Nicolaas van Wyk, Technical Executive of the SA Accounting Academy, with reference to the new Companies Act, highlighted the following cases that should be used as a warning signal to all directors and their accountants:
- Directors found guilty of contravening the Consumer Protection Act. Company fined 10% of its annual turnover and CEO sentenced to 12 months in jail or a R1 million fine. See www.itnewsafrica.com
- Director of company found guilty of reckless trading and held personally liable for debt of Company - McLuckie v Sullivan 2011 (1) SA 365 (GSJ)
- Members of close corporation held personally liable for debts of close corporation. Statutory and bookkeeping requirements not complied with and members displaying consistent disregard of wellbeing of close corporation - Ebrahim and Another v Airport Cold Storage (Pty) Ltd 2008 (6) SA 585 (SCA)
- These and other cases show that directors of companies are facing increased liability. Directors should know what their duties are and how to avoid liability.
Accountants and their clients need to be aware of the circumstances in which they can be held personally liable for a failure to adhere to the obligations imposed upon directors by the new Companies Act. Companies that trade under insolvent circumstances, recklessly, or without keeping the appropriate records and books may be exposing themselves to being personally liable for the debts of a company.
Directors rely on their accountants and auditors to inform them about the company's health. Accountants should know when and how to:
- Identify the warning signs
- Assist directors with taking immediate legal and financial advice
- Advise their director on how to cease trading and consider placing their companies either into business rescue or liquidation.
A failure to do so timeously could result in such conduct being deemed to be reckless, or possibly a claim of fraud by creditors.
The SA Accounting Academy, together with Eric Levenstein from Werksmans are running seminars to empower you and ensure that you know:
For more information contact Nicolaas van Wyk of the SA Accounting Academy on 011 662 2095 or email email@example.com
- How to identify and advice on directors duties and liabilities
- How to avoid being classified as a deemed director – this will make the accountant liable for the clients debts
- How to apply the Business Rescue and Insolvency checklist to identify the warning signals for looming financial distress and possible insolvency.