Finance Ltd [2007]
EWHC 915 (Ch) paras 85–8; Arklow Investments v Maclean [2000] 1 WLR 594 (PC)
(Ont CA).
87
P D Finn ‘The fiduciary principle’ in T G Youdan (ed) Equity, Fiduciaries and
Trusts (1989) at 46, 54.
88
Bristol and West Building Society v Mothew [1988] Ch 1 (CA) at 18.
89
The Volvo case supra note 86; the Hodgkinson case supra note 86; the Hospital
Products case supra note 82.
90
The Hodgkinson case supra note 86.
91
The Volvo case supra note 86 at 536.
730 (2012) 129 THE SOUTH AFRICAN LAW JOURNAL

been to apply them either independently and in isolation, or in limited

combinations, rather than as a collective general spread of factors to be
considered in all cases. So, despite the possible relevance of other factors in
the particular circumstances of each case, ‘justified expectation’ is in some
respects more a consolidation than a re-conceptualisation of the fiduciary
concept and the conventionally recognised criteria for its proper application.
Once it is established that one person holds a fiduciary position in relation
to another, it is necessary to determine the shape of that particular fiduciary’s
duties.92 Again, it is the same kinds of circumstances that gave rise to the
existence of the duties in the first place that are relevant. So, for example,
regard must be had to matters such as the fiduciary’s access to, control over
and authority and responsibility in relation to the beneficiary’s property and
interests;93 the nature and extent of the relationship94 and the parties’ relative
positions within it; and the trust or confidence enjoyed by the fiduciary.
Ultimately, it is not so much a question of the ‘intensity’ or degree of trust or
confidence or even the probability of abuse or improper conduct, but rather
what is required to maintain the integrity of that relationship.95 In relation to
‘prescribed officers’, it is necessary to find the existence of factors that are
substantially equivalent to those present in a director’s relationship with a
company in order to justify the director-equivalent fiduciary duties that the
Act imposes on prescribed officers.

( f) Fiduciary duties in relation to corporate managers

Within the context of corporate management, the application of fiduciary
duties to different kinds of managerial participants and the differing scope of
their respective duties have generally been based on a substantive assess-
ment96 of two considerations in particular. These are the nature and extent of
the participant’s discretionary power, ability, authority and responsibility97 to

92
As Mason J in the Hospital Products case supra note 82 put it, at 502: ‘[I]t is now
acknowledged generally that the scope of the fiduciary duty must be moulded
according to the nature of the relationship and the facts of the case.’
93
Ibid.
94
Ibid.
95
As Flannigan explains in ‘The fiduciary obligation’ (1989) 9 Oxford Journal of
Legal Studies 285 at 310– 11: ‘The fact is that the fiduciary obligation does vary. But
this variation is unrelated to the ‘‘degree’’ of trust or confidence found in the particular
relationship. It is also unrelated to the ‘‘degree’’ of probability with which mischie-
vous conduct will occur. There is, in other words, no variation in ‘‘intensity’’ in this
sense of degree. Rather the obligation varies in accordance with the relevancy of the
particular duty to the respective positions of the parties to the relationship. Generally
speaking, the obligation is defined by whatever rules are required in order to maintain
the integrity of the particular relationship.’
96
Bellairs v Hodnett & another 1978 (1) SA 1109 (A) at 1130E–F; Sibex Construction
(SA) Ltd v Injectaseal CC 1988 (2) SA 54 (T) at 65.
97
Responsibility, within this context, is generally understood as having a meaning
that is wider than a directly enforceable legal duty or obligation.
THE MEANING OF ‘PRESCRIBED OFFICERS’ UNDER THE COMPANIES ACT 731
act on behalf of the company, and their control over company property or
interests.98
It is the existence of sufficient degrees of such discretionary power, ability,
authority, responsibility (which would normally, but not necessarily, encom-
pass some corresponding trust, confidence or reliance on the part of the
company) and control in relation to a company that originally prompted and
rationalised the recognition of directors as fiduciaries, and that shaped their
common law fiduciary duties to the company. Similar assessments of these
factors have resulted in various company officers and senior managers whose
positions are substantially equivalent to those of directors being subjected to
fiduciary duties of the same nature and extent as those of directors.99 In
keeping with the general approach to managerial regulation, these assess-
ments have been based on substantive reality rather than matters of form. And
it is only where a managerial participant has in fact enjoyed substantially the
same nature, extent and level of discretionary power, authority or responsi-
bility (again usually including some corresponding trust, confidence or
reliance by the company) that they have been subjected to director-identical
fiduciary duties. Although other company employees, agents and managerial
participants who do not enjoy equivalent power, authority or responsibility
may well be subject to fiduciary duties, they will be of an appropriately
narrower scope than those of directors.100
The position in relation to shadow directors is more complicated. If they
are a species of ‘director’, they should be subject to the same fiduciary duties
as other directors. As this article has already suggested, they should then also
be excluded from possible classification as a ‘prescribed officer’ and no issue
should arise in relation to them when interpreting that term. It is only if
‘shadow directors’ are not ‘directors’, or if the definitions of ‘prescribed
officers’ and ‘directors’ are not mutually exclusive, that shadow directors are

98
Robinson v Randfontein Estates Gold Mining Co Ltd 1920 AD 168 at 177–8; Sack-
ville West v Nourse 1925 AD 516 at 533–4; the Woolworths case supra note 82; Pepper v
Litton 308 US 295 (1939) at 306–7; the Hospital Products case supra note 82. As stated
in Canadian Aero Services Ltd v O’Malley (1973) 40 DLR (3rd) (SCC) 371 at 382: ‘An
examination of the case law of this court and in the courts of other like jurisdictions
on the fiduciary duties of directors and senior officers shows . . . [that their] applica-
tion . . . is simply recognition of the degree of control which their positions give them
in corporate operations.’
99
As stated in the Sibex Construction case supra note 96 at 66, citing with approval
the following statement that appeared, at the time, in M S Blackman ‘Companies’ in
W A Joubert (ed) The Law of South Africa vol 4 (original edition) para 219: ‘Officers of
a company, whether defined as such by the Companies Act or not, who are autho-
rised to act on its behalf stand under the same fiduciary relationship and are subject to
the same fiduciary duties as the directors of the company.’ See also Phillips v Fieldstone
Africa (Pty) Ltd 2004 (3) SA 465 (SCA).
100
In the Canadian Aero case supra note 98, for example, it was held that the
fiduciary duties of mere employees and servants consist only of duties to respect the
company’s trade secrets and the confidentiality of its customer lists. See also Bell v
Lever Bros Ltd [1931] All ER 1 (HL).
732 (2012) 129 THE SOUTH AFRICAN LAW JOURNAL

potential candidates for the ‘prescribed officer’ classification, and that the
fiduciary criteria become relevant.
In jurisdictions that expressly recognise shadow directors, the courts have
generally held that they are not fiduciaries in relation to the company whose
directors they influence or control, and that they therefore do not owe that
company any fiduciary duties.101 In these cases, emphasis has usually been
placed on the structure and wording of the legislation that regulates shadow
directors102 and on the criteria of trust, confidence or reliance on the part of
the company and/or voluntary undertakings of trust, confidence or reliance
on the part of the shadow director. Thus, it has been held that shadow
directors are not fiduciaries because the company does not trust, confide in or
rely on the shadow director to act in anyone’s interests except his/her own;
and further, that the shadow director undertakes no duties or responsibility in
consequence of any reliance placed in him/her.103 It has only been in
exceptional cases, where a shadow director voluntarily exercises unusually
extensive and direct control over a company’s assets104 or over one or more
of its directors,105 that the criteria of the placing or assumption of trust,
confidence and reliance have been outweighed, and a shadow director has
been held to be a fiduciary and to owe fiduciary duties to the company.
Another argument that has been made against recognising shadow
directors as fiduciaries is that it would not accord with the fiduciary
principle’s underlying purpose and rationale. The primary function of
fiduciary principle is to ensure that the beneficiary’s interests remain

101
There is one Australian case, Australian Securities Commission v AS Nominees Ltd
(1995) 62 FCR 504, where it was held, at 596, that a shadow director is a fiduciary;
but that finding was based on the fact that the Australian Corporations Act, 2001
expressly includes shadow directors in its definition of a ‘director’. As suggested in this
article, the better view is that this is not the case in terms of the South African Act.
102
With the exception of Australia, the statutes in other jurisdictions, which
expressly refer to shadow directors define a ‘shadow director’ separately from a ‘direc-
tor’ and do not include shadow directors within the definition of ‘director’ for all
purposes or expressly subject them to the statutory fiduciary duties of ‘directors’. The
argument is thus that if the legislature intended to equate shadow directors with
directors for fiduciary duty purposes, it would either have included them within the
definition of a ‘director’ (at least in the provisions that refer to those duties) or it
would have expressly stated that those duties also apply to shadow directors. But
where shadow directors are expressly referred to in relation to only certain provisions,
the implication is that they were only intended to be subject to those particular
provisions. See for example the Ultraframe case supra note 30.
103
See for example the Ultraframe case supra note 30 para 1280, where the court
referred to the absence of any assumption of ‘an obligation of loyalty’ on the part of
the shadow director. See also P L Loughlan ‘Liability for assistance in a breach of
fiduciary duty’ (1989) 9 Oxford Journal of Legal Studies 260 at 263.
104
Ultraframe (UK) Ltd v Fielding supra note 30 para 1289.
105
See for example Canada Safeway Ltd v Thompson [1951] 3 DLR 295 (BC SC)
which referred to a situation where a shadow director has so much control over a
director and the latter acts with so little autonomy that the shadow director can be said
to have effectively taken it upon themselves to act as a fiduciary.
THE MEANING OF ‘PRESCRIBED OFFICERS’ UNDER THE COMPANIES ACT 733
paramount by prohibiting the fiduciary from acting in any other interests and
by imposing strict liability so as to deter opportunistic breaches prophylacti-
cally.106 The primary purpose of shadow director regulation, on the other
hand, is to mediate and find a proper balance between the competing
interests of the company and the shadow director. The way in which this
balance should be achieved, it has been suggested, is by limiting any liability
on the part of the shadow director to circumstances where the company has
actually suffered a loss and the shadow director has been at fault. As such,
shadow directors should not be subject to the strict liability that comes with
fiduciary duties.107
The extent to which these kinds of arguments are persuasive within the
South African context is debatable. On a policy level, it is easy to argue that
shadow directors should be subject to appropriate regulation and account-
ability. What is ‘appropriate’ is largely a matter of opinion.
Some arguments can however be made in support of the imposition of
fiduciary duties on shadow directors. For example, although their influence
or control is indirect, it is real and it may even be more extensive than that of
the individual de facto director who is subject to the full range of directors’
fiduciary duties. It seems unfair that shadow directors should be free from
equivalent duties simply because of the indirect nature of their influence or
control, or the absence of any direct placing by the company of its trust,
confidence or reliance in them, and/or their reciprocal acceptance thereof.
An imposition of equivalent fiduciary duties on shadow directors would also
give effect to growing international demands for better corporate governance
practices and the correlation of effective responsibility and accountability
with actual influence or control, regardless of how and in what guise it may
be exercised.
Any such imposition of fiduciary duties on shadow directors must
however be both principled and theoretically sound. Whether or not the
common law fiduciary doctrine permits the classification of shadow directors
as fiduciaries depends on how the courts define the criteria for the imposition
of fiduciary obligations, and the way in which they take those criteria into
account. Although the courts in other jurisdictions have generally concluded
that shadow directors cannot properly be classified as fiduciaries, their
decisions have been based on a range of factors. These factors are not settled,
and the way in which they are taken into account is largely a matter of
judicial discretion. There is thus scope for the South African courts to
recognise shadow directors as owing fiduciary duties to the companies whose

106
P D Finn ‘The fiduciary principle’, paper presented to the International Sympo-
sium on Trusts, Equity and Fiduciary Relationships, Faculty of Law, University of
Victoria, British Columbia, Canada, Feb 14–17 1988 at 36, quoted in Loughlan op
cit note 103 at 265.
107
See Loughlan op cit note 103 at 260–1. For arguments in favour of subjecting
shadow directors to the same regulation as directors, see Locke op cit note 33 at
427–8 and 436–7.
734 (2012) 129 THE SOUTH AFRICAN LAW JOURNAL

boards they influence. The existence of express statutory regulation of

shadow directors in other jurisdictions and its perceived deliberate exclusion
of shadow directors from the regulatory provisions (and therefore the
fiduciary duties that apply to directors) is also a distinguishing factor that may
produce a different outcome in South African law.
If the common law fiduciary principles do allow for a finding that shadow
directors are fiduciaries, then they will be subject to fiduciary duties. Those
duties may not, however, be of exactly the same scope or extent as those of
directors. If, in terms of the common law principles, they should be
recognised as director-equivalent duties, there is no objection in principle to
classifying shadow directors as ‘prescribed officers’ and thus subjecting them
to the same fiduciary duties as directors. The use of the ‘prescribed officer’
classification to do so would however only subject shadow directors to the
same fiduciary (and other) statutory duties that the Act itself imposes. These
statutory duties are not identical to, or arguably as extensive as, the common
law fiduciary duties, and may not afford the desired extent of regulation and
accountability. If that is the case, it will still be necessary to resort to the
(independently applicable) common law fiduciary principles where appro-
priate. Another point is that the liability that the Act imposes for breach of its
statutory fiduciary duties is not strict liability. It is limited to any loss, damages
or costs actually sustained by the company as a consequence of the breach.108
Limiting the regulation of shadow directors to an application of the
‘prescribed officer’ provisions, rather than relying on general common law
fiduciary principles would, at least to some extent, address the argument that
shadow director liability is inappropriate in the absence of loss on the part of
the company. If, however, the common law fiduciary principles do not
properly render shadow directors fiduciaries at all, or only subject them to
lesser fiduciary duties than directors, then shadow directors cannot be
‘prescribed officers’, and that concept must be interpreted so as to exclude
them.

V CONCLUSIONS
The argument in this article has been that the definition of a ‘prescribed
officer’ must be interpreted with reference to its consequences, and that the
most significant of those consequences are that prescribed officers are subject
to certain fiduciary-type duties, which are identical to those imposed on
directors.
When determining the meaning of a ‘prescribed officer’, the primary
interpretive imperative must be to find a principled interpretation that is
coherent with the theoretical basis and ambit of the common law fiduciary
principles ‘in accordance’ with which those statutory fiduciary duties apply.
The courts have a long history of applying those common law principles to
various company officers, senior employees and other persons involved in

108
Section 77(2)(a).
THE MEANING OF ‘PRESCRIBED OFFICERS’ UNDER THE COMPANIES ACT 735
the management or control of companies, and there is a significant amount of
case law available in that regard. If they continue to apply those principles
consistently in relation to persons who participate directly in a company’s
management, the definition of a ‘prescribed officer’ should be interpreted as
including only those who, in terms of the common law, have, or would be
held to be, subject to fiduciary duties of the same nature and extent as
directors. This would include all persons whose participation is of a direct
nature and equivalent to that of a director in terms of authority and control.
The position of persons such as shadow directors whose participation is of an
indirect nature has yet to be determined.
Interpreted in this way, the ‘prescribed officer’ is not a new or extended
concept in our law, but simply a legislative attempt to capture, re-label and
regulate the common law fiduciary in statutory form.