The Potential Liability of the Company Secretary · PDF fileThe Potential Liability of the Company Secretary ... Newlands v National Employment Accident Association, ... Ltd v Fidelis

Experience isn’t Expensive…it’s Priceless.

The Potential Liability of the

Company Secretary

Presented by

Annamarie van der Merwe

27 October 2015


The good……………


Where does the company secretary come

from?

“A secretary is a mere servant to do what he is told to do.”

Newlands v National Employment Accident Association, 1885


And then…………

“A company secretary is a much more important person nowadays than he

was... He is an officer of the company with extensive duties and

responsibilities. This appears not only in the modern Companies Acts, but

also by the role which he plays in the day-to-day business of companies. He is

no longer a mere clerk. He regularly... enters into contracts on [the company's]

behalf which come within the day-to-day running of the company's business. So

much so that he may be regarded as held out as having authority to do such

things on behalf of the company. He is certainly entitled to sign contracts

connected with the administrative side of a company's affairs, such as

employing staff, and ordering cars, and so forth. All such matters now come

within the ostensible authority of a company's secretary.”

Panorama Developments (Guildford) Ltd v Fidelis Furnishing Fabrics Ltd, 1971


And now……….

“The breadth and importance of the role of the Company Secretary has

increased markedly over the past five years. It is a unique role as the

Company Secretary is often neither part of “line management” nor a member of

the Board itself. There are endeavours to move the profession beyond that of

being the “administrative servant of the board” to one which encompasses the

broader role of “board advisor”.

Rt Hon Alun Michael MP, UK, May 2012

“Corporate Affairs Minister Sachin Pilot today said he would support Company

Secretaries in their efforts to gain a bigger say in corporate governance. He

said the Government would move amendments in Parliament for a new

nomenclature for company secretaries – governance professionals – should

the Institute of Company Secretaries of India push for an amendment. He was

speaking at the 41st annual convention of the institute here today.”

Chennai, Nov. 7, 2013


Evolving role – also a local trend

1994: King I Report – Recommended the mandatory appointment of acompany secretary for public companies with share capital.

1999: The Companies Amendment Act No 37 of 1999 – Gives effect to the

King I recommendation and includes various provisions regarding the

appointment, removal and duties of the company secretary. The company

secretary is required to be appointed by the board as a whole, which should

satisfy itself that the appointee has the requisite attributes, experience and

qualification to properly discharge his/her duties.

2002: King II Report - The company secretary should provide a central

source of guidance and advice to the board, and within the company, on

matters of ethics and good governance.


Evolving role – a local trend (continue)

2010: King III Report – The company secretary has a pivotal role to play in

the corporate governance of a company………

2011: The Companies Act No 71 of 2008 – The mandatory appointment of a

company secretary by a public company and state owned company is

confirmed in section 86. Must be a person with the requisite knowledge of,

or experience in, relevant laws. Section 88(1) confirms that the company

secretary is accountable to the company’s board.

2012: The JSE Listings Requirements – The board to annually consider and

satisfy itself of the competence, qualifications and experience of the

company secretary and to include a statement in the integrated report on

the process followed to determine, as well as information that demonstrates

actual competence, qualifications and experience.


Thus, today we have important statutory

duties…..

Duties of company secretary – Companies Act, s88:

(a) providing the directors of the company collectively and

individually with guidance as to their duties, responsibilities and

powers;

(b) making the directors aware of any law relevant to or affecting

the company;

(c) reporting to the company’s board any failure on the part of the

company or a director to comply with the Memorandum of

Incorporation or rules of the company or this Act;

(d) ensuring that minutes of all shareholders meetings, board

meetings and the meetings of any committees of the directors,

or of the company’s audit committee, are properly recorded in

accordance with this Act;

(e) certifying in the company’s annual financial statements whether


Specific statutory duties (continue)

Duties of company secretary – s88:

(e) certifying in the company’s annual financial statements whether

the company has filed required returns and notices in terms of

this Act, and whether all such returns and notices appear to be

true, correct and up to date;

(f) ensuring that a copy of the company’s annual financial

statements is sent, in accordance with this Act, to every person

who is entitled to it; and

(g) carrying out the functions of a person designated in terms of

section 33 (3).


If we are regarded as prescribed officers, then

these statutory duties also need to be noted…

s76: Standard of directors’ conduct (includes alternate, prescribed officer and board committee member) –

- Must not use position or information to gain advantage (also for others) or knowingly cause harm to the company

- Must communicate to board any information unless immaterial to the company or generally available to public or bound not to disclose by legal or ethical obligation of confidentiality

- Must exercise powers and perform functions –

• in good faith and for proper purpose

• in best interest of the company

• with degree of care, skill and diligence that may reasonably be expected from individual carrying out same functions and having general knowledge, skill and experience of that director


And the business judgement rule may then

also apply to us as prescribed officers…..

s76: Standard of directors’ conduct (continue)

- ss(4): Director will have satisfied these obligations if:

• he has taken reasonably diligent steps to become informed about

the subject matter of the judgement; AND

• does not have a personal financial interest in the subject matter of

the decision and no reasonable basis to know of related person’s

interest; OR

• disclosed the interest in terms of s75; AND

• had a rational basis for believing, and did believe, that the decision

was in the best interest of the company.


The bad………..


This could result in potential liability…….

s77: Liability of directors and officers

- Similar definition of director as in s76

- Liable in accordance with principles of common law

relating to breach of fiduciary duty for any loss,

damages or costs sustained by the company as result of

breach of duties contemplated in s75 and s76 (3)(a) or

(b) (“good faith and in best interest of company”); or

- in accordance with principles of common law relating to

delict for any loss, damages or costs sustained by the

company as result of breach of duty contemplated in

s76(3)(c) (“care, skill and diligence”), any provision of

the Act or the provisions of the MoI.


Not to forget the potential for civil liability…..

s218(2), Companies Act of 2008:

“Any person who contravenes any provision of this

Act is liable to any other person for any loss

suffered by that person as a result of that

contravention.”


With real exposure and risk, what do we

do…….??

Know “your stuff” and remain an eternal student

Understand your role and your limitations

Watch your back and don’t expect loyalty

Be meticulous in recording your advices

Build and continuously work on relationships

When in doubt obtain legal advice

Do NOT compromise on your integrity – your

reputation is your biggest asset

Above all, remain professional and humble!!!!


Core competencies for making best use of this

opportunity are….

Professional integrity – earns trust and respect through demonstration of

professional standards

Governance – promotes best practice and enables efficient working of the

organisation

Personal effectiveness – applies knowledge, skill and experience to

maximise performance

Business acumen – improves results by focusing on the organisation’s

objectives, customers and marketplace

Performance management – delivers objectives through effective

development and use of all available resources

Innovation and change – encourages innovation to increase capability,

deliver efficiencies and add value

ICSA, Chartered Secretaries


Conclusion

There can be no doubt that the role of the company secretary has greatly

evolved over the centuries.

From being seen as a mere servant, the company secretary of today faces

nearly the same extent of duties and responsibilities as directors.

While acting as the company’s chief administrative officer, the company

secretary also plays a pivotal role in the proper governance of the company

and has a broad range of corporate governance and compliance duties.

To do all of this, today’s company secretary must have excellent

communication skills, a thorough knowledge of the company’s business and

applicable regulations, strength of character, integrity and above all, a

professional approach.


No argument here…………!

Andrew Kakabadse, Professor of Governance and

Leadership at Henley, supports this view: "While the NED

has been the focus of much attention in the post-financial

crisis period, it is now time for the company secretary role

to come to the fore. Company secretaries are the only ones

with access to all relevant information, know the culture of

an organisation inside out, and are attuned to the reality of

what is happening on the board and in the organisation.

They have only one agenda – what is best for the company

and the board."


And the ugly……..



Thank you!

Annamarie van der Merwe

Managing Director

iThemba Governance & Statutory Solutions

[email protected]

086 111 1010

mailto:[email protected]

Documents

The Potential Liability of the Company Secretary · PDF fileThe Potential Liability of the Company Secretary ... Newlands v National Employment Accident Association, ... Ltd v Fidelis