Selected challenges related to the business judgement rule

Abstract

This study analyses the South African business judgement rule and its introduction in the Companies Act 71 of 2008 through section 76(4). It investigates why a provision may be regarded as providing a “safe harbour” for directors against a breach of their fiduciary duty to act in the best interest of the company and their duty of care, skill, and diligence. This study reflects on the effect the 2008 Companies Act’s partial codification of directors’ duties in section 76(3) had on the South African business judgment rule. This is of particular importance given that the rule applies only to directors codified fiduciary duty to act in the best interest of the company and their duty of care, skill, and diligence. This study also looks at the development of the business judgement rule internationally and investigates its important role in being a foundational element of corporate governance. It investigates the key theoretical principles behind the rule that have developed internationally. This study aims to enhance readers' comprehension of the duty of care, skill, and diligence under both common law and statutory law in South Africa. This will provide the reader with insight into the business judgment rule and its relevance in South African law. The main aim of this study is to make recommendations in an attempt to improve/refine the formulation of the current section 76(4) of the Companies Act, 2008. These recommendations are based on the comparisons drawn with the jurisdiction of Australia. This study will hopefully enhance the judiciary’s understanding of how to approach the rule should it come under the subject of judicial scrutiny by the courts.