A director must act in good faith and for a proper purpose, in the best interests of the company, and with the degree of care, skill and diligence reasonably expected of a person carrying out that role with the director's own knowledge and experience. Directors must not use their position or company information for personal gain, must disclose personal financial interests, and must not knowingly allow the company to trade recklessly or while insolvent. These duties are personal and enforceable against the individual.
The common belief is that a company protects you from everything. It protects you from the company's ordinary trading debts. It does not protect you from your own conduct as a director.
The two categories of duty
Fiduciary duties — loyalty
Act in good faith and for a proper purpose. Powers given to you as a director must be used for the reason they were given, not for a collateral purpose. Issuing shares specifically to dilute a shareholder you are in conflict with is the textbook example of a proper power used for an improper purpose.
Act in the best interests of the company. Not in the interests of the shareholder who appointed you, not your own interests, and not the interests of the group. This catches nominee directors constantly — the person appointed by an investor to represent that investor owes their duty to the company, not to the investor.
Do not use your position, or information obtained in it, for personal gain or to knowingly cause harm to the company. Taking an opportunity that came to you as a director and pursuing it personally is a breach, even where the company might not have taken it.
Disclose personal financial interests. Where you or a related person has a financial interest in a matter before the board, disclose it, and generally recuse yourself from the discussion and the decision. Failing to disclose can make the transaction voidable and expose you personally.
Communicate material information to the board. You cannot sit on something the board needs to know.
Duty of care, skill and diligence — competence
The standard is a double one. A director must act with the care, skill and diligence reasonably expected of a person in that position — and of a person with that particular director's knowledge and experience.
The second part is the one that surprises people. A qualified accountant serving as a director is held to a higher standard on financial matters than a director with no financial background. Your own expertise raises the bar for you personally. Being the accountant in the room is not neutral.
"I was not involved in the day-to-day" is not a defence. Non-executive and passive directors carry the same duties. A director who never attends meetings and never reads the accounts is not protected by their absence — they are exposed by it.
The business judgement rule
The Act contains a genuine protection for directors who make a decision that turns out badly.
Broadly, a director is taken to have satisfied the duty of care and the good-faith duties in respect of a decision where they:
Took reasonably diligent steps to become informed about the matter
Had no personal financial interest, or disclosed it and dealt with it properly
Had a rational basis for believing the decision was in the best interests of the company
This is a meaningful protection, and it is conditional. It protects a decision that was informed, unconflicted and rationally grounded. It does not protect a decision that was none of those things and merely happened to be well-intentioned.
The practical implication is documentary. The three conditions are things you either can or cannot demonstrate after the fact. Board minutes recording what information was considered, what alternatives were weighed, what interests were disclosed and why the decision was taken are what makes the rule available to you. A verbal decision in a corridor leaves you with nothing to point at. See what statutory records must a company keep.
Reckless and insolvent trading
The obligation most likely to cause real personal liability in a small company.
A company must not carry on business recklessly, with gross negligence, with intent to defraud, or for any fraudulent purpose.
Trading while insolvent — continuing to incur debt when the company cannot pay what it already owes — is the situation most South African SME directors face at some point, and it is often handled badly out of optimism rather than dishonesty.
Where a director knowingly participates in reckless trading, they can be held personally liable for the resulting loss, and a court can declare them delinquent.
What you should actually do when the company is in distress:
Get the numbers, immediately. You cannot assess solvency on a feeling
Assess both tests. Can the company pay its debts as they fall due — liquidity? Do the assets exceed the liabilities — solvency?
Stop incurring new credit you do not have a reasonable basis to believe you can repay. Taking a customer deposit for work you know you cannot fund is where this turns serious
Take advice on business rescue, which exists for exactly this situation and is not an admission of failure
Record everything. The board's assessment, the information relied on, the decisions and the reasoning. If it is later examined, this file is the difference between a defensible judgement and reckless trading
Watch the tax. Directors can be held personally liable for certain outstanding taxes, and PAYE and VAT withheld from others attract particular scrutiny
The instinct to trade through it quietly is the one that creates personal liability. See can a director be held personally liable.
Where breaches actually arise in small companies
Not in boardroom drama. In ordinary habits.
Company money used personally, without a properly recorded loan account and without shareholder approval where it is required.
A dividend declared without applying the solvency and liquidity test, or without a resolution recording that it was applied.
A contract signed with a company the director also owns, without disclosure and approval.
An opportunity taken personally that came to the director through the company.
PAYE and VAT collected and not paid over, used as working capital.
Financial statements approved without being read.
A co-director acting alone on matters requiring a board decision, with the other director aware and passive.
None of these feel like breaches at the time. They feel like running a small business. They are examined very differently when the company fails or the shareholders fall out.
Practical protection for a director
Attend and record. Meet as a board, even informally, and minute the decisions. Two directors and a documented decision is a governance system.
Disclose everything, early. Any personal interest, however obviously fine. Disclosure costs nothing and its absence is what makes a transaction attackable.
Read the numbers. Monthly management accounts, and know the solvency and liquidity position. You cannot discharge a duty of care over a business you do not have figures for.
Keep loan accounts clean. Formal, recorded, and where required, approved.
Consider directors' and officers' liability insurance, particularly where there are outside shareholders or the business carries meaningful risk. Note that it generally excludes fraud and dishonesty — it covers mistakes, not misconduct.
Take advice when the company is in distress, early, and record that you did.
Resign properly if you resign, in writing, and confirm the CoR39 was actually filed. A director who resigned but remains on the register is still held out as one. See how to add or remove a director at CIPC.
Frequently asked questions
What are the legal duties of a company director in South Africa? To act in good faith and for a proper purpose, in the best interests of the company, and with the care, skill and diligence reasonably expected of a person in that position with that director's knowledge and experience. Directors must not use their position or company information for personal gain, must disclose personal financial interests, and must not allow reckless or insolvent trading.
What is the business judgement rule? A protection for directors who took reasonably diligent steps to become informed, had no undisclosed personal financial interest, and had a rational basis for believing the decision was in the company's best interests. It protects informed, unconflicted decisions that turn out badly — not uninformed ones.
Can a director be personally liable for company debts? Not for ordinary trading debts of a solvent company. But a director who knowingly participates in reckless or insolvent trading, breaches their duties, or acts while disqualified can be held personally liable for the resulting loss, and directors can be held personally liable for certain outstanding taxes.
Does a director's own expertise change the standard they are held to? Yes. The standard is the care, skill and diligence reasonably expected of a person in that position and of a person with that director's particular knowledge and experience. A qualified accountant is held to a higher standard on financial matters than a director without that background.
Are non-executive or passive directors held to the same duties? Yes. The duties attach to the office, not to how involved the person chooses to be. Not attending meetings or not reading the accounts is not a defence — it is evidence of failing the duty of care.
What must a director do if the company cannot pay its debts? Get current figures, assess both solvency and liquidity, stop incurring credit there is no reasonable basis to believe can be repaid, take advice on business rescue, and document the board's assessment and reasoning throughout.
Must a director disclose a personal interest in a transaction? Yes. Where the director or a related person has a financial interest in a matter before the board, it must be disclosed, and the director generally recuses themselves. Failure to disclose can render the transaction voidable and expose the director personally.
Does a director owe duties to the shareholder who appointed them? No. The duty is owed to the company. A nominee director appointed by an investor must act in the company's best interests, which is a distinction that regularly causes difficulty in practice.
The protection is the paperwork
Almost every director who ends up personally exposed was acting in good faith. What they could not produce afterwards was evidence that they were informed, that they had disclosed, and that they had a rational basis for the decision.
Smartbook maintains board minutes, resolutions and statutory records for clients, and produces the monthly management accounts directors need to discharge the duty of care.
See our company secretarial services →
Last reviewed: 28 July 2026. Written by the Smartbook team — SAIPA and SAICA accredited, SARS registered tax practitioners. Director duties, liability, reckless trading and business rescue are legal matters governed by the Companies Act 71 of 2008 — where the company is in distress or a specific decision is in question, take legal advice immediately. General guidance, not legal advice.
Primary sources: Companies Act 71 of 2008 · CIPC · SARS · Tax Administration Act 28 of 2011