Business and affairs : the widening of the board of director's powers

Abstract

In Company Law there are two bodies or organs of the company that have the power to make decisions regarding the management of the company. These two bodies are the shareholders in the general meeting and the board of directors. The exact nature of the relationship between the directors and the company is not easily described. While directors have been said to be agents, trustees or even managers of a company, none of these fully describe the position with total accuracy. The nature of the position of the director is best described as being sui generis, and having similarities to each of those in certain circumstances. The Companies Act 71 of 2008 gives a new expanded definition of “director” which clarifies who is considered to be a director. The Common Law initially considered the members in the general meeting, to be the company and any resolution by them was considered to be a corporate act. The constitutional documents of the company were considered to be a contract between them and the majority rule was enforced. The directors would have their power delegated to them. This position changed in 1906 after the case of Automatic Self-cleansing Filter Syndicate Co Ltd v Cunninghame [1906] 2 Ch 34 (CA). Here the court held that there was a division of power, according to the constitutional documents, between the shareholders in the general meeting and the board of directors. The general meeting could not interfere with those powers of the board, except if they changed the articles of association by special resolution. The shareholders had residual and default powers and were the ultimate organ of the company. The position of the board of directors in Companies Act 61 of 1973 was given in Article 59 of Table A. Here the board was given the power to manage the business of the company. It was found that this included the power to derive a profit and stop trading in certain circumstances but did not include the power to liquidate the company. The board’s powers, according to Article 59 of Table A, were still subject to the shareholders in the general meeting. This showed that the shareholders still remained the ultimate power in the company. The division of powers in Company Law has been drastically changed by Section 66(1) of the Companies Act 71 of 2008. The board of directors is now statutory empowered to manage not only the business of the company, but also the affairs. It was stated in the case of Ex parte Russlyn Construction (Pty) Ltd 1987 (1) SA 33 (D) that affairs had a wider meaning than business and could include the power to liquidate the company. Delport states, with reference to Canadian Law, that the word “affairs” means the internal dealings of a company as well as the existence of the company. The statutory empowerment of the board, and inclusion of the word ‘’affairs’’ in section 66(1), changes the division of powers in the company. The board of directors now has original powers and is the ultimate power in the company being able to bring an end to the very existence of the company. The full effect of this change is one which will only be revealed in years to come as case law around this matter develops.