September 22, 2025
Corporate Commercial Law
Assessing the duties and liabilities conferred upon prescribed officers: what this may mean for you
The Companies Act of 2008 (“the Act”) makes provision for persons who play an executive role within the company but are not officially appointed to the board of directors recognized by the Companies and Intellectual Property Commission (“CIPC”). Resultantly, in addition to the description of a director under section 66(1) of the Act—which defines a director as a member of the board responsible for exercising the powers and performing the functions of the company—the definition extends to include alternate directors or any individuals performing equivalent functions, regardless of title. In a number of sections throughout the Act, prescribed officers are included within the definition of a director thereby regulating both parties on equal footing, which is feasible given the analogous nature of their roles.
However, a problem may arise when determining who is regarded as a prescribed officer which raises the even more pertinent question of the legal ramifications of adopting this role. This article seeks to provide clarity on the identification of a prescribed officer along with the duties and liability attached to such persons.
Defining a prescribed officer
Unlike directors formally recognised by the CIPC, prescribed officers are not officially appointed to the board; rather, their status is inferred from the degree of control they exercise over the company. Regulation 38 of the Act defines a prescribed officer as a person who, though not appointed as a director, exercises or routinely participates to a material degree in the general executive control and management of the company or a significant portion of its business and activities. Given the wide definition of a prescribed officer, it becomes increasingly important to identify the specific duties and liabilities flowing from the position.
Duties of prescribed officers
Section 76 of the Companies Act expressly includes prescribed officers within the definition of directors for purposes of setting the expected standard of conduct. Although prescribed officers are not formally appointed to the board, they are required to adhere to the same standards as appointed directors, thereby fostering accountability and ensuring they discharge their responsibilities with due care. In terms of section 76(2)(a), prescribed officers may not use their position to gain an advantage for themselves or any person other than the company or its wholly-owned subsidiary, nor may they knowingly cause harm to the company or any of its subsidiaries.
Section 76(2)(b) further obliges prescribed officers to inform the board, at the earliest opportunity, of any relevant information they acquire unless they reasonably believe that such information is immaterial to the company; or is generally known and available to the public or other prescribed officers; or is subject to legal or ethical confidentiality obligations. Section 76(3) codifies the common-law fiduciary duties of directors which apply equally to prescribed officers. In fulfilling their functions, prescribed officers must act in good faith and for a proper purpose, prioritise the best interests of the company, and exercise the degree of care, skill, and diligence that may reasonably be expected of a person carrying out those functions.
Liabilities of prescribed officers
It comes as no surprise that a breach of these standards attracts liability on the part of prescribed officers, which are set out in section 77 of the Act. Section 77(2) of the Act provides that a breach of a prescribed officer’s fiduciary duties subjects such officer to liability for the loss, damage or costs sustained by the company due to the breach. Section 77(2)(b) further renders prescribed officers delictually liable for any loss, damage, or costs suffered by the company arising from a failure to exercise reasonable care and skill in the performance of their functions, as well as for breaching any provision of the Act or the company’s Memorandum of Incorporation (“MOI”).
Section 77(3) attaches liability to the prescribed officer for any loss, damage or costs sustained by the company on account of the officer having acted in the name of the company or signing anything on behalf of the company without the due authority to do so; the prescribed officer having allowed the company’s business to continue knowing that such activity constitutes reckless trading, is negligent in nature and was taken for fraudulent purposes as envisaged in section 22(1) of the Act; the prescribed officer being a party to conduct or omission knowing that such conduct or lack thereof is aimed at defrauding a creditor, an employee or a shareholder; the prescribed officer consenting to the publication of false or misleading written or verbal communications; and lastly, the prescribed officer being a party that votes in favour of unlawful transactions. Evidently, the Act covers a wide scope of behaviour that can attract liability on the part of prescribed officers which ensures such individuals conduct themselves professionally, ethically and with care.
Recourse available for third parties
Section 77 of the Act may be a comprehensive section detailing the ways in which companies may hold its prescribed officers personally liable for a breach of their duties, however the provision does not provide for the recourse available to third parties in such an event. A reading of the provisions within the Companies Act reveals how the Act maintains the separate legal entity of a company. Only in extenuating circumstances will a court use its discretion in deciding that a prescribed officer should be held personally liable for the harm caused to a third party which is a principle known as piercing the corporate veil as contemplated in section 20(9) of the Act. In Knoop NO and Others v Birkenstock Properties (Pty) Ltd and Others the court stated that “the corporate veil may be pierced where there is proof of fraud or dishonesty or other improper conduct in the establishment or the use of the company or the conduct of its affairs and in this regard it may be convenient to consider whether the transactions complained of were part of a “device”, “stratagem”, “cloak” or a “sham.”’
Evidently, the threshold for piercing the corporate veil is extremely high, and our courts have taken a conservative approach in the application of this principle thus upholding the separate legal entity of a company. Nevertheless, third parties may apply for the delinquency of prescribed officers in accordance with section 162(5)(c)(iv)(aa) and section 162(5)(c)(iv)(bb) in the event of negligence and a breach of the officer’s duties. In the unreported case of Metro Minds (Pty) Limited v Pienaar, the court held that a breach of section 22(1) of the Act serves as grounds for an application to declare a director [or prescribed officer] delinquent.
Conclusion
Although prescribed officers are not formally appointed as members of the board, they play an integral role in a company’s management. Accordingly, the Companies Act places them on the same footing as appointed directors, conferring on both groups the same duties and liabilities towards the company. This ensures that prescribed officers cannot exploit their unofficial influence and requires them to operate within defined parameters. However, the Act’s failure to expressly set out how third parties may hold prescribed officers liable for breaches of their duties creates a challenge for outsiders seeking adequate legal recourse.
At MVR Attorneys, we pride ourselves on being experts in company law related matters. We have a team of experienced attorneys who can assist and provide advice in corporate commercial law. Please feel free to contact us telephonically on 011 021 7000, alternatively through my email address malaika@mvrlaw.co.za.
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